The news surrounding the merger of storied food companies Kraft and Heinz by buyout firm 3G Capital Partners garnered 3 separate Wall Street Journal articles last Thursday. Much of the flutter involved the supposed Draconian cost cutting associated with 3G’s insistence on “Zero Based Budgeting.”
It might surprise you that I think Zero Based Budgeting is actually a pretty smart thing. It won’t fix what ails these historic brands, but it is a much better approach to cost control than bench-marking or financial target derived restructurings that are the more common practice.
The reason the Zero Based approach makes more sense is that it is internally derived by those accountable to achieve results. Managers make their budgets, justify them, and then have to live by them. That’s called ownership. And it’s much better culturally than being hacked from above.
For up-and-coming managers and executives, the Zero Based internal justification process requires two very important things: 1) That they understand their business at a “cause and effect” level of detail that will make them smarter, more engaged and stronger advocates for their organizations; 2) That they take risks and decide what is really important. They have to put their money where their mouth is.