What follows is an abridged adaptation of “Don’t Wait for a Crisis to Reduce Costs,” published originally in Harvard Business Review. Read the original, full version of the article here.

After years of increased spending in response to major and sometimes unprecedented global events, the pendulum of business is swinging back to cost cautiousness and efficiency.

Nevertheless, companies too often wait for the next crisis to cut costs. When they do, the response can be sudden and drastic, resulting in slashed budgets, shuttered locations, and shortsighted layoffs. These reactive measures rarely generate results beyond the short term. A BCG survey of 600-plus C-suite executives suggests that while most leaders met their recent cost targets, 35% reported that excised costs crept back in 12 to 18 months.

There are two critical reasons for costs creeping back up: most organizations fail to address the root causes of their cost challenges, and most lack the discipline required to manage them holistically and continuously.

There is a better way to achieve cost competitiveness and enduring efficiency—one that yields significant additional benefits. Leaders who understand the forces contributing to cost creep and who respond decisively can use freed-up resources to grow and support strategic priorities.

They will, in turn, build leaner, faster, and stronger organizations.

The Dynamics Driving Costs

Leaders must recognize and address several prevailing dynamics that make it difficult to maintain cost competitiveness and deliver lasting impact.

The first dynamic is that most managers are not incentivized to deliver cost performance. In the absence of a mechanism that forces them to evaluate the ROI of their spending, such as P&L accountability, managers will drive higher team budgets, regardless of broader cost goals or efficiency directives.

Second, overhead generates more overhead. Leaders commonly address business challenges by adding positions, organizational layers, and committees. Each measure adds incremental cost and convolution. This pattern creates a vicious circle of ever-more-complicated systems that are established to manage growing complexity.

Third, organizations add resources to address emerging priorities and fund new capabilities — without accounting for existing activities. Many fail to redeploy talent or reduce spending on less critical legacy efforts.

Finally, companies struggle to capture the full ROI from their substantial technology investments. Although the rapid adoption of AI and other capabilities has unlocked productivity in some areas, these gains typically arise from secondary activities instead of more valuable enterprise priorities.

The CEO’s Guide to Cost Discipline

Across industries and markets, we’ve identified five critical actions that CEOs and other executives can take to tackle cost challenges. Collectively, these measures help organizations sustain efficiency and redirect resources to invest in innovation, promote growth, and capture value.

Reset your organization’s design

Confront overhead

Do the right things...

...and do things right

Future-proof your organization

Reset your organization’s design

Revisit P&L responsibility to ensure that managers are accountable for performance and are empowered to help your company lower costs. Establish measurement and governance processes (as well as incentives) that will make leaders who lack direct P&L accountability answerable for specific, value-adding returns. One manufacturer improved profitability by pushing P&L accountability deeper into the business and pooling engineering resources. The company also adopted more flexible funding processes that made it easier and faster to reallocate capital to digital, AI, and other systems as priorities and needs changed. When market changes required the company to pivot product development, it was able to seize opportunities and redeploy engineers and investments across units without increasing overall costs.

Confront overhead

Diligently search for layers, committees, and competing or duplicative efforts that can be removed or optimized. Align service levels with business needs and profitability requirements, ensuring that support function spending delivers concrete value to the business. One client discovered, for example, that 50% of its planning and analysis resources were dedicated to creating overly detailed performance reports that didn’t serve leadership goals. The value to business performance was limited at the cost of a high incremental bureaucratic burden.

In the same vein, scale back or eliminate internal white-glove services, which create needless expense with marginal or no additional business value. An internal function might, for instance, spend a lot of time visually representing data, when stakeholders are more likely to rely on raw numbers captured in a spreadsheet. When in doubt, reallocate resources from overhead to direct value-generating activity, reducing costs and increasing productivity.

Do the right things...

Methodically evaluate your portfolio of products and services to cut underperforming lines or low-value initiatives and be relentless about following through. One client had invested tens of millions in a digital operations program that two years in was still running in parallel with the manual processes it was designed to replace. To generate the intended efficiency, senior leadership had to revisit the business case and enforce the reduction of the legacy activity.

...and do things right

Reevaluate your processes, footprint, and technology to maximize efficiency. Consider, for example, supply chain pressures arising from geopolitical challenges and trade route disruptions. To keep costs in check, adopt lean manufacturing methods and evaluate your network and inventory strategy to identify opportunities to revisit relationships with suppliers and partners. Because rigid, just-in-time supply chains are ineffective amid today’s uncertainty, invest in flexible alternatives powered by real-time data and digital capabilities, and eliminate old processes along the way.

Looking beyond supply chains, find ways to deliver services to customers without adding to your company’s cost base. One way is to scrutinize utilization and design to prevent waste. For example, our experience suggests that hasty deployment of cloud computing can give way to needless costs. In fact, many companies squander nearly 30% of their cloud spending because of poor architecture, duplicative data, and redundant legacy systems.

Future-proof your organization

No company can afford to overlook the transformative power of conventional and generative AI. Organizations typically see AI as a growth driver but tend to overlook its tremendous potential in cost management and operational efficiency. Review all internal and external business processes, identifying opportunities for self-disruption. Transform meaningful legacy activities; eliminate needless or ineffective ones. At the same time, redeploy talent from areas that can be automated to more critical parts of the business. Start experimenting with AI, GenAI, and other emerging technologies today to stay ahead of competitors in the future.

Implementation Principles

Leaders must act boldly and decisively to achieve a competitive cost position, one that enables growth and generates quick returns for shareholders. By heeding the following three principles, leaders can position their organizations to deliver rapid, sustainable impact:

People Power Change. Create opportunities for high-performing employees to move within the organization based on their capabilities and potential. Build the aptitude required to assess employee skills (collaboration, financial analysis, data science, coding, etc.), upskilling and reskilling as needed to enable flexible deployment of talent across the organization as priorities change. These moves will strengthen your ability to pivot and retain top performers.

Planning Pays Off. Before executing your cost agenda, evaluate the strength and clarity of initiatives and roles, cost goals, interdependencies, and risks. Ensure that you have the right governance in place to help deliver savings when they are most needed. BCG research suggests that rigorously tested cost transformations capture an average of 130% of their target value. Less rigorous transformations captured 30 fewer percentage points.

Culture Matters. Leaders need to model desired behaviors. Shape your culture to focus on efficient, ROI-based decision making from the factory floor to the board room. Tangibly reward those who act in the interests of the enterprise. Over time, cost discipline will become a part of your company’s DNA.

If it’s been a while since you last reviewed your company’s costs and operations, don’t wait for a crisis.

Leaders who take a hard, holistic look across their cost base will find opportunity. Those who act boldly and decisively will realize short-term gains—and achieve lasting advantage.

Across industries, businesses are facing increased scrutiny to keep costs out while delivering superior margin performance. Learn more about how businesses can become leaner, faster, and stronger here.