Reimagining Zero-based Budgeting: Strategically Managing Costs to Drive Competitive Advantage and Growth
A new approach to ZBB: Closed-Loop Cost Management
Today companies are under a lot of pressure to improve results with SG&A costs rising and EBITDA decreasing. At the same time, they face increasing complexity as they operate across many different markets and channels. New and ever stricter regulations and more demanding customers force companies to add people to manage this complexity, thus raising overheads. Developed markets are returning to growth, but competition remains fierce. In parallel, companies are investing heavily to capture a share of emerging markets. This requires companies to increase their agility and closely manage margins.
The main challenge is how to manage all of this complexity while staying agile and competitive. Zero-based budgeting (ZBB) is a new approach that enables companies to be fit to compete and win in new markets. Its focused on taking costs out of areas with little impact or differentiation and spending in areas that drive growth, such as product innovation, marketing or sales campaigns to reach new customers, or new market entry.
Companies have been working to cut overhead costs for years, but have not been able to make it sustainable over time. After one to two years costs have rose again. Getting full visibility on spendacross business units and geographies to a detailed leveland determining how the money can be spent more wisely to add value and drive growth will be what separates the winners from the losers.
Companies must understand that the challenge is not to strip out cost for the sake of doing so, but to make it sustainable over time, so as to operate more profitably, redirect resources to driving growth, and turn cost management into a competitive advantage. That requires embedding cost management into the companys culturewith new processes that continually identify and realize efficiencies.
DRIVERS FOR CHANGE DRAWBACKS OF CURRENT APPROACHES
EMBEDDING ZERO-BASED BUDGETING
FOCUSING ZBB ON CLOSED-LOOP COST MANAGEMENT
HOW THE ZBB APPROACH DRIVES VALUE
Our approach is comprised of 3 steps
Companies reduce cost in categories that provide little impact, and spend it in areas that drive growth.
It involves a closed loop process: A system of cost control that continuously challenges the companys cost levels in order to give the business the best possible chance of competing effectively.
Companies should quickly unlock money up front through rapid cost takeout
Challenge is to create visibility around what the company spends
Go through spending line by line
Reclassify it into standard cost packages
Identify what the company is spending, who is spending it, and why
Comparisons between different parts of the organization or with peer companies make it possible to identify cost reduction opportunities
Companies build ownership and accountability for cost management and embed that in their culture
Ownership is the key to sustainable cost management: people must feel accountable for their budgets
This positive friction creates a culture where costs are continuously challenged
ZBB is very different from traditional budgeting that tallies the last years budget and adds a percentage
ZBB forces the organization to build the budget from scratch each year and justify each dollar spent
Cultural change delivers ongoing efficiency savings that can be continuously recycled into growth initiatives
Visibility and Transparency1 Clear Accountability for Cost Management2 Zero-based Budgeting3
Resets the overall cost position
Sustains savings over time
Agility to respond to volatile market conditions
About AccentureAccenture is a global management consulting, technology services and outsourcing company, with more than 323,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the worlds most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, 2014. Its home page is www.accenture.com.
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