Successful zero-based budgeting is far more complex than simply ignoring last year's budget—it represents a fundamental shift in the company's overall approach to cost management. Tracy Thurkow, a partner with Bain's Results Delivery practice, discusses a few ways ways to rethink zero-based budgeting as a capability that both requires and enables culture change.
Read the transcript below.
TRACY THURKOW: [Zero-based budgeting] is often just as much about culture change as it is about changing the budget. If you go into it believing that you simply have to start next year's budget at zero, you'll probably not be prepared for the mindsets and behaviors that the cost management discipline requires. At its best, ZBB should feel like a team sport, with you and finance and other business leaders on the same team. And that can be pretty different than how budgeting is done today.
To achieve this, you need to believe a couple of things. First, you need to believe that ZBB is more than a mechanical exercise driven by finance. It's really about you digging into the details and understanding the trade-offs, so that you can help the organization put every dollar to its best use.
You also have to believe that greater standardization and greater transparency are worth it. You will find savings to unlock if you look across the organization. You've got to figure out how to inspire people to achieve those savings by putting them to better use than what the money is being spent on today. So as you contemplate ZBB, my advice is to put as much energy into the culture change, developing those mindsets and behaviors as you do, into developing the financial benchmarks and using financial tools and analysis, and to make sure that the people who are catalyzing the culture change are recognized and supported for doing so.