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Smart Zero-Based Budgeting

Zero-based budgeting (ZBB) is a sustainable cost philosophy and a continuous, bottom-up approach for rigorously resetting the cost basis, which frees up capital to reinvest for growth. This growth enabler is gaining momentum in a CPG industry burdened by cost pressures.

Why are so many CPG players talking about zero-based budgeting?

Zero-based budgeting uncovers cost savings for companies, allowing them to reinvest in long-term sustainable growth opportunities—like innovation and product development—by resetting companies’ cost basis and ensuring it’s kept lean in the long-term. It’s about making smart choices on where to spend. Success depends on accountability, and leadership needs to be invested in the outcomes.

The Advantages and Disadvantages of Zero-Based Budgeting

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:

Advantages

When done right, zero-based budgeting can significantly reduce costs, and improve efficiency and competitiveness. It has the potential to prevent take overs, identify and grow top performers, and instill a cost-conscious culture throughout the organization.

Disadvantages

Zero-based budgeting has a reputation of being extremely aggressive to bleed out an organization, and negatively impacting employee morale. It is extremely important for the company to find the right balance to operate in a successful, sustainable way.


How CPG Players Can Implement Zero-Based Budgeting

There’s a smarter approach to zero-based budgeting. .

  1. Vision. Understand motivation, determine ambition, link to strategy, and design a tailored zero-based budgeting program.
  2. Transparency. Create full transparency with detailed baseline along value drivers and a rigorous analysis of cost drivers.
  3. Governance. Introduce dual cost accountability, support decision-making system, and enable people.
  4. Target. Lock in business model choices, prioritize saving areas, and set smart targets.
  5. Zero-Based Budget. Create granular packages from the bottom up, challenge the budget rigorously, and integrate targets.
  6. Monitoring. Set clear system for tracking costs and how to address variances and the reallocation of funds.
  7. Execution. Devise action plans and milestones, and implement and follow a variance/reallocation process.
  8. Reinvestment. Reinvest a significant part of savings in growth.
  9. Culture. Establish culture of cost ownership with strong performance management, then manage and communicate change.

BCG’s EXPERTS IN ZERO-BASED BUDGETING

David Webb

Senior Partner & Managing Director

Philadelphia

  • North America coleader, BCG TURN—turnaround, restructuring, and transformation
  • Consumer and retail
  • Large-scale change
  • Food and beverage
Karin von Funck

Partner & Managing Director

Munich

  • Fast-moving consumer goods
  • Digital transformation
  • Zero-based budgeting
  • Trade spend
Alicia Pittman

Partner & Managing Director

Washington, DC

  • Consumer packaged goods
  • Growth strategy
  • Zero-based budgeting
  • Mergers and acquisitions (M&A)
Hemant Kalbag

Partner & Managing Director

New York

  • Retail profitability improvement and turnaround
  • Zero-based budgeting
  • Category management and store operations
  • Broad-based cost transformation
Jeff Gell

Senior Partner & Managing Director

Chicago

  • Corporate portfolio strategy
  • Brand strategy in multiple categories
  • Cost reduction programs
  • Pricing architecture and trade spending redesign
Consumer Products
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