Using a structured approach to cost management means you’re always looking to shift spend to protect value.
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Cost optimization protects value drivers even while reducing costs
A March 2025 Gartner poll of 500+ executives revealed 49% expected their budgets and spending to face cuts in the second quarter. That was even before new U.S. tariff policies sounded alarms about higher inflation and slower growth.
In today’s uncertain economic conditions, and with margin pressure mounting, business leaders need proven processes to reduce costs without jeopardizing value and growth drivers. Gartner has long advocated structured cost optimization as a way to do that, but now more than ever, business leaders must view their cost decisions as distinct actions to reduce spend, optimize performance and still increase investments in future growth.
For more on balancing immediate pressures with long-term strategic objectives, fostering a cost-conscious culture and embracing innovation to drive future success, join the complimentary webinar: Executing in a Volatile Economy — Cost Optimization and Operational Flexibility.
Cost optimization repositions costs to fuel long-term competitiveness
Cost optimization systematically reduces unnecessary spend while optimizing enterprisewide performance and reinvesting in high-value capabilities.
What outperformers tell Gartner about how to approach cost management
Gartner has long analyzed what we call “efficient growth companies” — those that have achieved long-term, sustainable top-line growth across economic cycles while continuously improving their margins. Those companies take a fundamentally different approach to cost where they:
Treat spending on differentiated capabilities as a source of competitive advantage, not an expense to be minimized
Consistently reallocate resources toward growth-driving activities
Maintain tight cost discipline without sacrificing innovation or agility
Embed cost consciousness deep into decision making
This disciplined, forward-looking mindset allows efficient growth companies to outperform peers and build lasting resilience even through volatility. The Gartner cost optimization approach captures these behaviors in an actionable way for any business leader.
CFOs often own cost optimization programs (see: How CFOs Can Build a Value-Driving Cost Optimization Program), but every business leader can use this approach to make value-driving cost decisions for their teams and functions — and to provide more rigorous justification for cost plans they present to their CFO.
Notably, while strategic cost optimization is ideally an always-on approach, it can flex to respond to short-term cost pressures. In doing so, even urgent cost actions become part of a programmatic (not impulsive) response that protects long-term business goals. For example, see 10 Rules for Rapid IT Cost Cuts for ways that CIOs committed to ongoing cost optimization can still deliver quick and effective action.
Cost optimization guidance for 2025 leans on three pillars
Think of cost optimization as a set of actionable strategies to:
Systematically reduce unnecessary spend
Optimize enterprise performance
Invest in future sources of value
In 2025, economic conditions like pricing volatility and margin compression require aggressive, systematic management of these strategies. Gartner offers personalized guidance for effective cost optimization, a taste of which you’ll find in these do’s and don’ts.
Do’s and don’ts when reducing spend
Proactively present a cost optimization plan to your CFO so they can integrate your strategies into the overall business plan, ensuring alignment and shared accountability.
Benchmark future complexity so your cost structure and spend are appropriate for the business model and operations you expect to drive value in the future.
Shift generative AI initiatives to immediate and proven cost savings and away from medium-term use cases where cost savings may be tough to achieve.
Avoid across-the-board cuts. Indiscriminate blanket cuts fail to identify what is more or less important. Prioritize cuts based on strategic value and impact.
Surface cost-saving ideas from frontline teams by establishing clear criteria to gather insights from those closest to daily operations.
Don’t indiscriminately freeze hiring. Reevaluate open roles and fill those aligned to your current and future shifting strategic priorities.
Release low-performing and less productive talent and those whose skills align poorly with your future ambitions. Provide high-impact individuals with resources.
- Play offense when negotiating with vendors. Leverage market conditions to reduce costs and reevaluate whether and how outsourced roles and skills drive goals.
Do’s and don’ts when optimizing performance
Develop a multiyear strategic cost optimization roadmap with targets, KPIs and milestones, that transitions from immediate cost cuts to sustainable value optimization.
Identify your differentiating costs — those that establish, enhance or further competitive advantages (such as unique product features) and protect aligned costs.
Assume no costs are sacred. Cut funding to underperforming projects and reallocate those resources quickly to a select few high-impact initiatives.
Cultivate a cost-conscious culture. Incentivize teams or individuals to identify and implement savings — and reinvest some savings in those contributors.
Accelerate process reengineering with robotic process automation (RPA), business process management (BPM), cloud computing and artificial intelligence.
Do’s and don’ts when investing in future sources of value
Develop a framework to anticipate, monitor and adapt to change, always flexibly realigning capabilities and resources to what matters most.
Retain top talent. Identify top performers and assign them to the most important activities. Recognize and compensate them, and develop their careers, to encourage them to stay.
Deliver productivity even if the workforce shrinks. Strategically prioritize automation and invest in AI literacy and workforce planning to prepare for redesigned roles.
Eliminate impediments to innovation and decision making — from internal processes, policies and bureaucracy to poor performers in the product portfolio.
Leverage counter-cyclical spending as a strategic advantage. Communicate clearly to investors and external stakeholders where you are investing in future growth.
- Don’t starve long-term AI and automation growth engines. Make a clear, direct case to investors for AI and automation investments, emphasizing long-term growth benefits.
Download the cost optimization framework for your function.
Cost optimization FAQs
What is cost optimization?
Cost optimization is the strategic, ongoing process of reducing and managing expenses while maximizing value, efficiency and business performance. Rather than focusing solely on cutting costs, it aims to align spending with business objectives, improve operational efficiency and free up resources for future sources of value.
What is the difference between cost reduction and cost optimization?
Cost optimization is a continuous, business-focused discipline aimed at maximizing business value while reducing costs. Cost cuts are a short-term move to decrease expenses. Whereas cost optimization is a strategic, ongoing and holistic practice, cost cutting is a one-off, tactical and reactive initiative.
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