BCG's Guide to Cost and Growth

Strategic Insights for Navigating Economic Uncertainty

January 2025

Introduction

The year ahead brings both opportunities and challenges as CEOs and executive leaders worldwide grapple with economic uncertainty and the need for strategic reinvestment. In our latest survey of over 570 executives across regions and industries (conducted at the close of 2024), we explored the primary concerns and strategies shaping business priorities for 2025.

Our research reveals that cost management remains a top priority amid fluctuating interest rates and global trade tensions. This edition synthesizes insights from CEOs and leading experts at BCG, providing a roadmap for sustainable margins and cost efficiency while positioning businesses for long-term growth.

This edition also delves into the factors critical to maintaining financial discipline in companies and explores how leaders can reinvest strategically to fuel competitive advantage in 2025.

In this BCG Executive Perspectives edition, we share executives’ views on the 2025 macroeconomic outlook, with a focus on cost management and growth

Executive summary | In a complex and uncertain economic environment, cost management remains the top priority for executives across industries

Navigating the economic landscape of 2025	The global market outlook for 2025 remains relatively steady,with declining optimism in 2025 relative to 2024 following the US election outcome · 40% of executives feel unprepared for market shocks in 2025, despite years of navigating disruptions (e.g., COVID, supply chain, ChatGPT) · North American and European executives are increasingly concerned about margins and profitability as rising interest rates, inflation, and potential tariff and regulatory changes intensify pressure · Asia-Pacific1 executives are concerned about impacts on exports that could slow economic growth as geopolitical tensions in the region could further erode investor confidence and disrupt global supply chains In the wake of the recent US election, 85% of executives are already addressing tariffs and regulatory changes to mitigate potential disruptions
Managing cost structures in 2025	Amid a complex economic landscape, cost management remains executives' top priority · Heading into 2O25, executives are prioritizing cost efficiency in their core operations including supply chain optimization and product portfolio simplification to remain competitive Executives in the sample report that only 48% of cost-saving targets are achieved and that their companies struggle to maintain efficiencies Companies that announce but fail to achieve targets average 9pp TSR underperformance compared with successful peers · The greatest barrier to lasting structural cost change is "cultural resistance" to cost-saving measures, but firms with active focus to align culture on cost and efficiencies and agile management achieve up 11% greater lasting cost reduction
Unlocking sustainable growth	Laying the foundations for sustainable cost management is vital, as 67% of executives plan reinvest savings into growth and innovation · Executives view GenAl as a pillar for eficiency, with 86% planning to invest in Al and advanced analytics in 2025 · Executives see GenAl and advanced analytics as an opportunity to cut costs in areas like customer service BCG's holistic approach combines deep expertise and proprietary capabilities to deliver cost management programs that drive lasting savings, fuel growth, and tackle structural cost challenges Source: BCG global executive survey on strategic priorities (N=570) Q4 2024; BCG analysis

Navigating the economic landscape of 2025
Managing cost structures in 2025
Unlocking sustainable growth

Executives show caution regarding 2025 outlook amid economic and geopolitical uncertainty

How do executives view the stability of the markets they are operating in?

• The US economy has remained strong and stable since COVID, despite threats of recession, with ±2.2% GDP growth2 projected for 2025

• 42% of executives expect their markets to outperform the forecasted GDP growth

• Nevertheless, concerns over global economic and geopolitical stability have arisen following the recent US election outcome

Despite economic challenges, optimism remains steady supported by low unemployment and a projected ±1.5% GDP growth1 in 2025

• 47% of executives expect their markets to outperform the forecasted GDP growth

Pessimism likely reflects an uneven recovery since COVID, geopolitical tensions, armed conflicts, and energy concerns

• Optimism has dropped in Asia2, despite the continuously strong GDP growth forecast of ±4.5%3 for 2025

• Yet 47% of executives expect their markets to outperform the forecasted GDP growth

Executives’ sentiment toward market stability has shifted further to neutrality following the recent US election outcome, as they are seeking early indications of potential tariffs and trade policy changes

40% of executives feel unprepared for market shocks heading into 2025

How prepared are executives for market shocks heading into 2025?

40% of executives continue to feel unprepared for potential future market shocks, despite navigating years of disruptions like COVID, supply chain crises, the ChatGPT launch, and other economic upheavals

Learn more about current challenges and risks:

Geopolitical tensions and supply chain

Ongoing conflicts impact trade and market stability; companies should use scenario planning and diversify supply chains to enhance resilience

Read more about geopolitical risk management in strategic planning

Rapid technological changes

Companies struggle to keep up with innovation yet need to adapt quickly by implementing new tech and upskilling employees

North American and European executives are increasingly concerned about margin pressure

What top macroeconomic factors do executives expect to affect their company performance in 2025?

North America

Europe

Asia-Pacific1

Over 60% of executives expressed increased concerns about tariffs, following the recent US election outcome

North American and European executives are increasingly concerned about margins and profitability as high interest rates, inflation, potential changes in regulations, and tariffs intensify pressures

Protectionist measures introduced by the recently elected US government could reshape global trade dynamics, reducing trade flows and disrupting supply chain stability—even before considering potential retaliatory actions

These measures, aimed at boosting domestic US manufacturing, may accelerate local investments while discouraging offshoring. For Europe, this could exacerbate existing competitiveness challenges

Asia-Pacific executives are concerned about impacts on exports that could slow economic growth

What top macroeconomic factors do executives expect to affect their company performance in 2025?

North America

Europe

Asia-Pacific1

Over 60% of Asia-Pacific (excl. China) executives expressed increased concerns about economic uncertainty and tariffs, following the US election outcome

Asia-Pacific executives are navigating a complex economic environment marked by persistent inflation, varied monetary policy responses, and global trade uncertainties— all of which contribute to heightened concerns over inflation and interest rates

They are increasingly concerned about economic uncertainty stemming from the recent US election outcome, with recession risks and US-China trade tensions emerging as top underlying concerns

Potential geopolitical tensions in the region could further erode investor confidence and disrupt global supply chains, potentially reducing revenues and slowing economic growth in export-dependent Asia-Pacific economies

Note: Asia-Pacific countries excluding China Source: BCG global executive survey on strategic priorities (N=570) Q4 2024; BCG analysis 1. Asia-Pacific includes India, Australia, Japan, and South Korea

No immediate actions taken in response to the US election outcome Source: BCG global executive survey on strategic priorities (N=570) Q4 2024; BCG analysis

Following the US election, 85% of executives are acting on tariffs and regulatory changes

What actions are executives taking in response to the US election outcome?

54% are actively monitoring

What top indicators are executives tracking, given the recent US election outcome?

Tariffs changes
Regulatory changes
Geopolitical conflicts
Supply chain disruption

31% have launched contingency plans

What top initiatives have executives launched, given the recent US election outcome?

Planning response to tariffs changes
Assessing impact of regulatory changes
Redesigning supply chain
Reviewing geopolitical risks and business impacts

Executives across regions express concern for supply chain disruption, driven by the potential reinstatement or escalation of tariffs and trade barriers, which could significantly impact companies’ performances in 2025

Corporate leaders globally are closely monitoring or assessing developments in geopolitical conflicts in Eastern Europe and the Middle East, along with US-China trade tensions, as potential sanctions and the economic isolation of certain countries could have significant impacts on business operations such as energy prices, supply chain disruption

Read more about managing geopolitical risk in the context of supply chains

Navigating the economic landscape of 2025
Managing cost structures in 2025
Unlocking sustainable growth

Cost management remains the top priority for executives across regions and industries

What are the top three strategic priorities for executives heading into 2025?

#1

Cost management

33% of corporate leaders are prioritizing cost reduction as most critical, +8pp compared with 2024

Growth/Expansion

Growth remains a focus, with 70% of executives reporting that they have sufficient mid-term visibility to make informed investment decisions

#3

Revenue management

Executives are looking into pricing strategies to manage potential rising supply chain costs while addressing end-consumer pressures

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

When it comes to cost efficiency, executives prioritize supply chain optimization and product portfolio simplification

What key cost drivers are executives prioritizing for optimization in 2025?

Top ranking across industries

1

Supply chain optimization

2

Product
portfolio
simplification

3

Operating model and workforce productivity #4

Customer service operations #5

Sales
and
marketing

Industries where each cost action is top-of-mind

Consumer

Industrials

Insurance

Technology

Finance

Industrials

Health care

Insurance

Finance

Technology

Consumer

While all companies prioritize cost management, there is no one-size-fits-all approach— it must be tailored to focus on areas that strengthen the industry’s competitive advantage

To remain competitive, executives are prioritizing core operations, optimizing supply chains, and streamlining product portfolios for cost efficiency

Read more about our latest thinking on cost excellence

A cost-efficient and resilient supply chain reinforces competitive advantage

Supply chain optimization

Supply chains remain under relentless pressure from multiple directions:

• Geopolitical crisis

• Uncertain macroeconomic outlook

• Climate change and pressure of net zero commitments

• Technology disruptions

• Changing consumer expectations

Cost-efficient and resilient supply chains need to be managed across the value chain…

Dimensions

Product

development

Planning

Procurement

Manufacturing

Logistics and transportation

Warehousing

Optimization levers

Modularize product design

Design solution-oriented for fast-cycled processes and reduced bottlenecks

Leverage digital scenario planning

Engage AI in forecasting

• Align processes between supply chain and manufacturing

Deploy strategic global sourcing to identify best suppliers

Ensure best prices through competitive tenders, benchmarking, should-cost models

Enhance supplier relationship and develop joint innovation programs

• Conduct material flow and utilization analysis

Optimize plant layout and equipment

Reassess service level and maintenance needs

Optimize logistics network

Consolidate transport routes and explore shared services

• Reduce “rush shipments”

Consolidate warehousing

Explore digitization and automation

Renegotiate capacity and rates

Read more about future-proof end-to-end supply chain transformations

A design-to-value optimization approach ensures a lean and competitive product portfolio

Product portfolio optimization

In fast-moving markets, growing product complexity and shifting priorities drive up structural costs and profitability pressures

• Product complexity and proliferation (e.g., too many SKUs)

• Raw material and component costs

• Manufacturing overhead and supply chain complexity

• Inventory holding costs

• Product development and R&D costs

• Life cycle management costs

Marketing and sales expenses

• Regulatory and compliance costs

Focusing resources on high-value products while improving operation efficiency and reducing supply chain complexity

Optimization levers

#1

Eliminating the “tail” through consolidation to eliminate low-volume configurations while retaining volume and revenue

2 A design-to-value approach with a customer-centric perspective helps to rebalance value and cost of the product portfolio

Baseline setting

Understanding customer voice

Detailed cost breakdown

• Gap analysis

Idea generation

• Cross-functional workshops to rebalance value and cost

Benchmarking

Implementation

Ensuring customer and supplier alignment on design changes

Monitoring progress

Companies struggle to achieve their cost targets

Average proportion of cost-saving target achieved by companies

Proportion of companies failed to achieve long-lasting structural cost cutting

Companies failing to meet cost targets underperformed on total shareholder return by an average of 9pp compared with the average TSR of peers that met their targets

What were the biggest challenges to the success of past cost reduction efforts?

Employee and organizational culture

Change in mgmt. (org. structure and process)
Skills/ Expertise

Technical infrastructure and capabilities

Resistance to change can hinder implementation of new cost-saving measures and efficiency improvements; however, firms with aligned culture and agile management see up to 11% higher efficiency in cost reduction initiatives

A cost-conscious organizational culture is essential for successful cost management

Which measures are most effective for embedding cost awareness into daily operations?

Company performance visibility

79%

What types of company performance information are most effective?

1 Financial year targets and gaps

2 Specific cost-saving achievements and initiatives

3 Market trends and economic forecasts

Communications from organization leadership

62%

What types of communication from leaders are most effective?

1 Ensuring leaders model cost-conscious behavior

2 Regular executive-led town halls

3 Internal written updates from executives

Achieving cost excellence requires effective change management to secure employee buy-in

Clear communication and leadership transparency on company performance are key to embedding cost awareness into daily operations

Read more about how to sustain a cost-conscious culture over time

BCG Executive Perspectives

AGENDA

Navigating the economic landscape of 2025
Managing cost structures in 2025
Unlocking sustainable growth

Laying solid foundations is crucial, as 67% of executives plan to reinvest cost savings into growth

Enduring cost management fosters continuous improvement of HOW work is done…

Of executives plan to invest savings from cost reduction efforts into growth

LEADER ENABLEMENT

HOW: Equip leaders with tools, visibility, and empowerment to identify and drive cost-saving initiatives

DESIRED CULTURE

HOW: Foster a cost-aware and accountable culture by celebrating wins; encourage learning from successes and setbacks to drive ongoing improvement

PEOPLE ENGAGEMENT

HOW: Align employees with cost reduction goals and growth vision; empower employees to join solutioning process; provide real-time feedback

EXECUTIONAL CERTAINTY

HOW: Implement effective governance and tracking of cost reduction initiatives; hold employees accountable for progress

Learn more about cost management foundations

Organizations plan to use cost savings to support strategic investments

Strategic priorities vary for each organization, yet a few are highly relevant for most

Digital Accelerating digital adoption positions tech and digital as key to resilience and cost efficiency. Organizationsand Al need to quickly adapt tech capabilities like GenAl to boost eficiency and drive business growth Read more
Talentadvancement	Competition for talent willpersist,requiring companies to enhance their strategies through data-driven hiring,continuous skilldevelopment,and Al-driven processes Read more
Climate and sustainability	To bolster long-term sustainability and address climate challenges,leaders should invest in high-impact sustainable projects and align with climate benchmarks Read more
Supply chainof the future	Supply chains should leverage cros-functional coordination,digital integration,and rapid execution to enable seamless transformation,enhancing resilience and eficiency Read more
Operationalexcellence	Amid ongoing uncertainty, companies should shift from reactive cost-cutting to strategic eficiency by focusing on optimization and building sustainable competitive capabilities Read more
Businessexpansion	Successful top-line growth amid shifting global economic and geopolitical dynamics can be achieved by focusing on core markets while exploring new regions,sectors,and product lines Read more

Executives see GenAI as a key pillar for future efficiency

Which applications of GenAI and advanced analytics can drive significant near-term cost reductions?

Of executives plan to invest in AI and/or advanced analytics in 2025

Customer service

Sales and marketing

Support functions

R&D in engineering

Supply chain

50%

49%

47%

35%

31%

E.g., customer inquiries, call center insights, back-office processing

E.g., content creation and distribution, marketing insights, lead generation

0 E.g., financial planning and reporting, training, legal review

Investing in GenAI not only helps with cost reduction efforts, but also boosts productivity, scales capacity, and supports growth through continuous innovation

Executives can also use GenAI to tackle their top three strategic priorities for 2025

Cost management

Read more about unlocking impact with AI

#1

Automating processes, optimizing supply chains, and improving operational efficiency:

Decrease labor cost by automating tasks in areas like customer service and content creation

• Use predictive models to enhance supply chain efficiency by forecasting demand and inventory levels

• Monitor and reduce energy consumption across facilities, directly impacting operating costs

Growth/Expansion

#2

Enabling employees to perform more complex tasks, speeding up workflows:

• Accelerate product development and innovation through AI, enhancing speed-to-market

Drive growth with AI-powered upselling, personalized marketing, and quick adaptation to new markets

Prioritize high-impact AI initiatives around large, homogenous resource pools, not just incremental automation

#3

Revenue management

Driving revenue by enhancing personalization and opening new revenue streams, including:

Improve customer retention and upselling (e.g., churn prediction, targeted retention strategies)

Enable personalized marketing (e.g., product recommendations, targeted campaigns)

• Assist in product innovation and accelerate development processes

BCG has deep expertise in cost management Partnering with your organization to craft a cost program that creates enduring impact

We leverage our unique strengths and approach to transform your organization, delivering lasting structural cost savings that fuel growth

Strategic cost optimization with growth focus	We design lean cost structures that drive savings without limiting growth,aligning cost management with your strategic objectives
Empowered culture and continuous improvement	We foster a culture of continuous improvement, empowering employees to take accountability, ensuring sustainable progress evenafter our engagement
Customized expertise and reliable execution	We deliver tailored cost solutions for competitive advantage leveraging our deep industry expertise,ensuring end-to-end focus and reliable outcomes
Advanced digital & Al capabilities and data-driven insights	We embed cutting-edge digital and Al tools in operations, enabling data-driven decisions for enhanced operations efficiency and productivity
Collaborative partnership and lasting impact	We work hand-in-hand with your leaders,ensuring projects are co- created for lasting results that stick, with a “done with" partnership mentality

BCG cost experts

Paul Goydan

Managing Director & Senior Partner Houston

Namit Puri

Managing Director & Senior Partner

New Delhi

Karin von Funck

Managing Director

& Senior Partner

Munich

Michael Grebe

Managing Director

& Senior Partner

Munich

Jochen Schönfelder

Managing Director

& Senior Partner

Cologne

Jacopo Brunelli

Managing Director & Senior Partner Milan

Dwight Hutchins

Managing Director & Senior Partner Boston

Kevin Kelley

Managing Director & Senior Partner Dallas

Rashi Agarwal

Managing Director
& Partner
New York

Mai-Britt Poulsen

Managing Director & Senior Partner London

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BCG's Guide to Cost and Growth

Introduction

Executive summary | In a complex and uncertain economic environment, cost management remains the top priority for executives across industries

Executives show caution regarding 2025 outlook amid economic and geopolitical uncertainty

40% of executives feel unprepared for market shocks heading into 2025

How prepared are executives for market shocks heading into 2025?

Learn more about current challenges and risks:

Geopolitical tensions and supply chain

Rapid technological changes

Read more about the value in AI

North American and European executives are increasingly concerned about margin pressure

Europe

Asia-Pacific1

Asia-Pacific executives are concerned about impacts on exports that could slow economic growth

Following the US election, 85% of executives are acting on tariffs and regulatory changes

What actions are executives taking in response to the US election outcome?

54% are actively monitoring

31% have launched contingency plans

Cost management remains the top priority for executives across regions and industries

What are the top three strategic priorities for executives heading into 2025?

#1

Cost management

Growth/Expansion

#3

Revenue management

When it comes to cost efficiency, executives prioritize supply chain optimization and product portfolio simplification

Top ranking across industries

1

2

3

Industries where each cost action is top-of-mind

A cost-efficient and resilient supply chain reinforces competitive advantage

Supply chain optimization

Cost-efficient and resilient supply chains need to be managed across the value chain…

Dimensions

Procurement

Manufacturing

Warehousing

Optimization levers

A design-to-value optimization approach ensures a lean and competitive product portfolio

Product portfolio optimization

Focusing resources on high-value products while improving operation efficiency and reducing supply chain complexity

Optimization levers

#1

2 A design-to-value approach with a customer-centric perspective helps to rebalance value and cost of the product portfolio

Baseline setting

Idea generation

Implementation

Companies struggle to achieve their cost targets

What were the biggest challenges to the success of past cost reduction efforts?

A cost-conscious organizational culture is essential for successful cost management

Which measures are most effective for embedding cost awareness into daily operations?

Company performance visibility

79%

1 Financial year targets and gaps

2 Specific cost-saving achievements and initiatives

3 Market trends and economic forecasts

Communications from organization leadership

62%

1 Ensuring leaders model cost-conscious behavior

2 Regular executive-led town halls

3 Internal written updates from executives

BCG Executive Perspectives

Laying solid foundations is crucial, as 67% of executives plan to reinvest cost savings into growth

Enduring cost management fosters continuous improvement of HOW work is done…

LEADER ENABLEMENT

DESIRED CULTURE

PEOPLE ENGAGEMENT

EXECUTIONAL CERTAINTY

Organizations plan to use cost savings to support strategic investments

Strategic priorities vary for each organization, yet a few are highly relevant for most

Executives see GenAI as a key pillar for future efficiency

Which applications of GenAI and advanced analytics can drive significant near-term cost reductions?

Executives can also use GenAI to tackle their top three strategic priorities for 2025

Cost management

#1

Growth/Expansion

#2

#3

Revenue management

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