Going forward, a Zero-based (ZB) approach to leadership, resourcing and budgeting will be crucial to winning in tomorrow’s business environment. Using this mentality, programs and processes are consistently reassessed to determine profitability and strategic relevance, and resources consistently reallocated to high-performing initiatives that better support business growth.
“Forget about the past,” says Kris Timmermans, Senior Managing Director for Supply Chain and Operations Strategy within Accenture Strategy. “Agility is about better positioning yourself to succeed in a forward-thinking, disruptive world. If you properly plan your budgets you’ll be better equipped to look to the future – and historic, past-looking budgets will only slow you down.”
With a focus on competitive agility, a Zero-based mindset (ZBx) creates a culture of innovation, allowing companies to achieve startup speed at enterprise scale and compete in the face of ongoing transformation. Wondering what it takes to create a similar mentality in your enterprise – and a culture that prizes routinely tying efforts and resources to results?
You’re not alone. In fact, according to Accenture, 80 percent of the G2000 are involved in enterprisewide cost optimization efforts. But just 17 percent of CFOs believe their companies are properly organized to make the most of working capital, building out future capabilities and developing competitive advantages.
“ZBx SHIFTS THE FOCUS FROM PURE COST–CUTTING TO LINKING EFFORTS WITH OUTCOME TO DRIVE COMPETITIVE ADVANTAGE AND GREATER CORPORATE AGILITY.”
Luckily, says Accenture’s Timmermans, shifting to a ZBx mindset doesn’t have to be time-consuming or difficult. But it does require executives to champion a corporate culture where accountability and ownership are prized as much as actual hands-on accounting. “ZBx is about applying more practical thinking, and greater forethought – making sure you’re more flexible, and continually linking efforts to positive outcomes while consistently reinvesting in growth-oriented initiatives and expanding your capabilities.”
Rather than projecting resource needs based on past demands (which often don’t account for transformational changes and technologies impacting the business), leaders must adopt a mindset that favors future-focused growth. “By emphasizing accountability on top of cost ownership, and leveraging data-driven insights, organizations can quickly pivot and double down on more of what’s working,” explains Timmermans. “ZBx shifts the focus from pure cost-cutting to linking efforts with outcome to drive competitive advantage and greater corporate agility.”
For example, consider a $25B plus CG&S company with over 100 global manufacturing locations. As with other high-performing consumer packaged goods companies, the costs of raw materials, packaging material and conversion costs are approximately 44 percent of the company’s revenue. By setting its procurement, supply chain and manufacturing strategy and budgets from a zero base – using digital solutions like machine learning, intelligent automation and control, and digital energy and safety management – they reduced COGS as a percent of revenue by nearly 38 percent.
Such dramatic results help companies gain, or regain, their competitive edge. But to remain competitive they need to reinvest in new opportunities in their business, and to do this successfully requires full visibility into organization-wide spending to consistently reallocate funds that aren’t being applied to successful ventures to those that promote tangible growth.
“Beyond budgeting,” explains Timmermans, “Zero-based thinking is about starting with nothing and justifying each investment you make – then routinely considering how to reinvest funds and manpower strategically over time so that your organization can continuously get the maximum benefit from all of its investments.”
To do this effectively leadership needs to focus on four key strategic principles and areas of improvement. These include:
ZERO–BASED SPEND allows organizations to determine where they’re spending discretionary funds on expenses that aren’t sunk labor costs to free up working capital. This lets leadership gain deeper insight into where these funds can be better allocated to promote business growth, boost productivity, and positively impact company culture. “In traditional budgeting, the standard is to look at last year’s budget and anticipate marginal growth based on it,” says Timmermans. “Using ZBx thinking, companies truly need to imagine that this figure is zero – and then justify each expense going forward.”
ZERO–BASED ORGANIZATION is a logistical principle that allows you to streamline operations by reassigning talent from low-impact to high-priority initiatives that provide maximum benefit to the enterprise. To succeed, companies need to not only use technology to fuel growth at scale – automating repetitive or manual tasks that humans don’t need to perform. They also need to better leverage human capital to make sure workers’ efforts are right-sized, properly organized, and that the correct individuals are aligned with projects that best suit them and properly incentivized to focus on truly rewarding and value-creating work.
ZERO–BASED COMMERCIAL promotes the optimization of marketing, sales, and customer service efforts in order to lower customer acquisition costs while increasing customer spending. Examples include the use of CRM software, behavior monitoring tools, and predictive technologies to enhance the process of client outreach, and overall user experience. “It’s about streamlining, eliminating distractions, and improving cost savings,” observes Timmermans.
ZERO–BASED SUPPLY CHAIN provides the lens through which companies can re-examine their supply chain from the axis of three key variables – price, performance, and value engineering. This can help boost speed and maximize productivity while quickly driving COGS savings of up to 5 – 10 percent. Rather than chase incremental cost savings, leaders use forensic insights and analytics to gain deeper visibility into organizational performance, in order to determine which strategic levers can be pulled to slash expenditures and boost output. For example, beverage leader AB InBev discovered that going 100 percent renewable could dive huge cost-savings on a running basis while also building ongoing goodwill with the public and doing good for the planet.
Like a crash diet, most cost-optimization efforts don’t last – studies show that only 36 percent of companies surveyed agree that their business sustains the benefit of cost-optimization progress. In contrast, ZBx offers a practical way to consistently manage costs on an ongoing, continuous basis, allowing you to discover new ways to smartly invest in your organization’s future.
But to operationalize ZBx requires not only ownership by the CEO and senior leadership. It also requires these same leaders to instill a passion for change in their workforce, and find ways to empower intrepreneurs (entrepreneurial thinkers inside the organization) at every level – from greater organizational transparency to platforms and tools for measuring and monitoring organizational effectiveness.
In the end, creating sustainable growth requires organizations to invest in future-focused opportunities and technologies. ZBx not only provides a readymade framework for doing so, it also provides a selfsustaining system for driving ongoing innovation in any business. “ZBx isn’t just about leveraging strategic shifts that can help you make more money,” says Timmermans. “It’s about making your money better work for you.”