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ACCENTURE STRATEGY


June 27, 2018
Leaders are taking their vitamin Z
By: Tina Schimmenti

There’s a misconception that companies pursue zero-based programs as an antidote to a crisis. These efforts are perceived to slash costs to meet external pressures—be it industry disruption, private equity activity, activist investors, and/or M&A scenarios.

This is far from the truth. Adopting a zero-based mindset (ZBx) helps companies identify non-working money to reinvest in growth. Leading companies across all industries are proactively embracing ZBx to boost their competitiveness and position themselves for longevity.

Accenture Strategy recently studied leaders in zero-based thinking, and found that only 8 percent of companies say activist investors were a factor for implementing their program. Only 14 percent cited M&A. Fewer than 50 percent were influenced by competition or internal slow growth. The vast majority (96 percent) are instead implementing zero-based programs to improve profitability and prepare for the future,1 perhaps knowing that 75 percent of the S&P 500 will be replaced within 10 years.2 As Jack Welch famously advised, “change before you have to.”

These leaders are not implementing ZBx in response to any imminent threat, as 81 percent of executives from a second Accenture Strategy study are confident they will achieve their projected growth rates for 2020.3 Companies instead have realized they can reap significant benefits (on average $260 million annually, with 91 percent of programs meeting or exceeding targets4) through a willingness to transform the organization’s mindset and challenge their employees to ask themselves “what will we need for the future” versus, “what do we have today?”

If it ain’t broke…. why fix it?

Implementing a zero-based program when there is a lack of a visible burning platform can be a significant challenge for leaders. How do you drive an organizational commitment to change when near-term survival is not the goal?

There are three actions an organization must take to enable successful adoption of proactive zero-based programs:

  1. Design for your destiny. Successful ZBx programs design not just for what is needed in the current budget year, but for where the business and industry are headed. One commodity-based consumer goods company recently launched a ZBx program in anticipation of creating new value-added products outside of their current core business. As a result, they identified ways to significantly reduce costs in non-differentiating activities and redirect spend to R&D, marketing, and logistics in preparation for product and geographic expansion. The investment in growth created an organizational passion and excitement for endorsing and embracing ZBx.

  2. Make zero-basing a habit you can’t quit. Contrary to common belief, zero-based organization design is not a one-time event to right size the existing structure and set a new baseline for perpetuity. All zero-based programs should be refreshed on an ongoing basis, year over year to identify the investment levels, skills, and capabilities needed for the future. The organization’s culture must understand and embrace this “new normal” and avoid settling into a status quo.

  3. Understand what matters to YOUR company. It is not a one size fits all. ZBx programs are all about focusing on the right work and investments that truly matter to the customer, including both external and internal customers. ZBx choices should be thoughtfully applied to your organization based on its specific needs.

    As an example, reducing travel spend is one of the most common “quick win” measures taken by nearly all companies pursuing traditional ZBB programs. One consumer goods company recently recognized that frequent international travel was an essential component to maintaining their collaborative and consultative culture across borders, and optimizing performance within the global supply chain. Rather than implementing restrictions that could impede their differentiating practices, the organization identified ways to save in other areas that had less of an impact on their workforce.

When implemented correctly, ZBx can help companies make a Wise Pivot to the New by streamlining today’s core operations and reinvesting in tomorrow’s new products and solutions. Creating strong, healthy companies that outperform the competition. Don’t wait until a cure is needed.

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1 Accenture Strategy, “Beyond the ZBB buzz," 2018.
2 "Creative Destruction Whips through Corporate America: An Innosight Executive Briefing on Corporate Strategy,” Innosight, June 2017.
3 Accenture Strategy, “Revenue Growth: Perception or reality?”, 2018.
4 Accenture Strategy, “Beyond the ZBB buzz," 2018.

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