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OVERVIEW

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Digital has challenged the way business is run down to its core. Markets are characterized by rapid change—where new rivals enter seemingly from nowhere, offering paradigm-shifting products and services. It's anything but "business as usual."

But most companies today base their cost management approaches on exactly that—setting budgets based on what happened last year. It's time to reimagine cost structures based on what's needed in this new, disruptive environment. Using zero-based budgeting (ZBB), basing resource demand on the now instead of last year's performance, frees up capital which can then be used on activities that ultimately boost growth.

VIEW REPORT

KEY FINDINGS

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Zero-based budgeting can fuel growth by removing waste and freeing up capital that can then be turned to more lucrative activities. At its core, zero-based budgeting is about agility. And it’s about getting companies to run in a more cost-efficient way, to make them more competitive. A common mistake that occurs when it comes to unleashing cost-cutting: piecemeal approaches focused mainly on overhead and cost of goods sold.

These efforts only scratch the surface and risk causing the company to lose valuable, differentiating capabilities. Companies need to focus on their core goals. Funds that are not working towards those goals should be shifted into activities that drive growth. Zero-based budgeting can help performance: It is a way to assist with driving growth. Indeed, without zero-based budgeting, it’s likely the money needed to grow just wouldn’t be there.

RECOMMENDATIONS

Achieving profitable and sustainable growth through zero-based budgeting hinges on a few things: having an effective blend of cultural change, business process improvement and technology deployment—underpinned by a deep understanding of industry dynamics. 

Companies need to create better forensic visibility into spending, and then make savings sustainable through better accountability, process improvements and culture change. And most importantly, organizations should closely link spending reduction with their strategic growth plans.


Strategic cost reduction can only be successful if the savings are reinvested in areas of the company to drive growth, innovation, improved productivity, better customer experiences and so on.

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