Over the past decade or so, zero-based budgeting (ZBB) has been so successful—exponentially growing by 57 percent every year according to recent Accenture Strategy research —that companies are now taking a zero-based approach to other parts of the business: the supply chain, the front office and the organization itself. With this evolving kind of thinking it makes more sense, ultimately, to talk about a “ZBx” mindset.
Implementing and sustaining ZBx is not always easy, however. For example, a recent Accenture Strategy point of view, “ZBx? Get Serious (about Culture Change),” focused on the leading challenges encountered by the companies in our research set: culture and change management.
When you dig deeper into one of the keys to successful culture change with ZBx—buy-in and ownership of the zero-based approach by the executive team and its direct reports—you find a unique, new set of governance principles. Companies enjoying sustained success with their ZBx initiatives are taking the idea of “ownership” quite literally: giving C-level executives (even CEOs themselves) responsibility for a specific cost category. Does that sound strange to you? You’re not alone. But the approach works and here’s why.
Owning a cost category across the business
Let’s consider a typical situation for most businesses: An executive running a particular business unit owns that unit’s budget. The heads of HR, finance and IT own their budgets. That’s all standard. But with the new approach to governance within ZBx, these executives will now also be assigned one of 19 cost categories. A head of a business unit might be assigned, say, travel costs across the entire company. The Vice President of HR might be assigned recruiting and learning—not just within the function but, again, across the entire company. This governance approach leads to better collaboration and understanding among executives. Category owners will be working to meet budget targets as a group, not just as individuals. So, for example, the business unit head will be working with HR to discuss the impacts of recruiting and learning on the company’s overall travel costs. This helps create real partnerships among the C-levels of the organization.
Sustaining the ZBx benefits
Sustaining the benefits of ZBx is another plus resulting from C-level cost category ownership. When zero-based approaches fail, they generally do so a year or two after implementation. The first year is often wildly successful—average cost reductions of 15 percent according to our research. Then the relentless inertia of the status quo sometimes sets in. Employees assume that ZBx is just a passing fad and they try to return to their old ways of doing things.
But with C-level execs in charge, and with governance structures that put incentives in place to meet or exceed savings targets, you’re more likely to see sustained results. One best practice is to set both compliance targets and budget targets. So, for example, compliance needs to be at 80 percent. Budget targets need to be within 20 percent the first year, then 10 percent the second.
Making it happen
Advanced technologies also play an important role in effective ZBx governance. Typically, budget variance reports will be issued monthly for category owners to check progress and compliance. The problem with such reports, though, is they’re about lagging numbers. They’re a snapshot of the past. Plus, it’s not a good idea to have finance create reports based on the chart of accounts, because leadership can’t be sure they can trust it. The answer here is to use artificial intelligence to calculate what the current actuals are. Another use of technology is procurement analytics. This enables the organization to look at its procurement system and have an analytics team go through the data to understand how well it matches up with key performance indicators.
For example, take a basic example of internal events. Which function had an internal event or an offsite meeting? How many people attended and what was the cost per person? With analytics, a company can look deeply into the numbers, make comparisons and determine who is actually spending a lot more than they should. In effect, a company is using technology-based governance to see if ZBx behaviors are being adopted and sustained.
Getting serious about ZBx governance
Is C-level cost category ownership actually a realistic option? Aren’t these executives simply too busy with other things to give cost category management the attention it deserves? It’s a good question but, in our experience, CxOs will either find time or delegate authority to deliver the results they’re charged with. For a company that really needs to manage its costs and funnel those savings into growth initiatives, putting a C-level in charge of a cost category says: “We’re serious about this.”