Zero-Based Budgeting: Peter Pyhrr, Jimmy Carter and 3G Capital at Kraft

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Zero-based budgeting began in the 1970s with Peter Pyhrr, an accounting manager at Texas Instruments who saw that incremental budgets were hiding corporate bloat. His rule: every expense is re-justified each period from zero, grouped into decision packages and ranked against current goals. Jimmy Carter, as governor of Georgia, brought Pyhrr in to run the state's budget process in 1973, then took ZBB to Washington, mandating it through the 1976 Government Economy and Spending Reform Act. Federal agencies had to submit base, incremental and enhanced packages, including a funding level below current spending.

The paperwork proved crushing, agencies lacked performance metrics, and by August 1981 ZBB was eliminated from federal budgeting, though alternative funding analysis survived until about 1994. China's 1990s experiment in Hubei province ran into extra-budgetary funds, exemptions and political pressure, and was adapted into target-based budgeting with sunset provisions. The private sector revived it through 3G Capital, Carlos Brito and Jorge Paulo Lemann, at Anheuser-Busch InBev, Burger King, Tim Hortons, Heinz, Kraft and Popeyes, and Unilever and Tesco have used it too.

• A former director of management analysis training at the U.S. Civil Service Commission said a true zero-based review was practically impossible, so zero came to mean a program's survival minimum.
• Some agencies simulated ZBB by preparing budgets at 50, 80 or 90 percent of the prior year's request.
• Hubei's version exempted operating expenses, personnel costs and future policies, while department fee revenue sat outside central review.
• After 3G Capital applied ZBB to Kraft, the stock jumped 36 percent almost overnight, and employees had to ask permission to make photocopies.
• After the 2015 Kraft Heinz merger, analysts and former employees blamed ZBB for starving R&D and marketing as tastes shifted to healthier foods.