Financial Discipline Is Always In Fashion

In times of uncertainty, such as the present, most business leaders understand the need for caution, balance, and restraint, especially financial restraint.

If they are being honest with themselves, however, leaders know they should be careful with finances all of the time, because financial discipline isn’t a stop-and-go practice; it’s a practice for all seasons. It should be habitual, immutable, and deeply embedded in every organization’s culture and DNA.

As Philip Carlsson-Szelak and Paul Swartz, co-authors of “ Shocks, Crises, and False Alarms ” (2024, Harvard Business Review Press), wrote in March: “Today, new risks—specifically, new uncertainties—are rising, clouding the outlook and undermining confidence in continued growth built on a healthy U.S. consumer and strong economic momentum. Yet these risks cannot be assessed by translating uncertainty into the certainty of negative outcomes. Risks are up, but we should not rush to recessionary conclusions.”

It is natural, of course, to pull back—or at least prepare to pull back—when the known unknowns (Are we headed for recession? Does negative consumer sentiment mean reduced demand for our product? Will there be a prolonged global trade war? How much of our additional costs can we pass on to customers?) begin to overshadow the known knowns (their business’s cash position, current sales, and reliable long-term contracts, for example). Add some unknown unknown into the mix (such as the probability of a natural disaster, political turmoil, or supply-chain disruption) and alarm bells may ring in executive suites.

In such circumstances, if the boss calls for austerity and belt-tightening, managers and employees are inclined to cooperate. They shouldn’t have to account for every paperclip, of course, but they may have to justify travel, staff additions, and other major expenditures, both budgeted and unbudgeted—and identify potential cost-savings.

That’s where many, if not most, U.S. and global businesses find themselves today.

According to a global survey of nearly 600 senior executives published in early February, business leaders were hoping for the best this year, but they weren’t betting on it.

One third of all respondents listed “cost management” as their most critical priority for 2025. Some 86% said they planned to invest in artificial intelligence and advanced analytics to help steer the belt-tightening. Nearly a third (31%) already had launched contingency plans for anticipated tariff and regulatory changes. While many expressed cautious optimism about their company’s growth potential, 40% said they were unprepared for the market shocks that might lie ahead.

Make Cost Management A Permanent Priority

For organizations that watch their dollars, euros and yen year-round, no dramatic pivot is necessary when uncertainty or turmoil comes calling. For organizations with less-disciplined spending habits, a huge pivot may be necessary.

That, perhaps, is lesson number one:

• Don’t wait for a crisis to rein in costs. Make cost management an ongoing, always-on, priority, so you’re positioned to adapt quickly and seamlessly to geopolitical and market changes as they happen.

Unfortunately, as many organizations have found over the course of many years, disciplined spending practices are often easier to create than to follow.

One-off, short-term cost initiatives accomplish limited goals and are more likely to succeed than systemic, company-wide efforts. But they also invite backsliding. So, even when organizations meet or exceed their initial cost-reduction targets, research shows that costs typically creep back up over time.

• BCG research earlier this year confirms this. More than 80% of the business leaders who told us they had launched cost-saving programs indicated that they had met or exceeded their initial goals. More than a third (35%) of respondents, however, reported that costs eventually crept back—and more than one in four respondents (27%) thought the cost-cutting had hurt their business, often by slowing growth.

Creating A Cost-Conscious Organization

The key to successful cost management is developing long-term, sustainable spending goals and the habits, practices, and systems that make judicious spending part of your organization’s identity, like your company’s name and reputation.

Here are some suggestions:

Show real leadership. One of the easiest things to do in life is to tell others what they “should” do. If you think more fiscal discipline is needed in your organization, do something that demonstrates the seriousness of your “ask”: take a pay cut, freeze C-suite salaries, or get rid of a personal perk that everyone in your organization is aware of. In short, lead by example. Modeling cost-conscious behavior should be backed up with regular executive-led progress reports, written updates, and rewards. Do both: talk the talk and walk the walk.

Build awareness and acceptance. In our research, nearly seven in ten executives said internal resistance was a major challenge in achieving their cost-control goals. Resistance to change is a fact of life. Expect it. You combat resistance not only by modeling the desired behaviors personally (see above), but with facts: Explain why these changes are needed; the potential long-term benefits to the organization; and, most of all, how everyone will benefit from the new and better ways of doing things. There’s a lot of low-hanging fruit in every organization. Begin there. Ask employees for suggestions—and act on them.

Be rigorous in your analysis. Your colleagues and employees know mumbo-jumbo when they hear it. Avoid it. Be transparent. Lay out your fiscal year targets; acknowledge cost-saving achievements and shortfalls; and stick to the facts in your progress reports. A little cheerleading and encouragement is okay, but evidence is better.

Grow your business. While many see cost-consciousness as a defensive mechanism—something to be deployed in uncertain or troubling times—the best use of savings is to grow your business. Make that explicitly clear in everything you say and do: that the purpose is to make your organization stronger, more resilient, and better able to serve both existing customers and win new ones by investing the savings in growth, and in your employees.

Financial discipline is a virtue—in good times, bad times and uncertain times.

By Julia Dhar, Contributor