Zero-based Budgeting[1]
It's a story that plays out across industry sectors and change efforts, particularly in this age of digital transformation. Companies embark on a project intending to optimise every existing process.
Companies must first figure out which services are truly essential for running their core business. They must then streamline the essential services and get rid of the rest.
The most promising approach for drilling down to the process essentials is zero-based organization (ZBO). Done right, ZBO helps streamline functions and produce efficiencies, freeing up resources for where they will count most.
Less Really Is More
Few functional leaders have a clear map of the services that drive their core business. And even fewer have protocols in place for re-evaluating services and activities and switching off those that are no longer needed. As a result, companies end up with duplicative or unnecessary work that can erode value, sometimes substantially.
And unlike in manufacturing, where waste is physical and thus more visible, waste in "white collar" administrative and functional processes is harder to detect
Such waste has historically fallen outside the scope of lean and other waste-minimizing techniques.
ZBO is designed to root out such waste by simply eliminating work. It forces companies to rethink the activities they carry out from the ground up and define them with two key dimensions in mind - urgency and value. As much a mindset as it is an actual approach, ZBO represents the desire to reduce work to the essentials: what is needed to run the business and what is required by regulation. It is about abiding by the maxim that "less is more."
Like zero-based budgeting, ZBO involves working from a clean slate to identify the way business will be done. ZBO zeroes in on the functional and administrative processes and activities of the business. Businesses can then clearly distinguish between base-line essentials and discretionary activity and know the actual costs and value of the two types of work. They also spare themselves the hassle and complexity of outsourcing or moving soon-to-be irrelevant work to a shared-services center. The result: leaner, simpler business functions that require any-where from 30% to 70% fewer resources.
Reducing or eliminating activities will mean the loss of power or even employment for some; a fact-based approach helps keep emotion out of the decisions.
It's worth noting that while ZBO positions companies to achieve substantial benefits, sustaining those benefits can be a challenge. Organizations naturally tend toward complexity over time. A less-is-more mindset is crucial, something companies can promote in a variety of ways.
Working from a clean slate enables the company to improve efficiency and effectiveness simultaneously and to achieve a significant, sustainable reduction of work.
[1] Zero-based Budgeting comes to Business Functions
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