ZERO-BASED BUDGETING

When I learned about the concept of Zero-Based Budgeting, I had mixed feelings. On one hand, it was a rather bold idea. On the other, a mixture of utopia and doubt: how is it possible to consider all expenses questionable?

Of course, Zero-Based Budgeting is more of a concept than an implementation guide. Every company, at any turn of the year, has its commitments already made. So, the idea is to question what is truly necessary and what is being done out of inertia. In these times of Lean Companies, it's a perfectly valid idea.

However, we must precede this concept with another, much more ethereal one, but one that generates sustainable results: positioning. In my opinion, positioning is the backbone of any company, and the difference between the success of companies lies precisely in the quality of this backbone. By analogy, every serious company ceases to be spineless and adopts the backbone that sustains all its activities.

Still maintaining the analogy, everything the company does that is in tune with its backbone represents a practical, real advantage. Anything that conflicts with the functioning of the spine is dead weight. Fat is dead weight, muscle stiffness is a hindrance, slow decisions are too. Think of a cat's spine and its ability to survive. A spine is never related to rigidity.

Why the analogy? Because positioning needs coherence, consistency, coordinated actions, agility—everything related to the spine. It's no use for a company to have brilliant ideas that can't be implemented due to lack of coordination, operational rigidity, or inability to implement them. Or to have disconnected, uncoordinated ideas that don't add up.

But what does this have to do with Zero-Based Budgeting? It's impossible to apply the concept without understanding what the company's positioning is. When any cost-cutting or investment cuts ignore the business needs that keep the company afloat, the business goes down the drain. Literally.

You don't see the spine, but when it's in tune with what the company is, you see it in the communication and recognize what it does. The opposite is also true: companies that try to present a face that doesn't correspond to what they are capable of doing don't impress for long.

Cutting costs and cutting or redirecting investments are not financial activities: they are strategic activities that need to be aligned with what the company is or can be. In recent years, it has become conventional to say that every modern company is, at its core, a technology company.

By this reasoning, the one with the best software wins, right? Wrong. Every modern company depends on a cutting-edge technological structure. Car manufacturers are seeing this. The VW Group has experienced firsthand what it's like to have a gigantic conglomerate without a technology structure in line with what the market wants.

And a great example is what Ferrari is doing with its new 100% electric Luce model. Inviting Johnny Ive to design the interior of the model seems like one of the biggest contradictions, since we are talking about the creator of the iPhone designing the interface of a car. His project clearly shows what automakers got wrong when trying to bring smartphone interfaces to cars. Screens aren't the solution to all problems. Haptic interfaces don't solve drivability issues. High-resolution screens don't compensate for bad software.

Those who haven't seen it should watch the documentaries about the launch of the Ferrari Luce. It's easy to understand that technology, in many cases, needs to be transparent, and the user has to deal with what they know best: the physical world. In a segment like Ferrari's, human/machine interaction is crucial. Screens are cold and monotonous. Artificial feedback is unsatisfactory. What is expected of a vehicle, especially a Ferrari, is very different from what is expected of a cell phone. When you see the final result, you're not surprised by the shapes (rectangles with rounded corners), but by what's behind the shapes: the way the physical and analog worlds interact to create real experiences.

This is just one example of when a company understands what it delivers, and this is totally related to its positioning. Ferrari has built a segment where it is unique, and it knows that in this market, its delivery permeates its entire creative and production process. Hence the doubled challenge of making an electric car, or, as they themselves say, it's not just an electric car, but an electric Ferrari.

In short, if you want to make your company more efficient, cutting costs may be the solution, as long as you know where and what to cut. Otherwise, the revenue you lose will not compensate for the savings.