Video
Zero-based budgeting is more than a nuts-and-bolts cost-reduction exercise. It's about driving cultural change and organizational simplification throughout a business. Jason Heinrich, a partner with Bain's Performance Improvement practice, shares the five critical elements for successfully implementing zero-based budgeting.
Read the Bain Brief: Betting on Zero-Based Budgeting's Trifecta
Read the transcript below.
JASON HEINRICH: Zero-based budgeting is booming. In a recent global Bain survey, nearly four times as many companies said they were anticipating initiatives. Why? Because zero-based budgeting is fundamentally a superior system for cost management and reallocating scarce resources to their most efficient and effective use in service of your strategy.
It's hard to believe that in some form, a zero-based budgeting system is not right for everyone. But less than half of all large companies who installed a zero-based budgeting capability reported success. Taking the right approach is critically important. Zero-based budgeting is fundamentally about behavior change, about building an organizational capability, a new set of disciplines for cost management.
It's not just a nuts and bolts budgeting exercise. When companies make a more comprehensive effort to drive culture change, to build that organizational capability, the results improve dramatically. The most successful companies we see also pair the zero-based budgeting tool and capability with an approach to organizational simplification we call zero-based redesign. By creating an environment that decreases the distance between the C-suite and the front line, companies can achieve triple the gains: higher profitability growth, higher revenue growth and better employee engagement.
We call this the zero-based budgeting trifecta. We counsel clients to think about five critical elements for success. The first is leadership alignment around the bold ambition for cost transformation and culture change. Number two, linking the program very explicitly with the strategy. Not just in superficial ways, but in very clear terms for how resources will be reallocated to those strategic priorities.
The third is about creating the bespoke program—tuning the dials to make the zero-based budgeting program work within your organization and culture. And the fourth aspect is really taking the holistic approach to simplifying the business, cross-functional processes and the organization. Finally, the fifth element is creating a program that is inspiring to employees through greater ownership and empowerment.
Read the Bain Brief: Betting on Zero-Based Budgeting's Trifecta
First published in Januar 2017