In 1970 the Harvard Business Review published an
article launching zero-based budgeting as a tool to
examine a business from a 360-degree view. We
followed with Simon Sinek’s popular writing about
always asking the “why” question for our actions.
Now the White House backed DOGE is focused on
government spending at every level and why
spending exists at all. These approaches are not
far apart in concept and the current stress is how
they are being enacted. Without being political,
we ask you, does this 50-year-old concept have merit?
Zero-based budgeting (ZBB) was used by GM to examine every aspect of the business when
Mary Barra took over as CEO. Every line item is examined as if you are starting up the business.
“ZBB is no longer your grandfather’s financial planning process.”
To start the process, business leaders must be prepared to ask WHY about everything the
company is doing. Is Elon Musk doing the same? Businesses have asked in the process:
- Why do we want these customers and why do we offer these products/services?
- Why do we have this operating structure and this organization structure?
- Why do we spend this money on these vendors?
- Why do we employ these people?
- Why don’t we look at ways of doing things better? In short, the ZBB process questions
everything; including if this is the right strategic plan. Clearly a PE firm bought the
company for a reason, but this process seeks to find the best way to fulfill that vision.
Every job and process across the company is reviewed to determine its contribution to
producing revenue and growing the company. ZBB starts at the bottom of the organization and
works its way up to the senior management team. The result is to document that the company
is doing the right things with the minimum number of resources. This includes looking at the
management layers to determine if the right amount of governance and control is in place.
If a process or person cannot be linked to revenue creation, then it is examined to determine if
it is essential. If it is marginal, it is eliminated. The goal is to have people and operating
processes accomplishing things at the right times without unnecessary activity. This improves
employee focus and productivity plus hopefully increases morale as employees can see their
direct contribution to company goals.
Can a 50-year-old process help your company? Likely the answer is yes. Need help doing it? At
C Squared Solutions, we are experts in process re-engineering and financial analytics. We can
develop the program, design implementation steps, and mentor your team to execute. Please
reach out to discuss your ideas.
