Zero-based budgeting revisited: why the revival deserves more scepticism than applause

Zero-based budgeting has been cycling through corporate fashion for decades, and by 2026 it is back in the spotlight again. The combination of post-pandemic cost pressures, persistent inflation in labour and technology, and a shareholder environment that punishes margin underperformance has pushed CFOs to reachreachThe number of unique people exposed to your message in a given period. Unlike impressions, reach counts each person once, no matter how often they see it.View full definition → for structural cost tools rather than incremental trimming. ZBB, which requires every budget line to be justified from zero each cycle rather than carrying forward the prior year's baseline, looks clean, rational, and decisive. Consultants at McKinsey and BCG have published extensively on it. Companies from Kraft Heinz to AB InBev have been held up as case studies. The narrative writes itself.

The consensus view, stated fairly

The mainstream argument for ZBB rests on a genuinely solid diagnosis: organisations accumulate cost without scrutiny. When budgets are set by adding a percentage to last year's number, nobody questions whether last year's number was right. Entire functions, vendors, and headcount allocations persist because they have always persisted, not because they continue to generate value. ZBB, in theory, forces managers to surface and defend every dollar, reorienting spend toward strategic priorities rather than institutional inertia.

Proponents also argue that ZBB improves cost transparency. By breaking expenditure into granular decision packages, the CFO gains visibility that traditional cost-centre budgeting simply does not provide. At 3G Capital, the private equity firm behind the Kraft Heinz merger and the InBev expansion, ZBB was credited with identifying structural overheads that had compounded for years across merged entities. The results in the 2013-2016 period were dramatic: Kraft Heinz reduced its cost of goods sold as a percentage of revenue and expanded EBITDAEBITDAEBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) measures a company's operating profitability before financing and accounting decisions, used to compare core performance across firms.View full definition → margins substantially within two years of the merger. The model was held up as proof that ZBB could work at scale, across complex multi-brand organisations.

The consensus view is not wrong that ZBB can expose waste. That diagnosis is correct and the logic is coherent.

Where the consensus oversimplifies

The Kraft Heinz example is also, unfortunately, the most instructive counterargument. By 2019, the company had written down nearly $15 billion in brand valuebrand valueThe commercial value your brand adds beyond functional product attributes: the price premium, preference and loyalty it generates.View full definition →, cut investment in product innovation and marketing below competitive levels, and watched market sharemarket shareThe percentage of total industry sales your company captures in a given period. It measures competitive position relative to rivals in a defined market.View full definition → erode in core categories. The ZBB discipline that protected EBITDA in the short term had cannibalised the discretionary spend, including R&D, brand-building, and talent development, that sustains earnings in the medium term. This is not a marginal case. It is the second-order effect that ZBB advocates consistently underweight.

The structural problem is that ZBB as typically implemented treats all cost as equivalent. A defence of a marketing spend or an engineering salary requires the same justification template as a catering contract or a software licence. But these costs differ categorically in their time horizons. Infrastructure and capability investments often produce returns over three to five years; ZBB's annual or biannual justification cycle is simply the wrong instrument for evaluating them. When managers know that any spend not producing a measurable return in the current cycle may be cut, they make rational local decisions that are destructive at the system level. They defer hiring, reduce training budgets, delay technology refresh cycles, and cut external research. None of these cuts look obviously wrong in a single year's decision package.

There is also a significant implementation cost that the models rarely quantify fully. A genuine zero-based process, done rigorously, can consume hundreds of hours of management time per cycle. According to research published by Deloitte (a firm that also sells ZBB advisory services, which should be noted), organisations running ZBB for the first time typically spend 10 to 20 percent more time on the budgeting process itself than those using incremental methods. That time has an opportunity cost. For a company where strategic agility and speed of execution matter, locking senior managers into months of cost-justification exercises is not a neutral trade.

The third blind spot is cultural. ZBB signals distrust. When every team must defend its existence annually, the implicit message is that the organisation does not have confidence in its own structure. This corrodes the psychological safety required for people to propose long-horizon initiatives, admit failures early, or collaborate across functions without territorial protection. The companies for which ZBB works best, capital-intensive businesses with stable cost structures and commodity product categories, tend to be exactly those where cultural dynamics matter least. Applying the same logic to a professional services firm, a pharmaceutical company, or a technology business is a category error.

What a sharp CFO should actually do

The right frame is not "should we adopt ZBB?" but "which parts of the cost base warrant zero-based discipline, and over what cycle?"

Procurement and third-party spend are the strongest candidates. External vendor relationships, contracted services, and discretionary overhead genuinely do accumulate inertia. A structured, zero-based review of these categories every two to three years, rather than annually and across the full P&L, captures most of the diagnostic value while avoiding the management overhead and strategic distortion of a full ZBB rollout. Unilever has used selective zero-basing in its marketing procurement and agency roster management without applying the same framework to brand investment or R&D.

For internal capability costs, activity-based costing combined with periodic strategic reviews is more appropriate. The question is not "justify this headcount from zero" but "what does this function produce, and is that output still aligned with where the business is going?" That is a different conversation, and it benefits from being separated from the budget cycle entirely.

CFOs considering ZBB in 2026 should also take seriously what has changed in the cost environment. Personnel costs in technology and analytics functions have increased sharply, and in many organisations these roles are precisely the ones that ZBB incentivises managers to underinvest in. Cutting there to protect the EBITDA line looks good for two or three quarters and creates compounding technical debt thereafter.

ZBB is a useful diagnostic tool for specific categories of cost. The mistake is treating it as a management philosophy. Used selectively, with a clear view of what it can and cannot see, it earns its place in the CFO toolkit. Used as a wholesale operating model, it tends to optimise the wrong thing at the wrong time.