Zero-basing is an essential tool for any company pursuing a Fit for Growth transformation. More than a cost management lever, zero-basing is an overarching, holistic method of examining all business activities to distinguish the differentiating capabilities that create sustainable competitive advantage from the table-stakes capabilities needed to compete in the marketplace and the lights-on capabilities needed to operate any business. Zero-basing is a repeatable process for rigorously scrutinizing every dollar in a company's budget and instilling a culture of cost management across the organization. A well-executed zero-basing program yields sustainable cost reductions, fosters a mindset of questioning the need for every activity, and releases funds to invest in differentiating capabilities.
Zero-basing examines the costs of all activities, based on their strategic priority, value added, and business necessity, rather than budgetary precedent. Nothing is funded just because it was in last year's budget. Instead, zero-basing demands that a strong case be made for every expenditure. A decision-tree analysis based on five questions separates costs that support differentiating capabilities from those that support table-stakes and lights-on capabilities: