(FROM THE WALL STREET JOURNAL 3/27/15)
By David Kesmodel
Five decades ago, a young Texas Instruments Inc. accounting
manager named Pete Pyhrr pioneered a technique to help businesses
shave costs. It led to a book deal, a People magazine interview and
some consulting gigs, including as an adviser to then-Georgia Gov.
Jimmy Carter.
Then things mostly turned quiet for Mr. Pyhrr and his arcane
tool, known as zero-based budgeting, until the Brazilians behind
private-equity firm 3G Capital Partners LP came along.
3G's embrace of the system -- a centerpiece of the firm's
strategy to reshape the U.S. food industry through deals like this
week's proposed $49 billion takeover of Kraft Foods Group Inc. --
has thrust Mr. Pyhrr's method into the spotlight after years in
which it struggled to gain traction among Fortune 500 firms.
"I think it's great in my old age to say something that was a
major part of my life many, many years ago is being adopted --
hopefully successfully," the 73-year-old Texan said in an interview
on Thursday, his first in many years.
Zero-based budgeting is a "tremendous" tool, Mr. Pyhrr said,
"especially in times of economic problems, when you need to make
reductions, or when you have significant and rapid technological
change."
3G and companies it controls, including Burger King parent
Restaurant Brands International Inc. and H.J. Heinz Co. -- which it
plans to merge with Kraft -- have used the technique to slash costs
in everything from jobs to corporate jets and the use of color
photocopies. Some such cuts seem obvious, Mr. Pyhrr said, but the
tool goes deeper than that, he said. On corporate travel, "it's
really saying: Why are we going to all these places and how many of
us are going?"
In zero-based budgeting, managers plan each year's budget as if
starting their department from scratch -- a contrast with the
prevailing method of adjusting the previous year's spending. The
system calls for managers to break programs or activities into
individual "decision packages," including all associated costs, to
help identify how funds are used. The technique forces them to
justify the costs and evaluate benefits every 12 months, and to
scrutinize whether dollars should be shifted from less-profitable
to more-profitable projects.
It is unclear if anyone used a similar technique before him, but
Mr. Pyhrr is widely credited with pioneering it in the corporate
world. He developed the concept in the research department at Texas
Instruments, using it to help prioritize which of scores of
projects should be pursued and how much capital they should get
each year. "We funded a lot of new technology projects, and we did
it by taking the money from existing operations" that were targeted
for cost cuts, he recalled.
In 1977, Mr. Pyhrr said, "We discovered to our horror that many
programs [at Texas Instruments] were not analyzed every year, and
that many were just funded as a matter of course -- without a
conscious decision being made by anybody."
Mr. Pyhrr has run his own companies since the mid-1970s. Today
he is president and owner of Magnetic Ticket & Label Corp., a
250-employee Dallas company that manufactures printed airline
tickets, airline bag tags and other products. The firm isn't big
enough to require a formal zero-based budgeting process, he
said.
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