Why is Coca-Cola using zero-based budgeting?

Coke bottle

Image source: Wendy Tietz

In recent years, The Coca-Cola Company (KO) is facing decreased global demand for its soft drinks due to customer health concerns about the sugary drinks. It has responded to decreased demand with a variety of ways, including cost cutting measures. In October 2014, Coke announced a $3 billion cost-cutting effort that would impact the entire global organization. (Trivia: Coke sells Coca-Cola in every country in the world except for Cuba and North Korea.)

In January 2015, Mike Esterl of the Wall Street Journal reported that Coke is using zero-based budgeting throughout its organization (Wall Street Journal, “Coca-Cola to cut 1,600 – 1,800 jobs globally,” January 8, 2015). In addition, Coke is standardizing operations across its business units. It expects to complete the cost-cutting by 2019.

Questions

  1. What is zero-based budgeting?
  2. Why might Coca-Cola want to use zero-based budgeting?
  3. Do you expect that managers at Coca-Cola would embrace zero-based budgeting? Why or why not?
  4. Why would standardizing operations across business units help with cost-cutting?

Instructor Resources

These resources are provided to give the instructor flexibility for use of Accounting in the Headlines articles in the classroom. The blog posting itself can be assigned via a link to this site OR by distributing the student handout below. Alternatively, the PowerPoint file below contains a bullet point overview of the article and the discussion questions.

  • Student handout (pdf) (word) (contains entire blog posting + discussion questions)
  • PowerPoint file (brief article overview + discussion questions)

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License.

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About Dr. Wendy Tietz, CPA, CMA, CSCA, CGMA

Dr. Wendy Tietz is a professor of accounting at Kent State University in Kent, Ohio, USA. She is also a textbook author with Pearson Education.

2 Responses to “Why is Coca-Cola using zero-based budgeting?”

  1. hi Wendy,
    Is the idea of this exercise that students search for articles related to this case and then answer the questions?
    We have covered zero based budget theory and practise last week so using this examples to wrap up the topic is just graet!
    Thank you so much for sharing so much great material!
    I have sent a request to get the solutions, would appreciate if you could send me over.
    Regards
    Juan

    • Dr. Wendy Tietz, CPA, CMA, CSCA, CGMA Reply February 14, 2019 at 6:20 am

      Hello! I do not prepare solutions for two reasons: 1) Many of the posts are designed to be gray areas and generate discussion – there may not be one correct answer and I do not want to cut off discussion by providing “the” answer; and 2) Some instructors use the blog posts as graded assignments and I have no way to control who would get the solutions.

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