2025 MarginPLUS study: Resilience and innovation

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).