Fast forward toand 3G Capital and Berkshire Hathaway made another transformative merger in the food industry.
Case Study: How 3G Capital Squeezed More Out of Heinz
This time, the two companies arranged for a merger between can Kraft Foods and privately-held H. Why is this significant? In any case, the company appears to be doing something special.
Who is 3G Capital 3G Capital is a Brazilian investment firm that is most well-known for its laser-like focus on cost-cutting at its investees and on retaining and developing the best managerial talent. Financial Times The first creation of these three business partners was the Brazilian investment bank Banco Guarantia. Guarantia was sold to Credit Suisse in the late s.
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The company makes avid use of a concept called zero-based budgeting to improve the operational performance of the companies it invests in. Zero-based budgeting, or ZBB for short, is significantly different than normal budgeting procedures. By building the budget from the ground up, managers are forced to justify every expense, which naturally improves operational efficiency over time.
Despite its effectiveness, zero-based budgeting is unpopular for two reasons. First, it is highly disruptive. Entire departments can be eliminated after a zero-based budget analysis determines them to be a poor use of shareholder capital.
In the past, these inefficient business units remained operational simply because they had always been there. The propensity for zero-based budgeting to cause can and other slashes to corporate expenditures are the first reason why this managerial technique is invest fully appreciated.
The second factor is up-front cost. Intuitively, it is not surprising that ZBB is expensive to executive.