Building Resilience Through Strategic Cost Reduction in 2025

In 2025, organizations face new challenges driven by economic uncertainty, global tensions, and rapid technological change. Supply chain complexity, pressure on margins, and the need to invest in innovation and talent require a more strategic, intelligent, and integrated approach to cost management.

More than cutting costs, it’s about structurally transforming how costs are thought about and managed. In this context, strategic cost reduction emerges as one of the fundamental pillars for unlocking reinvestment opportunities in key areas such as technology and skills development to strengthen business resilience.

The article explores the most common challenges organizations face, the main drivers of this transformation, and the strategies that enable companies to thrive in an increasingly uncertain environment.

Why cost reduction tops the 2025 executive agenda

In an environment marked by economic instability and increasingly pressured margins, business leaders are being forced to rethink how they manage costs. In 2025, efficiency ceased to be just a competitive advantage and became an essential condition for business survival and resilience. Organizations are looking for more than simple cost cuts; they want to free up capital to reinvest in strategic areas.

Slowing growth and cautious revenue projections

Macroeconomic prospects for 2025 remain modest, prompting managers to anticipate slow or even stagnant revenues. Global projections point to a growth rate of around 2.6% in 2025, with the Eurozone at 1.1%¹. In a survey of executives from large companies, 60% expect business volume to remain stable or decline in the coming year² . These results reflect a cautious environment: political and economic uncertainty has led nearly all domestic and international sectors to adopt conservative revenue targets. In light of this reality, the agenda of CEOs and CFOs prioritizes operational efficiency and cost containment to maintain profitability, knowing that future growth remains uncertain.

External and internal pressures on margins

In addition to weak growth, several market forces exert negative pressure on margins. Externally, geopolitical risks and supply chain issues persist. In a recent study, 45% of executives cited supply chain problems as the primary threat, followed by 39% who pointed to economic uncertainty and 34% who mentioned inflation³. These factors — conflicts, trade tensions, currency fluctuations, and competitive actions — pressure margins and force companies to reassess their operational costs, including logistics, raw materials, and energy. Internally, organizations face rising costs for skilled labor and increasing regulatory demands (e.g., compliance or energy transition). In short, tighter margins and less tolerance for deviations make cost reduction an immediate strategic priority, preparing companies to withstand economic shocks with greater resilience.

Core levers for rapid margin improvement

With growing pressure on margins and the urgent need to fund strategic initiatives, companies seek quick and sustainable results through targeted and intelligent interventions. Margin improvement in 2025 requires a structural transformation of operations, processes, and organizational models.

Targeted divisional and functional actions

Instead of across-the-board cuts, experience shows that the most effective initiatives focus on critical areas of the organization. Most companies successful in cost programs attribute their success to actions targeted at specific divisions, units, or areas, rather than applying fixed percentage reductions across all areas. This involves identifying the largest sources of expenditure and the areas with the highest optimization potential, then setting priorities and objectives, such as:

• Production: Increasing labor productivity and equipment efficiency.
• Logistics: Optimizing routes, improving load occupancy rates, negotiating transport contracts, or revising the storage model.
• Support teams: Streamlining administrative processes, automating repetitive tasks, and digitizing workflows.
• Sales: Customer segmentation to personalize the commercial approach, focusing on sales productivity by channel.
• Purchasing: Reviewing the supplier base and renegotiating contracts.
• Product management: Discontinuing low-margin or low-turnover products and reallocating resources to the most profitable portfolio.
• Overhead expenses: Consolidating redundant administrative functions and eliminating unnecessary hierarchical structures.

These targeted initiatives ensure sustainable cost reductions without compromising the organization’s growth and innovation capacity.

Process reengineering & automation

Improving margins requires optimizing critical processes. Before any automation initiative, it is essential to redesign workflows, eliminate non-value-added activities, and reduce variability and complexity.

Only after this simplification should automation be introduced, utilizing technologies such as RPA (Robotic Process Automation), artificial intelligence, and digital platforms to accelerate repetitive tasks, increase compliance, reduce errors, and free up resources for higher-value activities.

Analyzing, optimizing, and only then automating this cycle is crucial to avoid digitalizing existing inefficiencies and ensure real gains. When appropriately executed and supported by robust performance indicators, these projects deliver a fast and sustainable return on investment.

Organizational structure redesign

Many organizations maintain structures designed for stable contexts, with extensive hierarchies, isolated functions, and low agility. In 2025, this model has become increasingly dysfunctional.

An organizational redesign, with cross-functional teams, fewer hierarchical levels, and greater local autonomy, allows for faster decisions, better strategic alignment, and reduced indirect costs associated with complexity and redundancy.

This effort can range from merging overlapping functions and selectively centralizing support services to implementing operational models focused on products or value streams. The result is a leaner structure, with greater flexibility, adaptability, and performance orientation.

Strengthening digital infrastructure for sustainable savings

Digital infrastructure has become a central element in organizations’ cost reduction strategies. Rather than merely being a technological support, IT modernization has become a critical lever for operational efficiency, smart decision-making, and creating sustainable value.

Investing in system upgrades, intelligent automation, and a robust data architecture enables organizations to eliminate redundancies, reduce costs, accelerate operations, and, most importantly, free up resources for innovation and growth.

Modernizing IT and applications

Outdated systems are now one of the biggest obstacles to efficiency and agility. Maintaining legacy technologies consumes significant resources and hinders the integration of more advanced solutions. According to CIO estimates, technical debt accounts for between 20% and 40% of the total value of an organization’s technological assets⁴ — a substantial burden that directly impacts the ability to invest in innovation.

IT infrastructure modernization — including migration to cloud environments, application rationalization, and the adoption of modular architectures — helps reduce operational costs, improve cybersecurity, and increase scalability.

More than a technical upgrade, this is about aligning technology with business strategy, making operations more flexible, resilient, and prepared for future challenges.

Generative AI for efficiency and growth

New generative artificial intelligence tools are gaining traction within organizations due to their ability to boost productivity across various tasks. In practice, these tools assist in automating intellectual work — for example, generating reports, creating marketing content, analyzing large volumes of data, coding automation scripts, or providing automatic responses to customer and employee inquiries.

Adopting generative AI means equipping teams with intelligent assistants integral to the work. When applied strategically, generative AI helps reduce labor costs, accelerate processes, and free up human capacity for more complex and creative tasks. Therefore, integrating this technology is a promising lever for controlling expenses.

Data and AI strategies for insight‑driven decisions

Accessing reliable data and knowing how to interpret it is essential for cutting waste, redirecting resources, and making decisions with real impact. Organizations with a well-structured data strategy use real-time dashboards, predictive analytics, and artificial intelligence to understand consumption patterns, identify cost deviations, and take swift action.

Building a robust data and AI strategy requires an integrated architecture, with clear governance, ensured data quality, and predictive models tailored to the business context. This enables organizations to anticipate operational risks, simulate scenarios, identify savings opportunities, and adjust decisions based on evidence rather than assumptions.

In addition to increasing visibility into costs, these capabilities are particularly critical in narrow margins, where every second, resource, and decision counts. Organizations that align data with their strategy become more agile, resilient, and competitive, capable of reacting quickly to market changes, optimizing processes, and channeling investment into areas with the highest return.

Pitfalls to avoid on the cost reduction journey

Despite the urgency and growing focus on cost reduction, many organizations fail to achieve the desired results or cannot sustain them over the long term. Recent studies reveal that, on average, only 48% of savings targets are met, and much of the gains are lost after two years⁵. A poorly planned or executed cost reduction can become a risk for the organization, compromising service quality, team engagement, and even future growth potential. Ensuring efforts generate a real, lasting impact aligned with the business strategy is essential.

Underinvesting in program infrastructure

A common mistake is treating the cost reduction program as a secondary initiative and, paradoxically, cutting resources for its structuring. This underinvestment often results in ineffective governance, unclear metrics, and the creation of improvised teams — factors that directly undermine execution and results. Many programs also fail because the objectives are set in isolation, without alignment with the business strategy or active leadership involvement.

To ensure success, it is crucial to structure the program from the outset with the correct elements:

• Appointment of executive sponsors with real decision-making power.
• Creation of dedicated, multidisciplinary project teams.
• Definition of clear performance indicators aligned with strategic objectives.
• Implementation of a robust governance model focused on results.
• Creation of effective cost monitoring and reporting tools.
• Empowering teams with the necessary skills to lead the transformation.

Reducing costs requires a professional, structured, and strategic approach. Ignoring this need turns the effort into a one-off, reactive, and short-sighted exercise, rather than a continuous improvement process with a sustainable impact on the organization’s performance.

Overreliance on technology alone

Automating ineffective processes does not generate efficiency — it simply accelerates waste. The belief that technology alone will solve cost challenges is one of the most common pitfalls of the digital age. While technology is a powerful enabler, without well-designed processes and employee engagement, its impact is limited.

For example, implementing a new CRM will not deliver the expected benefits if teams continue to work “the way they always have.” To avoid this mistake, investments in technology must be accompanied by consistent change management efforts: involving employees in redesigning processes, training teams on new standards, and monitoring adoption with clear indicators.

In short, without a culture of continuous improvement and organizational transformation, technology on its own tends to lead to frustration and not sustainable savings.

Lessons and next steps for continuous improvement

Strategic cost management is an ongoing process that requires discipline, alignment, and constant evolution. Organizations that can sustain gains over time integrate operational efficiency into their management model, foster a culture of accountability, and use data to make decisions with agility.

Below, three essential pillars are highlighted to transform short-term initiatives into lasting results.

Robust tracking & reporting discipline

Without measurement, there is no management. Discipline in monitoring results is one of the most decisive factors for the sustainable success of a cost reduction program. Organizations must establish regular reporting mechanisms, with relevant, reliable, and accessible indicators for both operational teams and top management.

Tools such as performance dashboards, cost analysis, and variation control become key instruments for ensuring visibility, accountability, and the ability to make timely corrections.

However, it’s not enough to report the data: it is important to define structured moments for analyzing results, interpreting deviations, and, most importantly, triggering improvement initiatives based on those insights.

These practices not only ensure effective tracking of goals but also strengthen internal alignment, allow for the celebration of achievements, and promote a culture of efficiency supported by fact-based decision-making.

Change management to sustain momentum

Sustaining gains over time requires more than a good plan — it demands a cultural shift embedded in the organization’s daily operations. Companies that succeed in continuously reducing costs manage to engage teams in improvement, develop active leadership, and maintain a structured routine for monitoring and evolving progress.

The goal is to implement proactive, indicator-driven management. Leaders must be empowered to regularly track key KPIs, identify deviations, define corrective actions, and promote best practices in collaboration with teams.

This approach creates a solid foundation for ensuring that the improvements identified are maintained and optimized over time, reinforcing a culture where everyone actively contributes to cost reduction and performance improvement.

Defining a strategic north star

For a cost reduction program to generate real and sustainable value, it must be anchored in a clear and shared strategic objective — the so-called “North Star” or “True North.” This vision serves as a long-term reference, guiding all decisions.

The True North should be inspiring and clear and must be communicated consistently throughout the organization. It should guide priorities, help evaluate trade-offs, and give purpose to implemented actions. When well-defined, it allows for clear answers to questions such as, “Does this savings initiative bring us closer to or take us further from what we want to become?”

By linking each cost management initiative to the strategic vision, organizations can avoid short-sighted decisions that undermine competitive differentiation or the customer experience. Organizations that align their teams around this standard reference increase coherence, strengthen commitment, and accelerate execution with focus and purpose.

Still have some questions about cost reduction?

What is a strategic North Star, and how does it guide cost reduction success?

The “North Star” of strategy, also known as the “True North,” represents the organization’s long-term vision — its highest strategic purpose — what the company aspires to become. It serves as a reference that guides all decisions and prioritizations, even in contexts of accelerated change.

In the context of cost reduction, the True North prevents initiatives from becoming mere cost-cutting or survival exercises. Instead, it ensures that all efficiency actions are aligned with the desired future positioning, contributing to creating sustainable value. Guiding cost optimization by a True North allows for:

• Avoiding short-term decisions that undermine the strategy.
• Aligning teams around common goals.
• Prioritizing initiatives with real strategic impact.
• Strengthening the coherence between efficiency and competitive differentiation.

In summary, the True North acts as a strategic compass: it ensures that cost reduction is not an end but a means to build a more resilient, focused organization prepared for growth.

What are the most effective cost reduction levers for 2025?

The main levers for 2025 combine actions with immediate impact and structural investments in long-term efficiency. The most effective organizations apply these levers in an integrated manner, aligning operational gains with the strategic vision. Among the most relevant, the following stand out:

• Defining goals by functional area: Establish specific cost reduction objectives based on a detailed analysis of indicators, processes, and responsibilities.
•  Process optimization and automation: Apply Kaizen and Lean methodologies to eliminate waste and subsequently automate repetitive tasks using technologies such as RPA and digital workflows.
• Organizational restructuring: Redesign functions, eliminate duplications, and simplify hierarchical structures to increase agility and reduce indirect costs.
• Technology modernization: Replace legacy systems with lighter, scalable, and interoperable solutions, freeing up IT resources and improving responsiveness.
• Data and artificial intelligence: Use advanced analytics and generative AI to support fast decision-making, predict resource needs, and optimize operations across the organization.
• Culture of efficiency: Foster a continuous improvement mindset at all levels of the organization, ensuring that gains are maintained and expanded over time.

Together, these levers help organizations boost margins in the short term while laying the groundwork for long-term competitiveness—tackling inefficiencies and outdated structures while staying focused on their strategic priorities.

References

1. PwC. Economic Outlook 2025 – Q1. PwC Malta, 2025. ↩︎
2. PropertyCasualty360. More than half of executives expect zero growth in 2025. May 5th, 2025. ↩︎
3. Ibid. ↩︎
4. McKinsey & Company. Tech debt: Reclaiming tech equity. McKinsey Digital. ↩︎
5. Boston Consulting Group. Cost Efficiencies Remain an Executive Priority in 2025. BCG, 2025. ↩︎