Opinion

The religion of zero-based budgeting – pleasing some stakeholders at the expense of others?


Last week saw the largest consumer staples conference in London for the investment community and the most talked about company at the conference did not even attend. The elephant in the room was Kraft Heinz, which has gained the reputation as the most aggressive cost cutter and deal doer in the consumer space.

Company management make themselves vulnerable to a bid today if they do not say that they fully believe in the “religion” of zero-based budgeting, which has played a big part in the DNA of the Brazilian owners of Kraft Heinz and AB Inbev. As they have often said, margins tend to be much more in the control of management than the generation of top line growth.

Yet is this the wrong time to be focusing more aggressively on a strategy of cost cutting, which really satisfies just one set of stakeholders – those shareholders interested in profit today, rather than long term growth?

After all, it was not the Unilever shareholders which led to Kraft Heinz withdrawing its approach back in February. We believe that it was more likely to have been pressure, either perceived or real, from other stakeholders, including government, which led to the stepping back.

This only goes to demonstrate the power of other stakeholder groups over companies’ ability to execute their strategy – and the importance of keeping those groups onside.

Keeping a tight control on costs is always going to be vital. But businesses with a reputation solely for cutting costs, not investing and growing may find their ability to manoeuvre increasingly constrained in a more interventionist time.

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