Virtually every leadership team I’ve ever worked with goes through repeated cycles of cost cutting. Research suggests that as many as 80% of companies end up locked into a permanent cost-cutting programme.
Costs are easy to see. Cutting them, and saying “no,” is a commercially and politically safe act. It’s not surprising, then, that this is often the first move for many CEOs and CFOs trying to drive a company forward in difficult times.
Sadly, only around 20% manage to sustain the savings.
Which is why many leaders add, “we must cut costs AND drive growth,” as though the two things sit on the same slide. They don’t.
A recent study of the world’s largest public companies, tracked between 2015 and 2018, found that only 13% achieved a genuine cost transformation. Three years later, the same researchers found that the majority of those successful cost-cutters (62%) were now lagging below average market growth and profitability. You can cut costs. But you can only do it once, and you risk killing growth in the process.
Growing is significantly harder than cutting cost, which is why most leadership teams focus on the latter, not the former. This bias to cost cutting is what Kahneman and Tversky called the “certainty effect,”. Or, put more simply, “control the controllables.” For most leaders, cost is a puzzle they can solve. Growth is usually a mystery.
The Puzzle and the Mystery
A puzzle has a finite number of pieces, and every piece is already in the box. Every cost line is known, dated, categorised and sitting in last year’s accounts. Reducing it is a puzzle of resolve, not insight. You review the lines, ask “do we need this,” and have the stomach to say “no” often enough. It requires discipline. It rarely requires genius.
Growing profitable revenue is a mystery. The pieces aren’t in the box. They’re scattered across a market you don’t fully see, inside the heads of customers who don’t always know what they want, inside competitors who haven’t made their next move yet, and inside macro-economic conditions that shift under your feet while you’re deciding. You can’t audit your way to growth. You have to sense it, hypothesise about it, test it, and often be wrong before you’re right.
The difference between the puzzle and the mystery is profound. A cost-cutting programme is the sure thing: you take out £4 million and you can see it land in the P&L next quarter. A growth investment is the probabilistic bet: it might return three times your capital in two years, or it might return nothing. Boards, understandably, keep choosing the certain £4 million. It isn’t stupidity. It’s behavioural economics, the certainty effect at work, and it’s the easy path that most leaders take every time, given that choice. But the most valuable leaders around your Exec table are those capable of taking the road less travelled and driving sustainable growth.
Corporate Cachexia
When organisations engage in excessive and sustained cost cutting to hit their target, because “missing budget” is simply unacceptable, it can lead to what some business writers call “corporate anorexia.” Left unchecked, this can leave an organisation too weak to compete.
But the real risk isn’t corporate anorexia. It’s corporate cachexia.
Anorexia is a disorder of intake: a body voluntarily starved of nutritional resources despite food being available. In corporate terms, this might look like a recruitment freeze or a travel ban, it’s a simple lack of nourishment. Hence, anorexia.
Often, having seen the benefits of cost-cutting, and because we don’t always know how to grow, we overdo the cost side of the equation. A healthy cost focus tips into starving the business of investment, and that’s when we risk corporate cachexia.
Cachexia is a systemic wasting syndrome, seen in cancer and chronic heart failure, in which the body starts breaking down its own functional tissue to keep itself running, even when nutrition is available and even when the person is still eating. It isn’t a choice to eat less. It’s the organism consuming itself because the underlying system is diseased.
When an organisation leans too hard, for too long, on cost cutting, it may not simply be “spending less.” It may be triggering a disease process that consumes its own commercial muscle: its sales capability, its R&D pipeline, its customer relationships, its next three years of revenue. This demotivates everyone, drives up attrition, and causes a catastrophic loss of capability as the best people quit. Well-intentioned cost control, designed to protect this quarter’s margin so the dividend can be paid, causes cachexia and, ultimately, catastrophe.
In cases of corporate cachexia, the P&L can look healthy in the short term, while the muscle that would have generated next year’s growth has already been metabolised. As the authors of Strategy&’s Fit for Growth put it, “there is no profitable growth without equally robust pruning.” But pruning and cachexia are not the same thing, and too many leadership teams can no longer tell the difference.
Empty Calories
The opposite failure, to excessive cost-cutting, is hollow growth. It gets far less airtime, because growth always looks virtuous on a slide. But growth pursued without cost discipline is its own pathology: poor-quality revenue behaves like empty calories. It adds bulk without adding strength. It lets the customer acquisition cost creep above lifetime value. Discounting may win the deal, but it kills the margin. Headcount, added “to support the growth,” often results in people costs growing faster than revenue, and the revenue growth never quite catches up.
Zook’s research points to the same pattern: companies that failed to sustain profitable growth had often lost sight of their best strategic choices. They diversified into adjacent noise rather than fully leveraging the concentrated advantage they already had. To that we would add a lack of high-quality thinking about which growth levers are genuinely right for their sector and current market conditions.
Polarity Management
In managing the puzzle of cost and the mystery of growth, there’s often a tendency to think that if you locked the leadership team in a room to brainstorm the issue, they would land on the right answer.
But cutting costs and driving growth simultaneously is not a problem that can be solved.
In fact, it isn’t a problem at all. It’s a polarity. And polarities must be managed.
In business, there are many polarities that can’t be solved. The trick is to manage them well and find the balance point between the two poles. Polarity Management makes it clear that the two poles are not opposites, and they are not either/or options that can be “traded off.” We are in the world of “both/and,” not “either/or.” Often, one pole is dependent on the other.
For example, one of the most common polarities we see in business is “central control” AND “local customisation.” Most companies need both. Unilever used to call this “freedom in a framework,” but would then lurch between the two poles in an endless flip-flop.
If a company is failing to meet its budget, a new CEO or CFO comes in, all guns blazing, to cut costs, centralise processes, get a vice-like grip on the numbers, and increase efficiencies. A year later, they look like a genius. The P&L looks great, and everyone is happy. But in year two, the wheels come off because customers stop buying. Centralisation means customers are no longer getting what they want in their country or region. Growth fades, and the CEO is exited for failing to maintain growth. A new CEO is appointed who extols the virtues of the customer, decentralises to get close to the markets, and revenue picks back up. In their first year, they look great. But the inflated costs of localised teams start to bite, and in year two they lose cost discipline, and the cycle starts again.
This is not a problem that can be solved — it’s a polarity that must be managed. To manage polarities, you must know the red flags that tell you when you’re overcooking one pole at the expense of the other. And you must know the actions that keep you in the sweet spot: the balance point where you get the best of both worlds.
Red Flags on Both Sides
If you are overcooking cost-cutting and drifting into corporate cachexia: your best commercial people start to leave; win rates and Net Promoter Scores start dropping while margin still looks fine; the innovation or R&D pipeline hasn’t been fed in eighteen months; and every conversation in the leadership team, after monthly reforecasting cycles, is about how to land this quarter and what to stop. It’s never about what to start.
In desperation, you may then swing to empty-calorie growth: revenue lifts, but gross margin falls for three consecutive quarters; you can’t blame the unit economics on your newest product line without a slide full of caveats; growth arrives mainly through discounting or acquisition rather than genuine demand or a smart growth plan; and cost creeps back in faster than the revenue it’s meant to be funding.
Sitting in the Sweet Spot
The leadership team must identify the actions that capture the upside of both poles, cost AND growth. For example, you might want to:
- Review cost and growth in the same meeting, against the same set of numbers, not in separate committees that never talk to each other.
- Ring-fence a small number of named “growth muscles” — the specific capabilities, teams or products that actually generate future revenue — and exempt them explicitly from blanket cost cuts.
- Apply the same rigour to growth spend as you do to cost lines: kill unprofitable growth bets as decisively as you’d kill an unnecessary cost line, rather than letting sentiment protect them.
- Track unit economics (customer acquisition cost against lifetime value) with the same discipline you track cost ratios, on the same dashboard, reviewed at the same cadence.
- Build a live polarity map, reviewed quarterly, that tracks your red-flag early indicators of drift toward either pole, rather than waiting for the annual budget cycle to notice.
- Recognise, and resource, the fact that growth genuinely requires a more sophisticated form of leadership than cost control does. Cutting cost asks for resolve. Growing revenue asks leaders to sit with ambiguity, sense weak signals in the market, hold multiple competing hypotheses at once, and have the courage to invest in a handful of well-thought-through growth ideas. This capability requires leadership maturity. It isn’t a technical skill. It must be developed deliberately. It doesn’t show up simply because the strategy deck now has a growth slide.
Here Are the Questions Worth Considering
1. Is your leadership team excessively focused on cost-cutting?
2. Is the quality and intensity of your conversations about growth lower than those about cost?
3. Can you recite your cost-to-income ratio to two decimal places, while being unable to say, with any precision, which of your commercial muscles are still intact?
4. Would you benefit from some help managing your polarities, and identifying the smart partnering, asset bundling, or disruptive leapfrogging that will deliver growth and enable you make budget?
If so, we can help you before your competitor eats your lunch.
References
- Chris Zook & James Allen, Profit from the Core: A Return to Growth in Turbulent Times (Harvard Business School Press, 2001/2010)
- Chris Zook, Repeatability: Build Enduring Businesses for a World of Constant Change (Harvard Business Review Press, 2012)
- Bain & Company growth research programme, tracking nearly 2,000 public companies over a decade (ongoing since 1990); findings summarised in Zook & Allen, above
- Vinay Couto, John Plansky & Deniz Caglar, Fit for Growth: A Practical Approach to Business Transformation (Strategy&/PwC, published by Wiley, 2017)
- Daniel Kahneman & Amos Tversky, “Prospect Theory: An Analysis of Decision under Risk,” Econometrica, 47(2), 1979
- Barry Johnson, Polarity Management: Identifying and Managing Unsolvable Problems (HRD Press, 1992/1996)
- Radnor, Z. J., & Boaden, R., “Developing an Understanding of Corporate Anorexia,” International Journal of Operations & Production Management, 24(4), 2004