Only about 10 percent of company cost transformations achieve their goals. Hernan Saenz, who leads Bain's Global Performance Improvement practice, discusses how businesses can change their culture—and use tools like zero-based budgeting—to increase their odds of success.
Read the transcript below.
HERNAN SAENZ: Most cost transformations tend to fail. They start off with tremendous momentum. And then the momentum tapers off. In fact, only about 10% of cost transformations achieve their goals. Why does that happen? Well, most companies plan for installing changes versus realizing the changes and then building a repeatable model.
What does it actually take? First, you have to change the underlying processes of a company. If you don't change those processes, the cost will roll back up. Of course, once you change the processes, you have to change the metrics, the incentives and ultimately the operating model.
Second, you actually have to change how you think about cost transformations. The storyline, the communication. It's not an event. It's not a journey.
Cost transformations are about changing the way you run a business. And so they are about changing the culture. Of course, in addition to communications, storyline, changing processes, metrics, incentives, there are actually amazing tools out there. One of the really helpful ones is zero-based budgeting.
A ZBB management system can allow you to, in a scalable way, manage every single cost of the company every year. The most important message is to not treat it as an event, do not even treat it as a program, treat it as a way of running your business over time.
Zero-based budgeting can counteract common misperceptions and lead to positive changes in the organizational mindset.