Zero-based budgeting: marketing's latest fad
A view from Claire Beale

Zero-based budgeting: marketing's latest fad

Setting a budget can be a crude and unsatisfactory process.

Any of these scenarios sound familiar? You have been given a 20 per cent growth target this year because you managed (by bringing your team to brink of breakdown) to meet last year’s 15 per cent target. Your staff budget has been slashed by 5 per cent because you spent less last year after failing to fill two vitally important vacancies. You’re not allowed to replace one expensive executive with two cheaper rising stars because you can’t increase your headcount this fiscal year. Your marketing budget has been increased/reduced by several percentage points without any insightful reference to the changing media climate, competitor activity, the long-term brand-building requirements or any of the other myriad factors that determine how much money you actually need to drive sustainable growth.

Budget decisions are often damagingly arbitrary and uninformed by any real understanding of the business requirements. To address this, zero-based budgeting is the new thing, designed to usher in a more thoughtful approach to costing. Unfortunately, it’s becoming worryingly fashionable as more client companies adopt it as a blind mantra. Which is a shame because, in consequence, it will undoubtedly be poorly applied in too many boardrooms where the vision is short-term and cost-cutting is considered a growth strategy.

Actually, ZBB – whose latest convert is Unilever – could and should be a valuable tool that drives long-term growth. When Unilever’s chief executive, Paul Polman, unveiled the new ZBB strategy last month, he was careful to say that, if his company is to continue to outgrow the market, "we have to continue to invest in our brands". In other words, this is not a cost-cutting exercise, but an efficiency one.

This is certainly not the case in many companies where ZBB has been adopted; you only need to know that it is the preferred approach of many private-equity companies to understand how ZBB is so often used as a proxy for bone-deep cuts. Where this is the case, the result is often a disenfranchised marketing team with a ready-made excuse for poor performance: not enough money to do the job properly. But where ZBB is an empowering process, handing more control for budget-setting to a smart marketing team, the result is a marketing department more deeply invested in success and more accountable for performance.

Yes, ZBB puts new pressure on forward-planning and long-term supplier (agency) relationships but, where it is adopted to make marketing more effective and accountable, there’s a real chance everyone benefits.