If cash is king, then adept cost management might just be the key to the throne.
A third (33%) of the 570 C-suite executives surveyed by Boston Consulting Group said they’re prioritizing cost reduction as a critical need. That was the leading answer from a list of options, as it was in a similar BCG study a year ago, but it came in eight percentage points higher this year.
According to BCG, which provides cost management expertise and services, cost containment is usually a better choice today than alternative cash strategies a company might pursue. “In a challenging economic landscape, companies that prioritize productivity growth through disciplined cost management will outperform those that choose to absorb margin pressures or pass costs on to consumers,” the consulting firm wrote in its survey report.
Two-thirds (67%) of those surveyed said they plan to invest savings from cost-reduction efforts into growth strategies.
Corporate executives might be excused for taking a strong stance on cost management. On average, survey participants said they achieved only 48% of their cost-saving targets in 2024, and most reported difficulties in sustaining cost efficiencies beyond two years.
According to BCG research, companies that miss their cost targets underperform in total shareholder return by an average of nine percentage points compared to the average TSR of peers that meet their goals.
Within the discipline of cash management, surveyed executives identified supply chain optimization as the top cost driver they’re looking to optimize in 2025.
BCG noted that “supply chains remain under relentless pressure from multiple directions.” These include geopolitical crises, an uncertain macroeconomic outlook, climate change and the pressure of net-zero commitments, technology disruptions, and changing consumer expectations.
Those polled selected product portfolio simplification as the No. 2 cost driver that’s up for close examination this year. In fast-moving markets, growing product complexity and the associated shifting of priorities drive up structural costs and profitability pressures, BCG wrote.
Also in executives’ sights are operating model and workforce productivity, customer service operations, and sales and marketing. “While all companies prioritize cost management, there is no one-size-fits-all approach,” BCG advised. “It must be tailored to focus on areas that strengthen the company’s competitive advantage.”
BCG offered some thoughts as to the most effective ways companies can embed cost awareness into daily operations. For one, companies should enhance their performance visibility by communicating financial-year targets and gaps, specific cost-saving achievements and initiatives and market trends and economic forecasts.
As to what manner of communication from leaders is most effective, BCG recommended ensuring that they model cost-conscious behavior, hold regular executive-led town halls and issue internal written updates.
“Resistance to change can hinder implementation of new cost-saving measures and efficiency improvements,” BCG wrote. “However, firms with aligned culture and agile management see up to 11% higher efficiency in cost-reduction initiatives.”
