Incentives and Consequences of the Shift to Zero-Based Budgeting in International FMCG Companies by the Case of the Kraft-Heinz Company and Mondelez Int.

Graph 20 -Distribution of the sales revenue of Mondelez International worldwide from 2011 to 2018, by geographic region (in million U.S. dollars)

Source: compiled by the author on the basis of (Mondelez International, Inc., 2018)2014-2018

Organic net revenue is defined by the company as net revenues excluding the impact of acquisitions, divestitures, currency rate fluctuation, the historical global coffee business, the historical Venezuelan operations(Mondelez International, 2018). In addition, the company evaluates the organic revenue growth from emerging and developed countries separately, so emerging countries include Latin America, some countries from the European region (Russia, Ukraine, Turkey, Kazakhstan, Belarus, Georgia, Poland, Czech Republic,Slovak Republic, Hungary, Bulgaria, Romania, the Baltics and the East Adriatic countries),the entire AMEA region despite of Australia, New Zealand and Japan. Developed countries, on the other hand, include North America, the rest of the countries from Europe and not mentioned countries from the AMEA region(Mondelez International, Inc., 2018, p. 55). The company believes, that the indicator of the organic net revenue reflects in the best manner the real growth of the activities and appears to be the most convenient way to compare the results. Meanwhile, a 37% share of the company's sales is devoted to the emerging countries, while 63% - to developed countries(Mondelez International, 2018, p. 18).

On the organic net revenue in emerging and developed markets(in millions of US dollars)between 2016 and 2018, the most significant impact on the net revenue had the translation foreign currency exchange, meanwhile in 2018 in emerging markets the influence of FX was negative, so that the organic net revenue would show higher values. The negative values have been triggered by the depreciation of the local currencies in the developing countries, therefore, the revenue in dollars has decreased, as we have shown it in the 2.1 sub-chapter.

In the developed countries, however, the organic net growth has shown vice versa lower results due to the currency exchange rate and an impact of acquisition in 2018, impact of divestitures in 2017 and 2016.

At the same time, we can analyze the growth of the organic net revenue within 2016-2018 years. Thus, we can see that the organic net revenue in emerging markets has been steadily growing from 2,7% in 2016 to 5,1% in 2018, while in developed countries the indicator plummeted in 2017 and recovered already in 2018, showing a 1,5% growth.



Graph 21 - Organic Net Revenue for emerging and developed markets in Mondelez Int. between 2014 and 2018 (in million $)

Source: Compiled by the author on the basis of(Mondelez International, 2018, p. 114)

Mondelez Int. had several stages of the company development in mind. In 2012, when it was established after the spin-off of the Kraft Foods Int., the goal was to set a snacks business and expand to more emerging markets, while facing all of their specificities. In between 2013 and 2018, the company has found out that the margins which the company obtains are significantly lower than those of their competitors, thus, it has focused on margin improvement and portfolio optimization (which would be mentioned further in the paper). The next stage, which has just recently started in 2018, sets the focus on the top-line growth and a gain of share(Mondelez International, 2018, p. 22).



Figure 5 - Stages of Development of Mondelez International

Source: (Mondelez International, 2018, p. 22)

Consequently, in 2014, the company has started to focus on cost-cutting initiatives with the goal to boost revenue growth. The strategy constituted out of 4 parts: implementation of the zero-based budgeting approach; supply chain reinvention; global shared services implementation and revenue management. Meanwhile, cutting costs was not a goal in itself as the savings are planned to be reinvested into base business growth's enhancement.

To make the transition to ZBB easier, a "2014-2018 Restructuring Program" has been approved, the purpose of which was to reduce operating costs in both the supply chain and overheads, which could be achieved through theshift to the zero-based budgeting.The "2014-2018 Restructuring Program" has to deliver around $1,5 billion to 2018, 50% of which have to appear out of supply chain optimization and 50% - overheads, which include 25% of indirect costs and 25% of people costs and organization model. At the same time, the costs would account to $3,5 billion being included into the short-term capex of 5% of the revenue(Mondelez International, 2015, p. 54).In 2018, the restructuring program has been extended up to 2022 and the investment accounted to $7,7 billion in total, so it was renamed into "Simplify to Growth Program"(Mondelez International, Inc., 2018, p. 86).

The approach of zero-based budgetinghad been presented as a cost-management program, which has a potential to reset the expense culture in the company, identify the directions of sustainable cost reductionsand enhance the margin improvement. Despite of overheads, a significant expense decrease has been achieved by the simplification and standardization of back-office processes (with the 50% expected savings), decomposition of the manufacturing sites via the construction of greenfield and brownfield production sites with advanced production lines, and closing at the same time inefficient production facilities(Mondelez International, 2015).

Thus, the aspiration of Mondelez Int. to be a top industry player keeps it pursuingtop and bottom line growth, provide a high EPS growthwith a cash return to the shareholders, what had to be the results from ZBB, as it was mentioned in 2015 by then CFO Brian Gladden at the Barclays Global Consumer Staples conference (Mondelez International, 2015).

In 2015, the company has presented its 1-year success with the adoption of ZBB to indirect costs. The following categories have been prioritized for the implementation of the cost packages:

1. Information systems;

2. Travelling;

3. Facilities;

4. Contractors &Consultants;

5. Perquisites;

6. Company Vehicles;

7. Events &Sponsorship;

8. Recruitment and Development;

9. Legal Services;

10. Financial Services;

11. Outsourced Business Support;

12. Sales Support;

13. Marketing support.

All in all, those categories accounted to approximately 50% of the overhead savings. Meanwhile, in travelling the target was to cut 35% of travel consumption, implement global industry standard travel policies; in information systems, around 50% of application portfolio had to be reduced, IT systems - virtualized and some vendors consolidated(Mondelez International CAGNY Conference, 2015, p. 52).

Basing on the model of the shift to zero-based budgeting which we have pointed out in the first theoretical chapter (PWC's 4-step holistic approach to successfully implement ZBB, which includes vision reexamination, bringing activities to a zero base, assessment of the outcomes and an implementation of the approach into other operations,(Chehade, Clark, & Biscardini, 2010)), we will specify the approach which has been followed by Mondelez Int. by the example of the procurement's department. Thus, the approach utilized by Mondelez Int. is called "ZBB Closed Loop Process", the major reason of which is a sustainable margin expansion. The system includes 6 steps, which will be described further.

Figure 6 - Shift to ZBB utilized by Mondelez International

Source: (Dady & Sordi, 2015, p. 7)

(1) The step "visibility" empowers the transparency on the current status of expenditures via the analysis of all the transactions for the past period of time.

(2) At the next step, "value targeting", benchmarking between peer companies on a certain function is provided with the purpose to decrease consumption and price;

(3) Further, an accountability matrix and policies are developed in order to ensure package owners for each expense;

(4) After all, zero-based budgeting takes place and inefficient, low-valuable expenses are abandoned on an annual basis;

(5) Educational events in the field of the function take place with the purpose to provide employees with information concerning cost reductions;

(6) According to the accountability matrix, regular reviews take place on different governance levels, which we will discuss later on in the paper(Dady & Sordi, 2015, p. 7).

Thus, we see that the steps of the transfer to ZBB in Mondelez Int. logically correspond to PWC's 4-step approach and that one of the Kraft Heinz Company. Further, the company compares the packages to the industry benchmark, calculates it as a percentage of net revenue and examines any changes.

Next, we will discuss the governance levels of the review of ZBB compliance. In particular, there are fourauthority levels in the company with different frequency of tracking and changing objectives. Thus, the basic level is a country& function one with an ongoing frequency of control, and encourages regional ZBB review of the overhead performance, sharing the best practices within and outside the region. It is as well important to implement initiatives and best practicesfrom other functions or countries into life.

The next level is the regional one which occurs on a monthly basis with the aim to review the financial and operational KPIs for each package and sub-package and record all the valuable changes into the policies. At this stage, unfavorable trends in some areas are identified and managed.

Further up the stage, reviews take place in a form of monthly reports and quarterly meetings, with some packages being checked more or less often. The correspondence of the results to the financial and operational KPIs is examined and global policies are analyzed and corrected if needed.

On the global ZBB day the cost performance happens on a quarterly cadence. The objective at this stage is to share the experience of different regions and functions in the implementation and support of the ZBB approach and resolve the escalations from the previous level(Dady & Sordi, 2015, p. 10).

Figure 7 - The governance levels and cadence of check in Mondelez International

Source:(Dady & Sordi, 2015, p. 10)

Despite of governance levels, each cost package obtains its global owner, operational owner and a global partner in the exact function at the C-level of employees, including Chief Executive Officer, Chief Operational Officer and further.

In the period of 2013-2018, the company has built a foundation for the further growth via a combination of ZBB and Shared Services on the one side of the spectrum and the improvement of the performance of supply chain, including their modernization, simplification, focus on sustainability.

First, we will focus on the shared services (a part of Global Business Services function), the purpose of which was to decrease the overhead and achieve the economies of scale.An improved productivity, as a by-product, stems from 1) a leveraged scale, as far as a small country like Nigeria or Manila is used to completely outsource a certain function; 2) centralization of a function in one country, which helps to see how to simplify or standardize the processes even more; 3) automatization, digitalization due to the implementation of "Robotization at a Service" solution.Overall, global operating of Mondelez Int. is a three-tier model with the first tier, "on-shore", representing the headquarters, front offices and production sites; the second tier "middle offices", which are located in the same time zone but operating atlower costs, and the third tier, "offshore", which are located usually in India or Manila and operating mostly in English and in different time zones(18th European SSON, 2019).

Thus, due to the simplified and standardized working processes, outsourced business functions, emphasize on scalable processes together with better centralization of functions brings an opportunity to reduce overhead cost by 50%(Mondelez International, 2015, p. 53).

Supply chain reinvention is another component of fostering growth in the company andprioritizes the transformation of global manufacturing platforms, redesign of the supply chain network and an enforcement of the productivity programs, which should finally pour into the improvement of the cash management. In three years from 2015, the company was expecting to achieve $3 billion gross productivity cost savings (which constitutes around 4,5% of the cost of goods sold), $1,5 billionfrom net productivity cost savings and $1 billion of cash flow management (management of receivables, inventory and payables)(Mondelez International CAGNY Conference, 2015, p. 25).

In parallel to the decision to follow ZBB, in 2014 it was announced that Mondelez International has taken a strategic decision to focus primarily on the snack industry and separate the coffee business by combining its coffee portfolio with D.E. Master Blends 1753, which would settle a $7-billion world's leading coffee company Jacobs Douwe Egberts, with Mondelez Int. holding a 44% equity interest in the joined venture. As a result, Mondelez Int. managed to concentrate on the main food category and continue benefiting from a growing coffee business(Jacobs Douwe Egberts, 2015), (Mondelez International, 2014). Due to the elimination of any costs associated with the coffee business and much simplified supply chains, the company is planning to reach a higher level of savings.



Graph 22 - Gross Profit Margin between 2014 and 2018 in Mondelez Int.

Source: (Mondelez International, 2019)

The first indicator which we will look at is the gross profit margin which reveals the share of the revenue which has left after deducting the cost of goods sold. The gross profit margin has improved from 36,8% to 39,9%

Thus, the major performance indicators of ZBB have been the decrease of indirect costs, thus, a growth of the adjusted operating income margin, organic net revenue growth, and adjusted EPS growth. Moreover, those indicators have been set as long-term goals in 2015 for the upcoming years(Mondelez International, 2015, p. 10),consequently, we will have a look at the financial performance of the company between 2013, one year before the implementation of the zero-based budgeting, and 2018, after several years of its active adoption.

Secondly, the adjusted operating income margin has shown a 610-basis points growth from 10,6% in 2013 to 16,7% in 2018. As it is disclosed in the investor presentation, the adjusted operating income has increased in-between 2013 and 2017 due to 240 bps from the adjusted gross margin improvement and 310 bps due to the decrease of the SG&A expenses(Mondelez International, 2018, p. 107). Thus, we see, that the company has managed to achieve a significant upswing in its adjusted operating income margin with a growth of a high single digit.

Graph 23 - Adjusted Operating Income Margin between 2013 and 2018 in Mondelez Int.

Source: (Mondelez International, 2018, p. 137),

Thenextindicator, the organic net revenue growth has as well shown an upward trend with the compound annual growth of 1,6% between 2014 and 2018 years, which is still lower than the category growth, which we have stated as around 3%. It means that the company will put more efforts into an increase of the organic net revenue in the future.

Graph 24 - Organic Net Revenue Growth between 2014 and 2018 in Mondelez Int.

Source:(Mondelez International, 2018, p. 134)

The adjusted earnings per share (in constant currency) have been targeted to achieve a double-digit growth,and that has occurred to be realist with the growth of around 18% between 2013 and 2018.

Graph 25 - Adjusted EPS Growth between 2014 and 2018 in Mondelez Int.

Source: (Mondelez International, 2018, p. 142)

Thus, we see that the company has achieved some of the long-term goals, with the margin improvement being the strategic goal of this periodof the company's development in 2013-2018.

SG&A expenses stayed at approximately the same level of 24-25%, with the deduction of advertising and R&D costs at around 17-19%.



Graph 26 - Comparison of SG&A and SG (excluding R&D and Advertising expenses) between 2014 and 2018 in Mondelez Int.

Source: (Mondelez International, 2019)

Thus, SG&A include, despite of advertising, R&D and other types of aforementioned overhead costs, divestiture-related costs which are connected to the sale of manufacturing facilities or brands. In such a way, in 2017 and 2016 there have been recorded the loss of $27 million and $84 million correspondingly due to the sale of several plants in France and local confectionary brands. In addition, in 2016 there have been recorded a total of $19 million impairment charges for several candy and gum trademark(Mondelez Internationa, Inc., 2017, p. 80). In 2018, Mondelez Int. has recorded $13 million of acquisition-related costs (which have been put into SG&A) due to an acquisition of a US premium biscuit company Tate's Bake Shop(Mondelez International, Inc., 2018, p. 78). For these reasons, even though the company has significantly decreased some expense lines and the overall level of SG&A has improved, in 2018 there was an increase.

Advertising expenses in the company have been decreasing in absolute numbers during the period between 2013 and 2018, however, the percentage of advertising to net revenue stayed on approximately the same level of 5%(Mondelez International, Inc., 2018). As it was stated in the article about the experience of Mondelez Int. in ZBB in marketing, the company was expected to decrease the costs by shifting from traditional channels (TV, magazines, etc.) to targeted digital platforms, including posting videos online, use targeting and online advertising, developing full-scale online campaigns(Joseph, 2014).

Graph 27 - Advertising expenses in absolute and relative numbers between 2014 and 2018 in Mondelez Int.

Source: (Mondelez International, 2019)

Expenses for research and development, being a part of SG&A expenses, have reduced $455 million in 2013 to $362 million in 2018, however, R&D as a percentage of revenue stayed approximately at the same level of 1,4%. The reason for the decrease in absolute terms might lay in four objectives which are pursued in R&D, among which is reduced costs, product safety and quality, growth through new products and superior consumer satisfaction (Mondelez International, Inc., 2015)(Mondelez International, Inc., 2018, p. 6). Still, the company is running a $65 million project to build and modernize the entire network of the company's global R&D facilities, which included an opening of a new technical center in Poland, and modernization of several centers in China, Singapore and India. Thus, we can conclude that Mondelez Int. is making significant steps in the development of its R&D facilities, but still managing to reduce costs(Mondelez International, Inc., 2018).

Graph 28 - R&D expenses in absolute and relative numbers between 2014 and 2018 in Mondelez Int.

Source: (Mondelez International, 2019)

Travelling expenses, being a part of SG&A costs, were challenged to be decreased with the help of policy awareness campaigns (such as "Travelling the MDLZ Way") which boosted the understanding of the global travel policy, an update of the travel intranet for better navigation. Such activities have helped the employees to realize and follow on a regular basis travel policy, plan business trips in advance and buy the tickets at least 14 days prior the flight, utilize official booking channels. In such a way, in 2015 overall travel expenses have been reduced by more than 20%, and the number of flights booked 2 weeks before the trip has dropped by 45%(Advito, 2015).

Additional benefits which the company has obtained in the last period of time is an improvement of the cash conversion cycle from 20 days in 2013 down to minus 32 days. Basically, it means that the company used to be able to convert its investment in inventory into cash from sales in 20 days, but this period of time has changed down to minus 32, signifying that the company is collecting money from customers before transferring payment to suppliers and after converting inventories into sold merchandise(Mondelez International, 2015, p. 109). In particular, it is noticed that the Days Sales in Inventory (DIOH) was significantly improved and there is a possibility of improving the indicator Days Sales in Receivables (DSO) - the period of time when the sold goods are payed.

Graph 29 -Capital expenditures as a percentage of net revenue between 2014 and 2018 in Mondelez Int.

Source: (Mondelez International, Inc., 2018, p. 24)

Furthermore, within the last several years, Mondelez Int. has managed to steadily decrease the amount of capital expenditures with a slight take off in 2018 due to the modernization and construction of some manufacturing facilities (14 greenfield/brownfield sites)and a launch of new products. Moreover, in 2019 capex is expected to go up, connected to the support of the Simplify to Grow Program(Mondelez International, Inc., 2018, p. 51).

In addition, we will look at the long-term debt in order to see the amount of obligation which the company has been taking over the years. As far as we can see from the graph, Mondelez Int. has reduced the long-term debt from $13,8 to $12.5 billion by almost 10%, while the interest payments have significantly reduced almost twice.

Graph 30 - Long-Term Debt and Interest Payments between 2014 and 2018 by Mondelez Int.

Source: compiled by the author on the basis of (Mondelez International, Inc., 2018), (Mondelez International, Inc., 2015)

The last indicator we will look at is the free cash flow, which is an important indicator showing that the company is able to pay its duties, expand business activities, make short-term and long-term investment, or distribute among shareholders. Thus, we can see that free cash flow had a downward trend in between 2014 and 2017 due to significant restricting costs (the aforementioned "Simplify to Grow Program") and capex, but after 2017 it has skyrocketed up to $2,8 billion with the projections of achieving $3 billion in 2020-2022(Mondelez International, 2015, p. 57), (Mondelez International, 2018, p. 119).



Graph 31 - Free Cash Flow in billion $ between 2014 and 2018 in MondelezInt.

Source: (Mondelez International, 2019, p. 49)

All of the initiatives meet the strategy to focus on the growth after 2018, as far as for before 2018 the company was growing slower than the market. As a result, we see that the company is moving away from the primary goal to improve margins by cost-cutting initiatives, which have been reflected in the implementation of the zero-based budgeting.

The market is positively reacting to the company's performance with the share price hitting the pick for the entire history of the company, reaching the price of $50,2 per share(Yahoo Finance, 2019).



Graph 32 - Share price of Mondelez International in 2019

Source: (Yahoo Finance, 2019)

Having analyzed the shift of Mondelez International to the zero-based budgeting and other cost-cutting activities, and as well the performance of the company since the implementation of a new budgeting approach for a certain period of time, when the company was pursuing the goal of improving the margins, we see that it has managed to achieve a significant adjusted operating margin improvement, as well as the organic net revenue and a growth of the adjusted earnings per share. Moreover, the company has decreased the overhead costby means of travelling,shared business services, facilities and others, while making advertising, R&D expenses more efficient. Despite of implementing ZBB and shared services, the company has optimized its supply chain network. Thus, we can conclude that ZBB used to be an efficient tool in this period of company's development, however, as we have mentioned it, from 2018 on, the company will prioritize the top-line growth and consumer centricity by growing sales volume, increased advertising& consumer expenses, revenue growth on the level of category growth, with the help of periodic ZBB activities and improved margins. Productivity stays a point of the future growth via continuous improvement mindset, which includes Lean 6 Sigma and ZBB approaches, continuing the aforementioned restructuring program.



3. Practical Implications of the Shift to Zero-Based Budgeting by the Kraft HeinzCompany and Mondelez Int.

3.1 Comparison of the Incentives and Consequences of the Transition to Zero-Based Budgeting by the Kraft Heinz Company and Mondelez Int.

In the previous chapter, we have had a look at the specificities of the implementation and pursuing of ZBB by two companies occupied in the consumer goods industry - the Kraft Heinz Company and Mondelez International.

Among these two companies, H.J. Heinz was the first company which implemented zero-based budgeting after the acquisition under the government of 3G Capital in 2013 and followed this approach after the merger with the Kraft Foods Group in 2015. Mondelez International followed this approach in 2015 with the purpose of improving the margins, following the experience of then H.J.Heinz. Thus, in 2014 Irene Rosenfeld, the former CEO of Mondelez Int., claimed that "We have watched the work that 3G has done with AB InBev and Heinz and we believe they can be of great help to us"(IGD: Supply Chain Analysis, 2014).

The major incentive behind the transition to the zero-based budgeting approach by both companies is the improvement of margins in a low-growing consumer goods industry. As we have stated it in the sub-chapter 2.3, Mondelez International aimed to improve the margins which have been lower than the industry averageand achieve the growth as it has been growing slower than the category during several years. 3G Capital, which is operating on behalf of the Kraft Heinz Company, strived to achieve better margins and growth than other companies in the industry, trying to pursue its vision and culture in terms of getting rid of non-valuable activities and inefficient employees.

The difference in the approachesof two companies is lying in aggressive cost-cutting initiatives in SG&A (including advertising and R&D expenses) and personnelfrom the side of the Kraft Heinz Company and soft cost-cutting approach which almost did not touch such important functions as advertising and R&D, while it was still applied to the rest of SG&A. The Kraft Heinz Company has been established basing on the culture of cost justification and savings initiatives in comparison to Mondelez International, in which ZBB acts as a supportive tool to achieve the goals.

Table 2 - The Comparison of the Incentives for the Shift to ZBB By the Kraft Heinz Company and Mondelez International

The Kraft Heinz Company	Mondelez International
Margin improvement in a low-growing consumer goods industry
Enhancing growth
Getting rig of non-valuable costs
Aggressive cost-cutting, starting with the people	Soft cost-cutting, while still applying ZBB to overhead
The entire culture of the company is based upon cost justification and saving initiatives	While ZBB is applied throughout the company, it is not the cornerstone of all the operations
Strategic approach of 3G Capital to all the companies under the governances

Source: compiled by the author

Going further to the consequences of the transition to the Zero-Based Budgeting, we have listed the points, found out in the previous chapter, in the Table 3.



Table 3 - The Comparison of the Consequences of the Shift to ZBB By the Kraft Heinz Company and Mondelez Int.

The Kraft Heinz Company	Mondelez International
Improved gross profit margin in 2015-2017; 2018 - lowered gross profit margin due to higher COGS	Improved gross profit margin in 2014-2018
Adjusted EBITDA has significantly increased in 2016, but the growth lowered and became negative in 2018	Adjusted Operating Income margin has increased from 10,6% in 2013 just before starting ZBB up to 16,7% in 2018, in total by 610 bps
- SG&A expenses as a percentage of the net revenue have decreased till 2017, but have grown in 2018 due to forced necessity to increase advertising costs; - R&D costs were steadily decreasing; - Advertising costs have decreased in 2017 in comparison to 2015;	- SG&A as a percentage of net revenue stayed at an approximately the same level - Advertising and R&D as a percentage of net revenue stayed the same - Implementation of Shared Services - Improvement of the Supply Chains - Reductions in the number of employees
Organic net revenue growth varied between 2015 and 2018, with 2015 and 2017 showing negative growth, and the growth of less than 1% in 2018	Organic net revenue has achieved the growth of 2,4% in 2018 in comparison to 1,6% in 2014.
Capital expenditures have increased in 2017 in comparison to 2015	Capex slightly decreased
FCC was negative in 2017	Strong growth of FCF
Adjusted EPS have been increasing in both 2016 and 2017, but decreased in 2018 due to decreased adjusted EBITDA	Adjusted EPS has achieved a double-digit growth of 15% in 2018
LT Debt increased significantly between 2014 and 2015, then there was an upward trend till 2016 with a slight decrease in 2017	LT Debt decreased by 10% between 2015 and 2018
$15,4 impairment charges for the Kraft and Oscar Mayer trademarks and NA refrigerated and retail business.
Negative net income, decreased adjusted EBITDA, decreased quarterly dividend
Subpoena from SEC in regard to the procurement function
Decreased demand for the products
Dropped share price from $48,18 to $34,95 and still at the same level	The share price is hitting the pick of $50,2 per share
Conclusion
The company used ZBB with the purpose to improve margins and make the company perform at the best possible level, however, due to the excessive cost cutting and a lack of support of iconic brands, it has lost in the evaluation. The company plans after 2020 to grow top and bottom line through innovation, whitespace activities and support of the brands.	The company utilized ZBB at the development stage as a part of the strategy to improve margins. Now, after achieving financial results, the company plans to focus on boosting top-line growth, achieve the category growth, boost A&C expenses.

Source: compiled by the author

In conclusion we can say that first of all, the Kraft Heinz Company has been aggressively implementing ZBB by cutting the advertising, R&D costs, employee termination, what has, on the one hand, lead the company to the improvement of margins, but on the other hand, to the devaluation of several iconic brands. As a result, the company has lost in net revenue, adjusted EBITDA, decreased dividend payments, worsened margins and the most important, a significant drop of the share prices. The company plans to start investing more into the support of the brands, high R&D and marketing costs, however, those activities will decrease back the margins. It is possible, that now the company will manage to more efficiently build the functions of marketing and R&D to make them at least more efficient for the same amount of money spent.

Secondly, Mondelez International has implemented ZBB in a softer manner without excessive decrease of advertising and R&D expenses as a percentage of net revenue, but at the same time reducing such overhead costs as traveling, information systems, company vehicles, as well as shared services have been implemented together with an improvement of the supply chain. Such a performance has allowed the company to sustainably improve the margins, achieve the growth of the adjusted operating income, adjusted EPS, strong growth of FCF and a high price per share.

3.2 Recommendations for the Companies

In the previous chapters, we have looked at the theoretical background of budgeting, examined the case studies of two consumer goods companies Mondelez International and the Kraft Heinz Company, animplementation of the approach into the operations of the companies and the performance after the implementation, as well as the future strategies of the companies. Furthermore, we continue with the recommendations for those companies which are on the way to the transfer to ZBB.

- First of all,we would recommend pursuing the approach of ZBB for a limited period of time as a temporary measure with defined key performance indicators. On the basis of the experience of Mondelez International, which has been utilizing ZBB for a period of 4 years with a clear goal to improve margins, we can say that such an approach is successful;

- ZBB can be repeated on a regular basis as a means of justifying the current activities and expenditures;

- In general, ZBB is worth implementing as far as it has shown positive results in Mondelez Int., the Kraft Heinz Company (before it has exaggerated with the lack of support of the brands) and some other companies. With the help of ZBB it is possible to sustainably achieve competitive margins, challenge the current state of activities in different functions of the company.

- It is possible to organize periodic switch to ZBB separately by functions, thus not by the entire company. In such a way, it would be possible to challenge those activities which seem to become less valuable and productive.

- As far as ZBB in usually applied to the overhead expenses, or SG&A, which include besides others such lines as advertising, marketing, research and development expenses, the company should not force to drop the allocation of money by a fixed number of percent in these areas, but should precisely check the activities inside of functions, create cost packages and sub-packages with clear governance levels and check it on a regular basis. In such a way, only unnecessary activities will be eliminated, while the prospective projects will not be cut back on spending.

- Complimented to the previous point, the company needs to contemplate cost-cutting initiatives in a sustainable manner, meaning that activities should not be cut on auniversal basis, evenly distributed among different functions and activities. Such an approach can lead to promising activities being stuck because of the lack of funding.

- Creation of clear governance levels isanotherimportant point being faced by the companies when they switch from traditional budgeting to zero-based one. Multiple governance levels ensure accuracy in the calculations and eliminate any opportunity of mistake, miscomprehension or fraud. Thus, as it is done in Mondelez Int. and the Kraft Heinz Company, at the regional level the control is happening on and ongoing basis, at the regional level -on a monthly basis (depends on the company), while at the global level an audit happens once or twice a period. In addition to the governance levels, the Kraft Heinz Company implements a vertical and horizontal levels of governance - there exist entity owners at the vertical levels, who possess the control over the same cost package at different levels of governance, and cost owners on the horizontal level, who is responsible for a variety of cost packages inside of one department/function.

- An implementation of ZBB into the company with an experience of traditional budgeting systemhappens to be stressful and time-consuming for those employees who is responsible for cost packages and for those who is not directly connected to the process of budget preparation but is inevitably participating in the company's operations. For this reason, companies need to organize educational trainings where the role and importance of ZBB for the sustainability of the company would be disclosed, as well as precise measures which can be taken by the employees to encourage a successful implementation of the budgeting approach. Especially difficult would be those cost packages which are directly connected to the employees, such as travelling expenses, insurance, availability of free nutrition or discounts for the company's products, etc. However, exactly an appropriate education would create the consciousness from the side of the personnel in their cost-cutting activities and an overall culture. In addition, keeping employees on track of the current performance indicators by email would positively influence the responsibility of the staff.

- Lastly, the companies which plan to follow ZBB approach need to realize that zero-based budgeting on the one hand is more than just cost cutting measures, as it aids to "clean" the company from the activities which do not bring any value in the short or long run, reduce expenses where they are not necessary and boost them in those spheres or specific projects in which they could bring value. In such a manner, expenses are redistributed within the company, decreased or raised where necessary. On the other hand, ZBB is not a "magic pill" which would instantly improve the margins and change the operations for the better. Behind an implementation of ZBB there should stand a conscious decision to pursue a path accompanied with substantialrestructuring costs, necessity to work with consulting companies (such as Accenture in both case studies which we have investigated).

Going deeper into the recommendations which could be made for Mondelez International, we can say that as far as the company has successfully performed during the period of time 2013-2018, when it has set the goal of improving margins and optimizing the portfolio, and as a result the company has significantly improved the operating income margin from 10.6% to 16,7%; gross profit margin from 36,8% to 39,9%, together with improved earnings per share and increased organic net revenue. Taking into consideration the experience of the Kraft Heinz Company, we would recommend to Mondelez Int. to avoid focusing extensively on further margin improvement and sustain the current culture of cost-awareness from the side of employees in terms of travelling, choice of more efficient advertising means and others. Continuing in such a manner would allow the company to continue focusing on the sales growth and achieving at least the snacks category growth (3%+). Meanwhile, the successful experience of ZBB should be employed in the further operations of the company and repeated on a regular basis once in two years, which would help the company to examine the efficiency of all the current activities.

The Kraft Heinz Company, first of all, needs to set a goal of coming back to the previous share-price level, what can be achieved by the overall successfulperformance of the company, including the growth of the organic net revenues, earnings per share, lower debt level, positive cash flow. Depreciation of the value of such iconic brands as Kraft and Oscar Mayer can be won back by putting more efforts into advertising and marketing support and following the current trend of healthier products. However, in order to avoid excessive operating margindrop due to increased costs, the company needs to choose the most efficient means of brand management and marketing. Further, the company can focus on boosting top and bottom-line growth. An important change for the company would be to focus on introducing some health-oriented local brands in order to satisfy customer's desire for healthier products.

Further, we will make the recommendations for the future academic research on the topic.

3.3 Recommendations for the Future Research

In our research, we have made a comprehensive overview of the theoretical basis on the topic of budgeting, zero-based budgeting in particular, as well as the analytical part connected to the case-studies of two international FMCG companies - the Kraft-Heinz Company and Mondelez International. We have found out the incentives and consequences of switching to the approach of zero-based budgeting from the traditional one.The scope of the study is limited to the FMCG market and to the early adopters of the approach, which have not faced yet successful examples of long-term implementation of the approach. Besides, we have investigated two companies operating in the same field.

Consequently, there is still space for the further academic research in the area of the current study. We consider that the following ideas for the future research would be of a high priority in the foreseeable future:

- to look at the case studies of longer-term implementation of ZBB (5+ years) by international companies and the trend of their performance indicators;

- to check the sustainability of ZBB in the long run and compare it to the limited periodic adoption of the approach;

- to investigate the ways ofculture creation which is based on zero-based budgeting and methods of training the employees;

- to examine how many companies will move to ZBB in a 5-10-yeartime frame and what are the outcomes;

- to compare the efficiency of zero-based budgeting approach and traditional budgeting;

- to investigate the efficiency of ZBB implementation in small and medium-sized companies;

- to compare the results of similar companies which implemented ZBB from inception and that one which has adopted the budgeting approach;

- to examine the efficiency of ZBB in other industries despite of consumer goods companies, for example, oil and gas industry, production and others.



Conclusion

The analysis in the paper has covered in-depth the incentives and consequences of a zero-based budgeting approach implementation into international companies in the FMCG industry. After having discussed the theoretical foundation of budgeting in international companies and the practical chapter with two case studies interacting in the FMCG landscape, both international companies, namely, the Kraft Heinz Company and Mondelez Int., the results of this study indicate that the incentives, which encourage the companies to switch to zero-based budgeting are multifaceted, yet mostly focus on improved operational performance due to an increase in profitability, overhead cost reduction, better allocation of financial resources, and on top improved managerial performance due to sufficient rationalization and alignment of budgeted activities with the strategy and KPIs of the company, analysis of alternative activities, regular reviews and elimination of less value-creating activities.

Both companies pursue a ZBB approach with the main purpose to increase the organization's margin: Mondelez Int., in fact, after separating from Kraft Foods Group in 2013, needed to streamline its operations and achieve industry-comparable margins, while the Kraft Heinz Company, after emerging as a creation by 3G Capital through the merger of H.J. Heinz and Kraft Foods Group, followed severe intensions and aspirations to become the best-in-industry company by setting an example, even further a benchmark in terms of margins.

The idea behind zero-based budgeting has proven itself as a sustainable approach to budgeting, which is providing companies with plethora of benefits that have been discussed earlier in the paper. However, by the example of the Kraft Heinz Company, the understanding and realization of ZBB should not be pursued on a constant basis in its full capacity as some brands might be jeopardized in case a lack of support from the side of marketing, research & development show up. In doing so, the culture in the company might get worse resulting in nothing more but additional resignations.

Returning to the hypotheses posed at the beginning of this study, it is now possible to state that ZBB can act as a long-term sustainable strategy in international FMCG companies, however, to the current level of knowledge and information available, not for the life-time. Both Mondelez International and the Kraft Heinz Company have been following the zero-based budgeting for 4-5 years, nevertheless, Mondelez Int. has changed its focus now to different priorities. The Kraft Heinz Company claimed to follow the way of a better brand support by increasing expenses in marketing, advertising, which is as well at odds with the main principles of ZBB. Nevertheless, it is recommended to implement such an approach on a regular basis in order to examine the current state of the company's activities. In such a way, we can state that the hypothesis has been partly approved.

The second hypothesis is partly confirmed as far as ZBB is still highly considered to be a purely cost-cutting initiative, just in an unusual form. In reality it represents a more sophisticated and multifaceted approach, which brings the company to a completely different level of operations and furthermore, helps out to determine and realize, which activities do not add any value to the company in accordance to the current strategy.



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