From ZBB to ZBG: turning finance into a growth engine

1. Why traditional ZBB fails in practice

On paper, Zero-Based Budgeting (ZBB) is attractive: every cost must be justified from zero, every year. In practice, most programmes underperform for predictable reasons.

Typical failure patterns:

• Form over substance.
  ZBB becomes a template exercise where teams justify existing budgets with better narratives, not fundamentally different choices.
• No strategic anchor.
  Cuts are made uniformly (“everyone minus 10%”) rather than based on strategic priorities or expected returns.
• Focus on level, not mix.
  Total spend may decrease, but the allocation between low- and high-return activities barely changes.
• One-time savings.
  Costs are pushed out or delayed rather than structurally removed — and they reappear within one or two cycles.
• Organisational fatigue.
  ZBB is experienced as finance-driven austerity, not as a leadership-led capital allocation discipline.

The core problem is not execution but framing: ZBB is usually positioned as a cost exercise rather than a capital allocation exercise.

ZBB was originally designed to challenge cost structures by rebuilding budgets from first principles instead of historical baselines. While the concept gained popularity in large corporates, its limitations in dynamic, growth-oriented environments are well documented — including in this overview by Harvard Business Review .

2. What Zero-Based Growth actually is

Zero-Based Growth starts from the same discipline as ZBB, but flips the question.

Instead of asking: “How can we reduce this year’s spend versus last year?” it asks: “If we started from zero, which activities would we actively choose to fund — and at what level — given our value-creation plan?”

Three key differences vs. classic ZBB:

• Growth and cost are in the same frame.
  You cannot cut your way to a strong multiple. ZBG evaluates both growth investments and cost lines through the same lens: their contribution to earnings power and strategic position.
• Reallocation, not just reduction.
  The objective is to move capital from low-return uses to higher-return ones, not just to lower total spend.
• Ownership sits with leadership, not finance alone.
  ZBG is led by the CEO and executive team, with finance as the structuring partner, not as the enforcement arm.

ZBG is not a new acronym; it is a different intent. Same rigour. Different outcome.

3. How ZBG links to the value-creation plan

In PE-backed and high-ambition companies, the value-creation plan is the real north star: growth, margin, cash, deleveraging, multiple expansion. ZBG is the mechanism that aligns the P&L and cash spend with that plan.

Step 1 – Identify the true growth engines

Not everything that grows is a growth engine. ZBG forces leadership to identify the few areas that truly drive earnings and enterprise value:

• Specific segments, brands or product lines.
• Channels or routes-to-market with attractive unit economics.
• Geographies with clear scale potential and competitive advantage.
• Capabilities (e.g. digital, data, commercial excellence) that amplify returns elsewhere.

Step 2 – Define enabling capabilities

Some spend doesn’t show up directly in revenue or gross margin, but is critical to execution: technology, data, supply resilience, brand strength, people and leadership.

Step 3 – Classify the rest

Everything else falls into one of three buckets:

• Must-have risk control. Regulatory, safety, legal obligations.
• Commodity support. Necessary but non-differentiating activities.
• Legacy or low-return activities. Things we are doing because we always have.

Step 4 – Rebuild spend from zero

Only now do you rebuild the budget — starting with engines and enablers, then must-have risk control, and finally asking whether commodity and legacy items deserve any capital at all.

4. The mechanics of ZBG in practice

Zero-Based Growth is not a theoretical concept. It is a structured way of running the planning, prioritisation and allocation cycle — repeatedly, and under real operating constraints.

1. Design spending portfolios, not cost lines

The starting point is to move away from granular cost categories and group spend into a small number of portfolios that reflect how the business actually creates value.

• Customer and commercial spend.
• Product, platform and technology.
• Operations and delivery.
• Support and overhead.

Each portfolio has a clear owner, outcome metrics and explicit boundaries. The discussion shifts from “what did we spend?” to “what outcomes are we buying?”.

2. Define explicit allocation ranges

Instead of anchoring on last year’s budget plus or minus a percentage, ZBG defines target allocation ranges — often as a share of revenue, gross profit or contribution margin.

This forces leadership to debate mix and priority, not just total spend. It becomes immediately visible where the organisation is over- or under-investing relative to strategy.

3. Use “fund or stop” decisions, not “shave” decisions

ZBG works best when leaders are forced to make explicit choices:

• Double down — invest more, faster.
• Maintain — fund at current level with clear expectations.
• Reshape — change scope, model or way of working.
• Stop — exit, sunset or consolidate.

Across-the-board cuts (“minus 10% everywhere”) are usually a signal that real prioritisation is being avoided rather than addressed.

4. Tie every euro to a mechanism, not a narrative

For any material spend line — especially in growth and overhead — ZBG asks a simple question: “Through what mechanism does this spend change earnings or enterprise value?”

Generic labels (“brand”, “innovation”, “engagement”) are not sufficient. The focus must be on concrete, testable mechanisms such as conversion uplift, retention improvement, mix effects, churn reduction or unit-cost leverage.

5. Finance’s role in ZBG

For Zero-Based Growth to work, finance must change posture: from budget owner to capital allocation partner.

What finance must own:

• The economic logic.
  Define how value is measured — EBITDA, cash, ROIC, economic profit — and ensure every discussion links back to that logic.
• The allocation frame.
  Structure portfolios, define allocation ranges and translate strategy into clear financial guardrails.
• The challenge function.
  Test mechanisms, demand evidence, surface trade-offs and call out structurally low-return spend.
• The feedback loop.
  Track whether funded initiatives deliver as expected and recommend reallocation when they don’t.

This role is well aligned with established thinking on capital allocation and long-term value creation, as articulated for example by Michael Mauboussin .

Done well, this is not about finance saying “no” more often. It is about ensuring that when the organisation says “yes”, it does so with open eyes, clear expectations and explicit trade-offs.

6. Why ZBG fits PE-backed environments particularly well

Private equity ownership brings unusually sharp clarity on value creation, time horizon and accountability. Zero-Based Growth fits naturally into that logic — not as a cost programme, but as a disciplined capital allocation mechanism.

Three reasons:

• Explicit link to the investment thesis.
  PE-backed companies typically operate with a clear thesis: growth, margin expansion, cash generation and exit. ZBG makes that thesis tangible by expressing it directly in the P&L and resource allocation.
• Structural bias toward reallocation.
  Private equity has less tolerance for legacy, symbolic or politically protected spend. ZBG provides a repeatable, fact-based way to remove it and redeploy capital toward higher-return initiatives.
• Discipline across cycles.
  When applied as a recurring rhythm rather than a one-off programme, ZBG prevents costs from drifting back out of alignment with strategy as the business scales or integrates.

For PE partners, the core question is simple: are we consistently allocating capital to the areas where our investment case says value will be created? This focus is also reflected in broader industry research on PE value creation, including the Bain Global Private Equity Report .

7. Common pitfalls when implementing ZBG

1. Treating it as “just another cost programme”

If leadership frames ZBG as a new label for austerity, the organisation will respond defensively. It has to be about choice and focus, not just cuts.

2. Running it as a finance-only initiative

ZBG must be CEO-sponsored and ExCo-owned. Finance provides structure; leadership decides trade-offs.

3. Over-engineering the methodology

150-page guidelines kill momentum. A few clear principles and templates, applied well, beat complexity.

4. Ignoring capacity and change fatigue

ZBG adds work, especially in the first cycle. That needs recognition and support — or other demands must be reduced.

5. Failing to lock in changes

If you do not adjust policies, contracts, structures or products after a ZBG decision, cost will return. Structural decisions must follow budget decisions.

8. The questions that distinguish ZBG from ZBB

In a ZBG conversation, you hear different questions in the room:

• “Which three engines truly drive our earnings power?”
• “What would we stop doing completely if we were forced to cut 20%?”
• “What are we funding out of habit rather than conviction?”
• “If we had €10m more to invest, where would we put it — and what would we cut to fund it?”
• “Does this spend survive if we move from 1-year to 3-year value lens?”

These questions move the discussion from defending cost lines to designing the company’s future shape.

9. A CEO & CFO checklist for Zero-Based Growth

To test whether your planning and budgeting process already behaves like ZBG — or still looks like ZBB — ask:

1. Are our biggest spending categories clearly linked to our stated growth engines and strategic priorities?
2. Do we explicitly stop activities each year, or only trim them?
3. Can we name the low-return spend we are deliberately not funding?
4. Do we regularly reallocate capital between portfolios, or do they move in parallel?
5. Are growth, cost, capex and cash decisions made in the same frame?
6. Is finance enabling these choices with insight and structure — or policing them line by line?

If the answer to several of these is “no”, you likely have a ZBB-shaped process with ZBG ambitions.

10. Closing thought

ZBB, done well, can clean up a P&L. ZBG, done well, can reshape a company.

When CEOs, CFOs and investors use Zero-Based Growth as a discipline to match capital with conviction, finance stops being the function that says “no” — and becomes the engine that ensures that every “yes” is worth it.