As manufacturers face shifting customer expectations, macro-economic turbulence, and technology change, business decisions can be more difficult and consequential than ever. How can leaders improve their odds of success? One answer lies in a surprising source: zero-based budgeting (ZBB), or zero-basing.
Too often blamed for uninspiring cost-cutting programs, zero-basing’s real objective is to instill a growth mindset—a return-on-investment (ROI) mentality based on value, not cost.
Of course, changing minds is hard work: most transformations fail because of management behaviors and employee resistance. So, creating a culture of cost management for growth takes more than just the CEO and the leadership team asking the right questions. Instead, managers must learn to debate spending with an eye toward investing where it matters.
How exactly does zero-basing, when done right, help bring about this culture change for growth?
1. Create opportunities to make better spending decisions
ZBB’s real aim is to make thoughtful spending decisions—reframing choices as cost management. The small changes that result have the cumulative effect of creating investment opportunities to drive growth.
2. Promote budget transparency
Only by knowing what you spend your money on can you decide if it’s worth it. Visibility across an organization highlights resources that aren’t being used to their full potential, and those that can be reallocated for a better return in areas like marketing, R&D, or supply-chain improvements. So, instead of asking, “What do I spend?” or even “What should I spend?” the question becomes, “Is this the best use of my resources?”
3. Opens the door to innovation through fast, flexible spending decisions
Zero-based budgeting doesn’t set an annual budget for everyone to strictly adhere to. Instead, it drives a culture of ongoing, conscious questioning about resources, which in turn, allows for spending to respond quickly to market volatility. This agility helps businesses capture opportunities as they arise, improving resilience.
It is through this approach that you can assess whether you’re getting ‘bang for your buck’, or whether you’ve already achieved your target and should reassess the best possible use of marginal capital.
4. Apply its principles to all your resources
Better visibility can extend beyond just budgets across both people and CapEx spend. Zero-basing resources re-focuses people to higher-value areas, ensuring that the org structure aligns with business strategy. This can help forge a purpose-built—and flexible—organization, leaving behind silos that may be hindering growth.
The volatility of today’s business environment isn’t likely to slow down anytime soon. It’s up to business leaders to create the internal conditions needed to continually make smart decisions in the face of these challenges. Used thoughtfully, zero-basing can be an important tool: powering innovation, clarifying how to invest where it counts, and most important of all, changing culture to have a mindset of growth.
Article sourced and reworked from Forbes.