Zero based budgeting (ZBB) has earned a reputation as a ruthless cost-cutting tool. The FT’s Jonathan Guthrie once compared its severity to the policies of the French Revolution and even the Khmer Rouge. And while this paints a grim picture, the reality is that ZBB can take many forms—some of which produce more collateral damage than others.
In this article, we examine three vastly different case studies, each marked by a distinct approach to ZBB. Guess, in a “fight or flight” response to the global pandemic, used ZBB to slash expenses in a desperate bid for survival. Meanwhile, 3G Capital’s notorious “bloody” handling of Kraft Heinz led to a $16 billion write-down, gutting once-legendary brands in pursuit of short-term gains. In contrast, Unilever has adopted a more measured, “marathon” approach, making incremental but steady gains marked by strategic discipline and common sense.
Each zero based budgeting example offers a cautionary tale. While ZBB can deliver efficiency, the key to success lies in moderation. Extreme applications risk gutting a business’s soul, while thoughtful, steady implementation can keep it competitive and resilient. In the following sections, we explore how these approaches unfolded, and why balance is essential for long-term success.
Guess: The “Fight or Flight”
Guess operates in roughly 100 countries, including China. For a four year period, Guess had seen healthy growth in net revenue, at about 22% YOY. But when the pandemic first began – in China in late January 2020 – the company initially expected supply chain disruption, though the total impact of the pandemic would be far more widespread.
Guess quickly took proactive steps to safeguard its future. The company initiated zero based budgeting review to reassess its expenses with a fresh perspective, according to CFO Katie Anderson as told to the WSJ. The process helped Guess reduce quarterly operating costs by about $60 million and trimmed capital expenditures to $6 million, or one-third of what it had spent during the same period the previous year. The company also made temporary adjustments, such as furloughing employees and reducing some salaries.
Its measures were designed to balance short-term stability while preserving resources for long-term growth, allowing Guess to navigate the crisis without compromising its future prospects. Guess has emerged in its post-pandemic era with net revenues now surpassing pre-pandemic rates as of 2023.
Kraft Heinz: The “Bloody”
In 2015, 3G Capital merged Kraft and Heinz, beginning an aggressive “Buy Squeeze Repeat” strategy for which the firm was known. The strategy focused on cutting costs and maximizing short-term gains. Within 15 months, Kraft Heinz’s employee count dropped from 46,600 to 41,000, and overhead costs were slashed from 18.1% to 11.1%. 3G’s “Buy Squeeze Repeat” methodology is heavily dependent on extreme zero based budgeting. Every department had to justify expenses from scratch, leading to mass layoffs, removal of perks like corporate planes, and a shift toward cost-cutting across all operations. Programs focused on brand-building and innovation were ruthlessly cut, as ZBB prioritized immediate profit boosts over long-term sustainability. (David Aaker summarizes the case well here).
Kraft Heinz achieved short-term financial improvements, but at the expense of weakening its brands and neglecting growth initiatives – like investing in new trends, like consumer’s the shift toward fresh foods. Then the blowback from 3G’s “Bloody” brand of zero based budgeting came.
In February 2019, Kraft Heinz’s stock dropped -25% in a single day – a 44% drop from its share price in 2015. This plunge was fueled by a $16 billion write-off, highlighting the damage caused by 3G’s cost-first approach.
Unilever: The “Marathon”
But above all examples, the most positively framed, and often-cited case of the use of zero based budgeting comes from Unilever, the global consumer goods company:
In 2017, Unilever implemented zero based budgeting as part of its cost-saving measures. Traditionally, the company allocated budgets based on historical spending, but they shifted to justifying every expense from scratch at the start of each budget period.
By 2019, Unilever’s earnings statements stated that “Brand and marketing investment was 10bps lower, whilst absolute spend in local currencies increased by €60 million, even after productivity gains from zero based budgeting.” The most interesting aspect of this statement is that absolute marketing spend – a capital investment most often cut during the worst-cases of zero based budgeting – had increased.
Unilever’s approach was a far cry from 3G’s bloody use of ZBB. Rather, it was a long-haul approach that had the effect of increasing “underlying operating margin increased 80 bps mainly reflecting brand and marketing efficiencies as a result of our zero based budgeting programme.”
How Unilever applied Zero Based Budgeting Principles the “Right” Way
Instead of giving marketing teams the same budget as in previous years, each team at Unilever were forced to justify every campaign and its expected return on investment. This led to smarter spending, since campaigns were scrutinized for efficiency and impact. Unilever applied zero based budgeting to non-marketing areas as well, including administrative expenses, travel costs, and office supplies, but the impact is arguably most interesting in marketing and media. Every department had to justify the necessity of all costs, which led to significant cuts in areas where expenses had ballooned over time without producing corresponding benefits.
This is a sharp contrast from how Mark Ritson characterizes typical budgeting methodologies (paraphrasing his commentary here):
Traditional budgeting typically involves a finance executive, often with little marketing knowledge, arbitrarily setting next year’s budget by applying a fixed percentage to projected sales. This method overlooks market dynamics and treats marketing as a cost rather than an investment, resulting in budgets disconnected from real needs.
In contrast, zero based budgeting starts from scratch each year. Instead of relying on past spending, the marketing team builds a plan based on research and proposes a budget tied to expected returns. This strategic approach ensures that every dollar is justified and aligned with the company’s goals.
Ritson says, in no uncertain terms to Marketing Week, that this is the more strategic approach favoring those with the best plans for growth. “[I]n other words. If you get your requested investment you then have to provide the promised financial return at the end of the year or your ass will be delivered on a tray. Accountability I believe it’s called.”
Why it Worked: Unilever’s ZBB Outcome
Unilever’s ZBB approach was announced alongside its 5-S savings program with a goal to find 4 billion euros — or about $4.5 billion — in supply chain savings by 2020. But the plan had a multi-year view, in contrast with 3G’s far more aggressive timelines.
Unilever announced that ZBB-driven cuts will reduce ads created by 30% and ad frequency in emerging markets by 10%. In the process it also discovered it works with an astonishing 3,000 creative agencies, a figure it then sought to trim in half.
Through zero based budgeting, Unilever reportedly saved about €1 billion between 2016 and 2018 by reducing wasteful spending and focusing on high-value activities. This allowed the company to reinvest savings into more strategic growth initiatives. Unilever’s use of zero based budgeting helped create a culture of accountability and shifted focus toward spending money only where it added the most value, making it a prime example of zero based budgeting in action and what it can do for a company.