Sorrell Is Wrong - Zero-Based Budgeting Is An Opportunity, Not A Problem

Sir Martin Sorrell announced at a conference I attended toward the end of last year that Zero-Based Budgeting (ZBB) was the biggest threat to the marketing and advertising industries that would bite in the next year, 2017.

To be honest, I'm sure this is a worry for the country's highest-paid executive, that huge mega contracts don't just roll over but are instead replaced by brands commissioning work as and when needed. But what I'm discovering from smaller agencies is that it could be a godsend.

The idea behind ZBB is simple enough. If you send the marketing department the same budget as you did last year at the start of the financial year, you can bet it will soon be allocated. However, if you instead start with zero and ask executives to say what they want to do in their latest project and how much they will need, that parcel of money allocated to them has a specific point. There's a purpose they want x thousand pounds for, and there is a direct result from that project that success can be measured against.

So you start from zero and work your way up bidding for budget as it is needed, rather than just shelling out massive retainers. It makes sense, but I recently discovered why so many marketing agencies and consultants think it makes perfect sense, and it's for a different reason altogether.

Anything that revolves around a retainer of any sort is currently being screwed down by the guys in procurement. They are more than happy to play bad cop and get rates slashed. However, with project-based work, marketing executives generally need something done in the short term and so don't want to get the accountants involved in a race to the bottom on fees. So instead, a project is there to be discussed without the accountants involved and the really big point here is that people I've been talking with reveal there is always more money for a short-term campaign than there is for activity that is part of a three-year mega deal.

The feedback I'm getting is that brand executives will generally approach the agencies they want to work with, and the resulting conversation is centred on what the results will be. It's a value discussion rather than just being about money. Don't get me wrong -- it's not all plane sailing. The stakes are higher because if money is set aside for one specific piece of work and it underperforms, it will soon be obvious. There's no losing a poor campaign within a three-year contract. ZBB means each project will stand out on its own for ROI on budget.

Nevertheless, the talk on the proverbial street is that agencies generally do not have a problem with this and actually welcome projects being commissioned around the value they add to the client's business. When results can be demonstrated and value proven, more cash is likely to follow. The point is that it will be on the same basis of orienting around the value that work represents, not just the cost.

From what I'm hearing, ZBB is being welcomed by a lot of agencies as the antidote to procurement and all discussions focused on cost. It's a return to talking about the value of marketing, not just the price -- and that's a welcome relief right now for many.

1 comment about "Sorrell Is Wrong - Zero-Based Budgeting Is An Opportunity, Not A Problem".
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  1. John Grono from GAP Research, February 3, 2017 at 4:57 p.m.

    ZBB is great in theory.   But I just pose this one question.

    What if in a large corporation encompassing dozens of brands, every brand's marketer did their ZBB fairly and honestly, and included the grandiose plans for product launches, relaunches, advertising and retail support that they had always harboured?

    They'd all go for the halo pass.   All the plans and budgets are submitted, the CFO tallies them all and finds expenses are up 50%.   The CEO says no way, maximum overall increase of 5% (and I reckon I'm being generous there).

    So, what would the point have been?   A lot of planning, costing and work done for close to zero result.   If there is to be a financial cap or constraint communicate it up front.   The CMO should then allocate the budget ranges according to the corporate strictures.   If there was a metric ROMDI (Return On Marketing Department Investment) ZBB would be at the bottom of the pile.

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