Using Zero-Based Budgeting to Drive Return on Research Investment
Some of the biggest brands in the world have adopted an accounting practice that originated in the 1970s but has seen a recent resurgence in popularity - zero-based budgeting (ZBB). Kraft Heinz, Mondelez International, Unilever and Diageo are among the 30 large multi-nationals that have helped popularise this budget saving tactic which saves firms an average of $280 million per year. Given the potential savings on offer, and the financial challenges insight departments often face, its fair to ask whether adopting a zero-based budgeting approach to justifying research investments could, in fact, help boost research ROI.
An Introduction to Zero Based Budgeting
So what exactly is ZBB? Simply put, this is a method of financial planning where all expenses must be justified at the start of each financial period. This means decision makers must build and justify budgets from a zero base. A zero base doesn’t necessarily mean a zero sum, but it does mean only including items which can demonstrate a clear return on investment. These plans are reviewed by senior management teams and either approved or sent back for amendments.
In short, instead of starting with a fixed sum and working out how to best spend that amount, departments start from zero. From this base, departments work out their objectives, what they want to achieve, what the return will be and the cost of getting there. The result is a much more flexible approach that prioritises business goals rather than historic spend.
It’s important also to clarify one of the largest misconceptions of zero-based budgeting. The approach is sometimes referred to as a cost-cutting exercise; a way to reduce budgets and overall spend. If implemented correctly, this is not the case. While it does look to eliminate costs that are not delivering results, it also greenlights ideas and spend that may not have fit into a more traditional model. In a way, it forces management to look closely at every purchase and consider how it is contributing to overall business growth. Something that contributes one year, as a business grows and changes, may not the next.
The key benefits of using this approach include; that it allows for more efficient allocation of resources by homing in on the key business objectives and ensuring resource is not lost on unnecessary work. It also highlights where businesses could approach tasks in a more cost-effective way, perhaps through choice of supplier. And arguably the greatest impact is identifying costs that simply unnecessarily inflate budgets. With traditional budgeting often using the previous year’s spend as a starting point, departments can end up trying to protect their budgets from cuts and spend for the sake of spending. Zero-based budgeting focuses departments on what will add value and what is necessary.
Financial Pressures on Insight Teams
As a research agency, we often hear that in-house researchers are being asked to do more with less – something that causes a great deal of challenges in insight departments. To effectively compete in a given market place, brands are required to understand and connect with their customers, so that they can respond to their needs, preferences and behaviours. And its no secret that these preferences and behaviours are changing more frequently than ever before.
In addition, engaging with consumers at the product development stage of production, the planning stages of marketing campaigns and post-launch for regular feedback is vital. Insight teams are therefore faced with the challenge of delivering compelling and in-depth intelligence to management teams at all of these stages, all whilst under significant budgetary pressures.
This often leads to two main courses of action:
Insight teams turn to DIY tools which can be significantly less expensive to acquire in comparison to agency services. However, whilst cost is not spent outside of the business, much more investment is required internally in order to effectively use such tools. Skills such as research design, scripting, moderating, analysis and reporting must all be present.
Alternatively, to keep internal costs low, the other natural reaction can be to work with one (or multiple) research agency partners. While this can be managed by a much smaller internal team, there is still a significant outlay required to keep the data flowing in.
This paints a pretty bleak picture of the insights market. However, it’s not all doom and gloom. In fact, the 2016 sector review from PWC and the MRS found that the market research sector has grown by almost £2 million.
Between the growth in the UK economy and an increasing amount of services exports (36% in the insights industry), the future is looking positive. But, despite this, the anecdotal experience of in-house researchers still suggests that the growth in demand for insight is outstripping growth in budgets.
Is Zero Based Budgeting the Solution?
Given these trends, there’s certainly evidence that adopting a zero-based budgeting approach could benefit in-house research teams. By starting from a base of zero and building budgets based on the research investments that will add value only, insight departments can clearly demonstrate what they add to a business whilst potentially growing budgets in a constructive way.
But what’s the best way to build a research budget from base zero? In my opinion, the best way to approach this is to use a hybrid approach to market research. My definition of a hybrid approach in this context refers to working with a partner that offers DIY tools, but is able to provide services on an ongoing or ad-hoc basis.
This provides a unique advantage for the research team - who are able to use DIY tools to extend the capacity of the team and extend their capabilities by purchasing services only for projects are areas of skill where it is required. At the same time, working closely with an agency helps create that unified and comprehensive customer intelligence program. Here are some reasons why:
The insight team is able to share with the agency their overall goals and objectives in terms of customer intelligence meaning project briefings become more streamlined
In-house teams are able to keep in regular contact with the agency and therefore can request help on certain aspects of the project on an ad-hoc basis without expensive consultations
This approach allows an insight team to pick and choose when they use their help and what for
Agencies who offer hybrid approach often offer a substantial discount on services, leading to direct savings
Hybrid contract can be annual or longer meaning that the justification in zero-budgeting does not need to be on annual basis
So, in short, this approach can actually drive a positive return on research investment, if done the right way. But it’s always important to remember that not every business will fit the same solution.
Amy has a passion for understanding consumer behaviour and has developed a strong knowledge of quantitative and qualitative research amongst B2C and B2B audiences. Her adaptability is vital for working a multitude of diverse projects, successfully providing essential insights. You can follow Amy on Twitter.