Zero-based costing (ZBC) may sound like a complex strategy, but at its core, it’s simply about re-evaluating every expense from scratch rather than automatically building on last year’s budget. This approach was popularized in the 1970s by Peter Pyhrr, an accountant at Texas Instruments, and it’s taken root in many sectors as companies navigate the fluctuating economic landscape.
In South Africa, JSE-listed companies are feeling the strain of rising costs. Retailers, major banks, and resource-heavy industries such as mining are reporting financial impairments in 2024, thanks largely to high electricity tariffs and the increasing costs of imported goods. For these companies, ZBC could be a game-changer—if applied in the right spirit.
What does “the right spirit” mean? Often, cost-cutting in big organizations turns into a never-ending cycle that drains employee morale. If you’ve ever worked in a company where the budget “cracking the whip” seems like management’s favorite pastime, you know it’s not the most inspiring environment. Job security feels shaky, creativity takes a backseat, and the workplace becomes something people endure rather than enjoy. ZBC, however, is about more than just shaving off costs—it’s about creating value and supporting growth.
When ZBC is done right, it’s not about continuously slicing the budget to unsustainable levels but about focusing on what truly drives the business forward. For example, rather than growing internal service departments and adding costs unnecessarily, companies should focus on lean teams that add core value. The ultimate goal is a thriving company, not just a lean one.
Interestingly, smaller businesses might be better positioned to embrace ZBC effectively. Unlike large corporations, smaller companies are nimble, and their cost-cutting decisions don’t need to jump through endless hoops. As a small business owner, you can quickly evaluate expenses that aren’t directly tied to growth and focus on trimming those. In a fast-changing economic environment, this agility can be an advantage—helping you manage rising internal and external costs while staying competitive.
So, whether you’re a large corporation facing mounting cost pressures or a small business owner aiming to streamline operations, zero-based costing could offer a way forward. But remember, it’s about balance: the aim is to run leaner, not lose the excitement and creativity that keep a workplace alive.
