Why would a company use zero-based budgeting?

Zero-based budgeting is a budgeting process in which each
year's budget is created from scratch.  This is as opposed to systems in which the
previous year's budget is taken as a starting point and adjustments are made from that
base.  A firm might use zero-based budgeting if it wishes to restrain growth in its
spending and if it wishes to do a better job of allocating its resources to those areas
in which they are most needed.

In other types of budgeting,
decisions are made largely based on what has already happened in the past.  It is much
harder to reallocate resources in other bugeting processes because the assumption is
that each area of the firm will receive the same (or higher) levels of resources as it
did in the previous year.  By using zero-based budgeting, a firm is encouraged to look
clearly at all of its operations each year so as to really evaluate how much in the way
of resources should go to each operational area.  This can give the firm the best
possible chance of using its resources in the most efficient
way.

Please follow the link for a much more detailed
discussion of the pros and cons of zero-based budgeting.