Phil Rumbol: Zero-based budgeting is time consuming and debilitating
In reply to a recent column by Mark Ritson, Phil Rumbol, founding partner at agency 101, chairman of The Marketing Academy and former Cadbury marketing director shares his views on zero-based budgeting and how it might do more harm than good.
There’s been a lot of discussion in the marketing press recently following Unilever’s announcement that it is going to adopt zero-based budgeting (ZBB). Marketing Week columnist Mark Ritson described most of this commentary as “total bollocks” and then went on to extol the virtues of ZBB theory as taught to MBA students. To paraphrase, “the marketing team do their research, construct their marketing plan and conclude it with a budget in which they ask for a certain amount of investment and promise a specific return for that investment.” So far so good. He then goes on to say “if you get your requested investment you then have to provide the promised financial return at the end of the year or your ass will be delivered on a tray. Accountability I believe it’s called.” This is where the ivory tower theory starts to depart from the CMO reality.
To quote another bit of theory, the role of marketing is two-fold: Sales activation and building brand equity or brand advantage. While the former is often discernible ‘in year’, the latter accrues over a number of years and manifests itself as further sales momentum and/or better price realisation. Building brand equity is therefore much more opaque, and often requires investment in econometrics (which not every brand can afford) to isolate the effect of marketing investment versus other factors. So the idea of ROI being judged solely on one year, as described above, is quite dangerous, and can lead to the prioritisation of short term, sales activation investment to the detriment of brand building.
I’ve worked in organisations that have adopted ZBB and the reality is that it is hugely time consuming and debilitating.
In reality the pure theory gives way to the inevitable bureaucracy and politics that drain energy away from the actual task of building the business. It dramatically lowers the altitude of the discussions away from three year ‘Strat Plans’ to granular discussions around the unit price of a piece of Point of Sale activity. This might be a good investment of time and focus if your greatest profit and loss leverage comes from reducing costs, but not if you’re trying to drive top-line growth.
Ritson was also quite disparaging about the finance community having “no knowledge of your market” or “no insight of market dynamics.” I’d like to offer a counter argument. In my experience most CFOs worth their salt are astute business people who have a holistic perspective on how their business works. They know a powerful brand when they see one, because they see the benefits of sustained sales momentum and strong margins rather than the over-heating that occurs when a brand is traded hard to sustain sales growth.
They may not know how to build brand equity (that’s the CMO’s job, not theirs), but they do tend to believe that sustained investment in marketing is good for business. In contrast ZBB replaces this with a ‘guilty until proven innocent’ approach to marketing investment. Unless you can prove it will work this year you can’t have it. This means belief in marketing investment is ‘zeroed’ and has to be built back up brick by brick.
I’m a great believer that CMOs need to be accountable for the effectiveness of marketing investment but this should be a high altitude strategic discussion not the low altitude, highly granular budget negotiation that ZBB becomes in most organisations.
