This article originally appeared on Livemint.com.
At a time when the business landscape is rapidly transforming—shaped by macroeconomic headwinds, digitalization and activist investors seeking more bang for the buck—many companies are adopting cost-cutting initiatives to stay ahead. A recent global Bain and Co. survey found that a large number of companies are deploying zero-based budgeting (ZBB) to address the growing pressure to reduce costs. In the Asia-Paciﬁc region, for example, 80% of executives interviewed for a 2015 report said they expected to implement ZBB programmes—a huge jump from 13% a year earlier. Globally, four times as many companies were anticipating such initiatives.
As CEOs kick off the budgeting cycle for fiscal year 2019 in the next couple of months, they may want to step back and assess their organizations through a ZBB lens. We are already seeing an increased level of interest in ZBB from Indian clients across sectors including consumer products, healthcare, chemicals, agribusiness and automotive.
In Bain’s survey, companies that used ZBB as part of a comprehensive effort were nearly twice as likely to say they were satisﬁed or very satisﬁed with the results, compared with their counterparts that pursued limited initiatives. In our experience, the most successful outcomes result from using ZBB in concert with an approach to organizational and business process simpliﬁcation that we call zero-based redesign (ZBR). In contrast, companies that deploy ZBB solely for the lure of cost-cutting run a double risk: They can cut into growth muscle and hurt the customer experience.
A look at common zero-based budgeting mistakes and how to avoid them.
In the same way that ZBB forces companies to scrutinize every dollar of spending, ZBR enables companies to radically revamp their operating models by analysing which activities should be performed, and at what levels and frequency. It helps them examine how they could perform these activities better—potentially through streamlining, standardization, outsourcing, offshoring or automation. We’ve found that, when it comes to taking (and keeping) cost out, zero-basing the work and the operating model are as important as zero-basing the budget. If you do not remove layers and streamline decision accountabilities, complexity and work come back.
Jason Heinrich is a partner in Bain’s Chicago ofﬁce and a leader in the ﬁrm’s performance improvement practice. He leads Bain’s zero-based budgeting (ZBB) capability globally. Deepak Jain is a partner in Bain’s New Delhi office. He co-leads Bain India’s industrial goods and services practice and is an expert in Bain’s zero-based redesign and ZBB capabilities.