The FINANCIAL -- Leading global companies are realizing savings of up to $1 billion from the adoption of zero-based strategies, according to the largest ever study on zero-based budgeting (ZBB) strategy, conducted by Accenture.
The research, which surveyed 85 of the biggest organizations around the world, revealed that companies are moving beyond simple ZBB to a more holistic approach, or ZBx, that allows companies to uncover additional savings to fund growth initiatives.
The ‘Beyond the ZBB Buzz’ study by Accenture Strategy analyzed the practices and results of zero-based initiatives implemented by leading global companies across different industries - from consumer goods and banking to retail and life sciences. The study highlighted the exponential growth in ZBB adoption of 57 percent per year from 2011 until today, and found that the majority of companies surveyed (91 percent) have met or exceeded their financial targets.
“ZBB is rapidly helping organizations accelerate growth strategies and pivot to new digital business models,” said Kris Timmermans, Senior Managing Director and Supply Chain & Operations Strategy lead at Accenture Strategy. “Due to the savings realized, leading global companies are taking ZBB to the next level by applying a zero-based mindset – what we have termed ZBx – across all business functions to gain forensic visibility into spending and funnel savings back into high growth initiatives.”
Zero-based strategies accelerating growth
Companies are adopting ZBB primarily to improve profitability (96 percent). Yet, nearly half (48 percent) said they were influenced by competition and 40 percent cited slow growth as a catalyst. Surprisingly, the research did not point to the common perception that companies turn to zero-based strategies in crisis mode in an M&A scenario or as the result of pressure coming from private equity funds and activist investors. Only 14 percent say M&A was a driver and even fewer (eight percent) cited PE or activist investors as a factor.
While the majority (92 percent) of companies surveyed implemented ZBB strategies to reduce general and administrative costs, the research highlights leaders are applying a zero-based mindset to other business functions, such as sales and marketing (52 percent), labor (43 percent) and logistics (42 percent). Companies are taking out inefficient money that doesn’t support business strategy and redirecting those resources into growth initiatives, digital investments and other capabilities.
Challenges to applying ZBx
Among the hardest obstacles to adopting a zero-based mindset are cultural buy-in (67 percent), change management (41 percent) and data visibility (33 percent). However, once the initiatives are in place, there is a common desire among the companies surveyed to ensure they are durable, with 77 percent investing in control and monitoring to make the results of their zero-based initiatives part of continuous improvement.
“Unlike traditional cost management techniques that use a ‘cut-the-fat and gain-it-back’ approach like every fad diet does, adopting a zero-based mindset requires a full cultural transformation within an organization. It must become ingrained in how people think and work so that it begins to just happen naturally – that’s how you prevent the ‘weight’ from coming back,” said Timmermans.