UK business is in a state of flux – more so than usual. Slow or stagnant growth across most industries, low consumer confidence, rising prices and continued uncertainty around Brexit are not the makings of a buoyant market. Growth may be high on the agenda for every business leader, but making it happen is another matter. According to recent research, only a quarter (25%) of UK business leaders are very confident that they will achieve their 2020 growth targets, and nearly two thirds (64%) say their growth strategy is at high risk of disruption.
In times such as these, many businesses have typically resorted to aggressive cost cutting measures in a bid to improve margins. Doing so either requires managers to “guesstimate” where reductions can be made or, in the case of ZBB, justify all expenses from scratch every year.
Employees that have lived through such times in their own organisations know how this story goes. First the hiring freeze and travel bans come in, then the fresh fruit and breakfast get taken away. Likewise, when businesses take cost-cutting initiatives too far, customers can also start feeling the difference, and not in a good way.
While zero-based initiatives do deliver impressive results, they can only create the funds for growth – not growth itself. In some cases, companies that are too focused on ‘cutting the fat’ will always ‘gain it back’ as reinvestment isn’t on their agenda.
New research by Accenture Strategy shows an exponential increase in the number of global companies that have implemented zero-based initiatives over the past several years – a 57% increase per year from 2011 to today – and moreover, they are moving beyond simple cost reduction techniques to a more holistic ‘zero-based mindset’ (ZBx). This is a smarter approach which gives companies forensic visibility into both spending and savings opportunities across all cost segments of their organisation – from sales and marketing, to HR and supply chain. Savings are then quickly reinvested into new growth areas.
In a “closed-loop” process that supports the zero-based mindset across an organisation’s entire P&L – employees act like “owners” in both their spend and reinvestment decisions. It sets up structures that allow a company not just to realise savings, but importantly, to ensure that they are durable over time, and that money that doesn’t support the business strategy is reinvested.
Organisations globally that are leading the charge with ZBx are recognising savings of millions of pounds every year which are being reinvested to help them accelerate growth, by pivoting to agile new business models, making acquisitions or creating new brands, product or services.
While consumer goods companies have traditionally led the way with zero-based programs – Unilever and Diageo are companies that have delivered impressive results with such initiatives – other industries are quickly following suit, specifically Retail, Banking and Industrial. Research shows that the main motivations are typically to improve profitably, respond to competition and drive growth. Interestingly, crisis mode and M&A scenarios are being cited less and less as a factor in adopting such initiatives.
While most business leaders say the rewards are worth it, companies find that adopting a zero-based mindset can be challenging. Among the hardest obstacles are cultural buy-in, change management and data visibility. However, once initiatives are in place, there is a common desire to ensure they are durable, with many companies investing in control and monitoring to make the results of their zero-based initiatives part of continuous improvement.
A zero-based mindset focuses on agility over austerity, visibility over guesswork, and the future over the past to fuel growth and competitiveness. Driving cost consciousness and changing employees’ mindset and behaviour so they start treating the company’s money as if it was their own, enhances competitive agility and can fund the growth UK leaders desperately want to see.