2025 MarginPLUS study: Resilience and innovation
7 cost reduction and business transformation trends
In this era of economic uncertainty, companies are shifting their focus from growth to resilience. The 2025 MarginPLUS global cost reduction and business transformation study shows it. Leaders see reducing costs as the key to margin improvement today. They’re doing it by accelerating technology investment, targeting cost-reduction efforts, and being bold enough to learn lessons from not only their successes, but also their failures.
What is driving today’s companies toward cost reduction and business transformation?
According to this year’s MarginPLUS global study on cost reduction and transformation, which included 397 high-level executives from a broad range of industries and geographies, revenue projections remain cautious. Modest growth expectations coupled with the urgent need to build resilience is prompting many companies to increase their focus on hard-dollar cost reduction and reduce their focus on rebalancing spend allocations through spend optimization.
Meanwhile, the business transformation trigger cited most often by the executives we surveyed is competitor action—responding strategically to moves their competitors are making.
Successful companies can drive sustainable results by aiming high, employing strong governance, and investing to help sustain savings. In particular, they are investing in digital technology and improved infrastructure to increase their strategic flexibility and to serve customers more effectively in an increasingly digital marketplace.
7 key findings that explain today’s cost reduction environment
Expectations about the economy and general business landscape have a major influence on companies’ cost reduction and transformation activities. In this year’s survey, respondents’ views of the global economy and their own company’s growth prospects are a mixed bag. Growth expectations are also down significantly. In last year’s survey, 45% of respondents expected their company’s revenue to grow by more than 10%. This year, that number fell to just 27%. Instead, most companies (56%) are only expecting to achieve growth of 1% to 10%.
This year’s reduced growth expectations are likely attributable to the significant external and internal success barriers that respondents highlighted consistently in this year's survey.
The two highest-ranked external risks/barriers are changes in customer buying behavior (45%) and lower consumer demand (38%). Both of these issues are closely related and are up significantly since last year. They also likely explain the consumer sector’s low growth expectations and higher-than-average recession expectations.
The two highest-ranked internal risks/barriers in this year’s survey both revolve around infrastructure: specifically, companies’ inability to enable digital infrastructure to meet new external business conditions and scale (49%, up from 40% last year); and lack of flexibility in existing assets and infrastructure to respond to external demand (45%, up from 33% last year). These two related challenges highlight the importance of making smart infrastructure decisions and investments that can help a company adapt and scale to an ever-changing—and increasingly digital—business environment.
The main takeaway here is that flexibility in all aspects of business—including cost structure, assets, and digital/physical infrastructure—is crucial to success in today’s marketplace and is something every company should be actively pursuing.
A trend analysis of our survey results going back to 2023 highlights some dramatic shifts in the primary triggers for cost reduction and transformation.
In 2023, at the tail end of the global pandemic, lack of talent/people (43%) stood out as the biggest transformation trigger by far.
In 2024, when the pandemic was completely under control, but its ripple effects were still looming large, inflation (52%) and supply chain constraints (32%) stood out as key transformation triggers, along with slower economic activity (34%).
This year, the four top transformation triggers are actions by competitors (43%), rising inflation (43%), slower economic activity (39%), and increasing labor costs (23%). Among the companies surveyed, 75% have seen their transformation programs triggered by one or more of these four factors.
In periods of rapid and high growth, many companies can solve or mask their cost inefficiencies by growing revenue faster than costs—essentially outgrowing the problem. However, today’s reduced growth expectations deliver a double hit, giving current cost inefficiencies no place to hide while potentially uncovering past inefficiencies that previously had been obscured.
Since 2024, the focus on cost reduction has increased from 38% to 47% (a 22% rise), while the focus on spend optimization has decreased from 51% to 39% (a 23% decline).
When it comes to cost reduction and transformation, focused effort is a key trend that carries over from last year. In 2025, the No. 1 way to pursue margin improvement through cost reduction continues to be targeted actions taken to reduce costs in a few divisions, business units, functions, or geographies (69%, up from 65% in 2024).
The top levers for achieving transformation are organizational structure design (50%); data and AI strategies (48%); process reengineering and automation (47%); and IT/app modernization (41%). According to the survey results, 93% of companies are using at least one of these four levers to drive business transformation (up from 89% in 2024).
Today, every company is using Generative AI (GenAI) in one way or another. The most common purpose is to drive efficiency (39%), saving companies money and helping them do more with less. However, a closer look at the survey results shows an even greater emphasis on growth, with the growth-oriented purposes of enhance customer experience (27%) and innovation (19%) adding up to a combined rate of 46%.
Companies are pursuing growth by using GenAI to serve customers more effectively—not just more efficiently—and to deliver a high-quality customer experience. They are also using GenAI to enable innovative new products, services, and business models that can boost their revenues and help them expand into new markets.
Looking ahead, it’s likely that companies will continue integrating AI into their technology portfolios—and will expect it to deliver significant value. However, they will likely face a number of key challenges. As always, cost is an important issue, especially given the high levels of investment that AI technology and infrastructure are likely to require.
As companies gain experience with cost reduction and transformation, they start to learn what works and what doesn’t. According to this year’s survey results, the four top lessons learned continue to be:
- Design a solid tracking and reporting process;
- Deploy change management activities to raise awareness, acceptance, and benefits of initiatives;
- Develop, validate, and sponsor a clear business case for cost improvement; and
- Invest in technology improvements to enable data availability, reliability, and decision-making process.
With regard to specific actions companies are taking to manage their business transformation more effectively, the most noteworthy trend is a dramatic increase in the percentage of companies defining a strategic North Star (53%, up from 50% in 2024). And the number is even higher among successful companies (58%, versus 55% for unsuccessful companies).
What we’ve been seeing in the market
Based on our organization’s experience working with clients in every industry and geography, we see companies making three common mistakes when pursuing cost reduction and transformation:
- Underinvesting in program infrastructure. Cutting spend on program infrastructure (e.g., transformation management office, compliance and controls, value capture) might seem like a fast and easy way to reduce a program’s overall cost. However, without this solid foundation, programs often suffer from inconsistency, lack of accountability, and excessive risk—all of which can end up costing a company far more than it saved.
- Thinking technology alone will drive savings. Technology implementation can be a big investment. However, technology alone will not deliver maximum efficiency and cost savings. Achieving the expected benefits requires many other elements—including process transformation, change management, and employee training—to change how work actually gets done.
- Losing discipline in the middle. Many cost reduction and transformation programs are multi-year journeys that start with a lot of momentum and quick wins. However, in the middle years, when all quick wins are completed and the challenges grow more complex, many programs lose focus and fizzle out.
Ultimately, success hinges on execution. Companies need to start with a robust program infrastructure, then have the discipline to see programs through to the finish line. They also need to invest in technology—without treating it as a magic cure-all. Unless companies also invest in the necessary related improvements to processes and people, much of the potential cost savings from implementing technology will likely be unrealized or unsustainable.
1Survey responses were collected between October and November 2024. Commentary in this paper is reflective of survey responses, and sentiment may have changed since the survey was conducted.
