Zero-based budgeting is a sustainable cost philosophy and bottom-up approach to rigorously reset the cost base of an organization; identifying inefficient spend and resource usage that can be freed up and better utilized elsewhere. Originating in the Consumer Goods industry, this growth enabler has gained momentum across industries as companies seek to maximize value for their businesses and drive sustainable change.
Why are so many companies talking about zero-based budgeting?
Zero-based budgeting uncovers inefficient spend, allowing companies to reinvest in long-term sustainable growth opportunities—like innovation and product development—by resetting companies’ cost base and ensuring it’s kept lean in the long-term. It’s about making smart choices on where to spend. Zero-based budgeting is also a mind set and cultural change that calls for new roles, responsibilities, and processes. Success depends on accountability, and leadership needs to be invested in the outcomes.
Zero-based budgeting is not a one-time effort, and it isn’t right for every organization. Before choosing whether or not zero-based budgeting is the best approach for your company, be sure to weigh the following advantages and disadvantages:
When done right, zero-based budgeting can significantly reduce costs, and improve efficiency and competitiveness. It has the potential to prevent takeovers, identify and grow top performers, and instill a cost-conscious culture throughout the organization.
Zero-based budgeting has a reputation of being notoriously aggressive and cutting costs to a minimum while negatively impacting employee morale. To avoid common pitfalls and such extreme behavior, it is critically important for a company to find the right balance and execution approach to implement a zero-based mindset and methodology in a successful and sustainable way.
There’s a smarter approach to zero-based budgeting. BCG’s nine key steps for zero-based budgeting strike a balance between cost reductions and growth for your sales organization.
Incremental reductions won’t cut it in today’s business environment. CPG companies must fundamentally change the way they manage their supply chain costs.
Zero-based budgeting is more than a one-off cost reduction; it’s a method for transforming your business. Learn how BCG can help.
These programs can deliver impressive savings, but the overriding goal should go beyond cost cuts to enable the company’s overall growth agenda.
To prime your white-collar processes for digital (or any) transformation, drill down to the process essentials.
When zero-based budgeting uses saved money to reinvest in a company correctly, such as towards promotions and marketing, it can be a tool for success.
A practical approach to cost cutting can yield savings of up to 80%.
Managing Director & Senior Partner
New York
