Accenture Strategy conducted the largest-ever research initiative on zero-based thinking, which has evolved from a budgeting technique to an invaluable leadership tool that aligns the strategic priorities of the whole organization.
With over 91 percent of zero-based budgeting (ZBB) programs having met or exceeded their targets—along with the need to fund growth and pivot to digital business models—it’s no wonder there’s so much talk about zero-based mindset.
Only two percent of the companies surveyed had initiated ZBB before 2011. Since 2013, ZBB adoption has exponentially grown by 57 percent every year. Companies’ real-life experiences shed light on ZBB results, implementations, challenges—and what to expect next.
COLD HARD CASH
Most companies have ongoing cost intervention programs. But the results pale in comparison to what companies are getting from ZBB. Our surveyed company set is seeing average cost reductions of 15 percent and average bottom-line savings of more than $260 million annually.
The research also answers a “million (or billion) dollar question” about ZBB. Where are companies redirecting cost savings to support the corporate strategy? While nothing emerged as common practice around who owns the reinvestment decisions, companies are redirecting savings into growth initiatives (52 percent), digital (31 percent), other capabilities (29 percent) and the bottom line (15 percent).
As one pharmaceuticals executive explains, “We reinvest one-third into our growth initiatives, one-third in the salaries of our people, and one-third back to shareholders—and we see this as a winning formula.”
How is ZBB applied by companies across the P&L? 92% General and administrative (G&A) expenses - 92 percent Sales and marketing - 52 percent Direct and indirect labor - 43 percent Logistics and cost of goods sold (COGS) - 42 percent
FAR AND WIDE
No two ZBB programs look exactly the same, but there are trends in how companies are implementing them.
In addition, the research reveals that delaying a ZBB implementation by even one week could have an opportunity cost of $5 million to a global company.
NO PAIN, NO GAIN
The hype surrounding ZBB has fueled the idea that it is a silver bullet for all of companies’ cost management woes. The reality is that, like any major transformation, ZBB is not an easy fix. Anyone can do easy. Only those resilient enough to go through hardship will thrive. Companies report that cultural buy-in (67 percent), change management (41 percent) and data visibility (33 percent) are the hardest obstacles to overcome.
Companies are investing to evolve their cultures. Change management initiatives include widely-accepted tactics like communication (77 percent) and training and workshops (62 percent). Targets and incentives (15 percent) and role modelling (21 percent), which focus on truly changing behaviors, are less common.
Unlike one-time, high-level percentage cuts, ZBB is not a budgeting exercise that gets completed and everyone moves on. It is an act of culture. A mindset that becomes so ingrained in how people think and work that people do it naturally. Like breathing.
ZBx: THE FUTURE
OVER THE HORIZON
This research offers a compelling picture of the reality of ZBB today. But how will the best in the world take it to the next level? This is what’s next.