Pressures to deliver first-in-class IT capabilities are mounting. But many companies have been hard-pressed to determine how to fund such initiatives – as well as how to truly measure whether the significant amounts dedicated to technology investments are really working.
Enter a budgeting technique called zero-based budgeting (ZBB), through which companies set budgets to zero each year to cut unnecessary costs, rather than base them on what happened the previous year. But today, zero-based strategies are rapidly evolving. Rather than reserving zero-based approaches for times of crisis or change, companies are increasingly applying a “Zero-Based Mindset,” or ZBx, to free up funds that can be reinvested into major growth and digital investments. While ZBB has been around for decades, the act of applying zero-based strategies across the business have developed and grown rapidly over the past five years.
Unlike traditional ZBB, ZBx goes beyond just cutting costs – it’s about designing from the ground up, starting from a clean slate to redirect an organization away from “legacy tech debt” and toward the capabilities that will enable future success. By starting fresh, organizations can free themselves from the rigid, rear-facing structures that supported them in the past, and architect the flexible, “boundaryless” ecosystems that will be necessary to enable the breadth and pace of technology change.
Why should leaders ZBx their IT organizations
ZBx presents a tremendous opportunity for IT organizations to funnel cost savings toward digital initiatives as well as assert itself as a strategic growth driver at the center of innovation.
The major potential of ZBx lies in its relentless focus on the future over the past. Today, too many organizations have resources organized around roles, work and capabilities that don’t support what they’ll need in the future. ZBx adopts an improvement mentality that accounts for the impact of digital technologies and other dynamic forces on company structures and cost profiles over time. This fluid mindset is important because technologies like machine learning and intelligent automation fundamentally shift cost curves.
ZBx also adds critical value by looking across the entire business for more efficient, future-focused ways of operating. Most organizations – 85 percent – are focused on cost as a value lever they pull to support investment in their future. But not nearly as many organizations focus on other key value levers critical to future success. For example, only 25 percent of organizations have redesigned their operating models to realign talent around future needs.
By applying the ZBx mindset across cost, talent and the customer experience, companies can ensure that their invested time and resources complement each other and don’t go to waste.
Sources of ZBx value
Those companies that implement ZBx have the potential to reap tremendous rewards, across multiple areas of the business:
- Cost savings: ZBx isn’t solely about cost savings – but the cost savings that have been achieved through this more holistic approach are unprecedented. A recent Accenture Strategy study on zero-based strategies – the largest of its kind – found that leading companies globally saved up to $1 billion from such strategies, and are averaging ZBB-related cost reductions of 15 percent. One tangible example of this for IT leaders are internal software subscriptions. Not every employee needs access to every piece of software, and by being methodical and applying a ZBx approach to what software is available, who obtains licenses for that software, and who approves new requests, companies can centrally manage and control subscription costs, representing significant savings over time.
- Innovation: By redirecting resources to where they’ll be most valuable, companies can align funds to the very capabilities that drive innovation. Within IT, ZBx is being used to realign people away from legacy work and toward more innovative and growth-driven initiatives that directly advance business objectives. Across the organization, it also enables employees to shift focus to the strategic, future-focused technology capabilities that are becoming increasingly central to all areas of an organization. Take user support and front-line service – as automation technologies and AI solutions take on an increasingly large portion of this work, companies can significantly reduce their cost profile while providing a consistently excellent customer service. They can also shift employees away from the transactional aspects of their roles into work that allows them to establish a connection with business users and drive a more personalized experience.
- Agility: While changing established ways of working is no easy task, embedding a ZBx culture centered on what things “should be” – rather than what they “have been” – pays off beyond the business case. It also gives the workforce a needed edge in the wake of disruption, empowering it to be agile as well as adjust and realign to industry shifts and emerging technologies. Being able to quickly adapt to the unpredictable is becoming increasingly important for organizational survival and success – a ZBx mindset can be crucial to that task. For example, we at Accenture Strategy see organizations applying the ZBx mindset to infrastructure and shifting more work to cloud solutions like Amazon Web Services. By moving away from physical data centers, companies move away from a fixed cost model to one that is pay-as-you-go and scalable. Understanding that this shift affects the operating model, we also see organizations thinking critically about the skillsets needed to support this new way of working, and how these new talent profiles differ from those required for employees today.
- Talent and workforce: People are seeking work that is meaningful and interesting. This comes as the profile of the traditional workforce undergoes major shifts, transforming from a hierarchical structure into a “living ecosystem” that extends well past the boundaries of one’s own organization. ZBx enables the design of an operating model that supports this flexible culture by allowing the IT organization to tap into the talent it needs, when it needs it, based on the type of work that needs to be done. This also means employees can direct their efforts towards the innovative work that they enjoy – and the work that will allow a company to attract and retain the best talent. For example, a software developer who today spends some of her time each week on spam flags, manually writing rules for spam detection, would in the future focus solely on new software development, while spam detection is managed by ecosystem partners or the organization’s machine intelligence capabilities.
Where to start
A zero-based mindset frees up funds for top-priority IT investments while creating more agile and efficient ways of working that prepare companies for the future. The journey starts with these important steps:
- Set the tone and accountability from the top: Lead by example. Ensure your organization’s leaders and influencers are visibly on board, highly engaged, and truly “walk the talk” in terms of commitment to ZBx principles. Agree on a set of key performance indicators by which progress on the ZBx journey will be measured – and hold leadership and employees accountable. “Walking the walk” will empower every employee to treat every dollar and resource as if it were their own and make decisions accordingly – the true key to ZBx success. Depending on your organization’s current capabilities, this may involve establishing the enabling structures needed for visibility and ultimately, accountability. As part of your pivot, you should have the capability to accurately charge back costs to each part of your IT organization. Even if these costs aren’t ultimately “charged” in the accounting sense, being able to track and monitor the spending of each part of your organization gives you the ability to hold your leaders accountable. It also empowers leaders, giving them the information they need to manage these costs and drive change as needed.
- Enhance visibility and targeting: Leverage digital to improve the efficiency of the closed-loop process. Replace spreadsheets with automation and artificial intelligence to improve data visibility and quality and streamline measurement.
- Prototyping: Pushing innovation and growth is at the heart of the ZBx mindset. To drive this innovation, people at all levels of the organization must adopt an agile, prototyping mindset, with a willingness to think big but start small, and fail fast. These ways of working allow the organization to adjust quickly to disruptions and course-correct when needed.
- Recognize the culture challenge: According to our research, companies report that cultural buy-in (67 percent), change management (41 percent) are the top two barriers to any zero-based journey. Companies need to go beyond traditional change management, communications and training to influence wide-scale behavioral and cultural change. Using neuroscience and digital tools to shift the mindsets and behaviors instilled in your people is what will make ZBx stick.
Ready or not, the nature of work is rapidly changing around us, along with the capabilities needed to enable future growth. As IT leaders focus on investing in their organization’s future, make sure the operating model keeps pace. It’s an organization’s people who will build the future – and set them up for success.
A special thanks to my co-authors Katherine LaVelle, Kristen Andrews and Christine Nanan for their collective contributions and expertise.