Transformation for Performance

Protecting Profitability While Sharpening the Business

Explore the rest of the series, beginning with “Cost as a Design Choice” and “Transformation for Growth: Funding Scale Without Future Bloat.” For a broader view of where finance leaders are focusing in the year ahead, see FTI Consulting’s “Global CFO Survey 2026.”

In the first part of our series, “Cost as a Design Choice,” we argued that the organizations that outperform across the business lifecycle treat cost as a continuous design capability rather than a periodic restructuring exercise.¹ In the second installment, we examined the growth phase and the defining question of how to scale efficiently today without compromising the future.² This article turns to the next stage, performance improvement, where the priority shifts from designing scale to maintaining and defending it.

Why This Matters Now

Margin pressure has a way of narrowing the conversation. When earnings soften, the instinct in most boardrooms is to reach for the fastest lever available (across-the-board cuts, hiring freezes, discretionary spending bans) because those levers feel decisive. They rarely hold. Staff reductions and discretionary spending freezes can eventually become hard to sustain under market pressure, and a strategically designed service delivery model can be the strongest driver of durable savings. Cuts made without that redesign defer themselves rather than disappear, returning as soon as pressure eases.

The cost of getting this wrong is not just that savings evaporate. A landmark Harvard Business Review study tracked 4,700 public companies through three recessions and found that only 9% emerged meaningfully stronger, outperforming industry rivals by at least 10% in sales and profit growth.³ The companies that cut fastest and deepest were the least likely to be among them: firms leading with aggressive, broad-based cost cutting had roughly a one-in-five chance of pulling ahead once conditions improved.⁴ The winners were not the leanest. They paired disciplined cost reduction with continued investment in the capabilities that would differentiate them after the downturn.

What has changed since that research was published is the arithmetic behind it. This is not a cyclical squeeze that patience will resolve. Amid rising prices, declining profit margins, a race to invest in new technologies and tariffs, many factors are putting short-term pressure on companies. But cutting to survive the quarter and redesigning to compete for the next several years are different exercises. That distinction separates short-term cost reduction from performance improvement.

The stakes differ for our two core audiences, but the underlying discipline does not:

For PE sponsors, this phase can trigger fast, wide-reaching actions, including headcount reductions, role and process simplification, and product and operational rationalization. Sponsors are usually more willing to trade marginal volume for a healthier product mix, prune unprofitable customer segments and close underperforming sites if doing so protects EBITDA and covenant headroom. With a hold period and an exit thesis already defined, the calculus is comparatively direct: every action is weighed against its effect on the value-creation plan. What has changed is how much of the plan now rests on this phase. Cost design used to sit beneath the growth story. In this cycle, it carries it.
For corporate leaders, the trade-offs are harder to force. They must protect brand equity, customer relationships and regulatory commitments while still delivering financial performance, and without an exit date to settle the difficult calls. Strategic cost programs in this context often combine procurement optimization, pricing improvements and productivity initiatives with targeted reinvestment into the capabilities that differentiate the business. The goal is not to shrink the company into profitability; it is to fund the parts of the business worth protecting by removing the parts that are not.

Sharpening Deliberately, Not Defensively

The most effective organizations do not approach margin pressure as a temporary cost-cutting exercise. They use it to simplify operations, redeploy resources and strengthen long-term competitiveness. That discipline shows up in a few deliberate moves.

Separate the portfolio from the noise. Not every dollar of revenue is worth defending, and not every customer relationship is worth the cost to serve it. FTI Consulting worked with a leading managed cloud service provider under margin pressure, identifying more than $150 million in run-rate savings across customer profitability, services optimization, general and administrative expense right-sizing and external spend, and supporting the implementation of $100 million of savings within a single financial quarter.⁵ The program worked because it started from a clear view of which parts of the business created value and which quietly consumed it, rather than cutting uniformly across the portfolio.
Treat procurement as a design lever, not a negotiating tactic. Sourcing and vendor spend is often the fastest place to find structural savings, but only when approached as a strategic redesign rather than a one-time renegotiation. FTI Consulting helped a $14 billion-plus global manufacturer rebuild its freight sourcing strategy from the ground up, more than tripling its original 8% savings target to deliver approximately 30% in annualized savings, while also strengthening carrier relationships and service reliability.⁶ The savings were the visible part. The durable part was a more resilient, better-governed sourcing capability that kept paying off after the program ended.
Use pricing before you use headcount. Pricing is the most underused lever in a performance improvement program, both because it is harder to execute cleanly than a cost cut and because it requires commercial and finance teams to agree on where the business has earned the right to charge more. It is also the lever most often misdiagnosed: management teams frequently read a thin margin as a labor problem when the root cause is weak pricing governance, freight premiums, auto-renewing contracts and a tail of unprofitable SKUs. FTI Consulting helped a premium pet food manufacturer build a proprietary, data-driven price elasticity model across its portfolio, optimizing pricing across roughly 2,000 SKU-retailer combinations and identifying an estimated 13% improvement in annual gross margin.⁷ Getting pricing right, segment by segment, protects margin without touching the cost base or the customer relationships that drive future growth.
Reinvest what you find. The organizations that emerge stronger do not treat every dollar of savings as a number to report to the board; they redeploy a portion of it into the capabilities that will matter once performance stabilizes. FTI Consulting helped a direct-to-consumer home improvement company redeploy $5 to $10 million in identified marketing and sales savings into growth initiatives, an investment expected to generate $50 to $70 million in incremental revenue within 12 to 18 months.⁸ Savings with no reinvestment thesis behind them tend to get spent back into the same inefficiency they were cut from.

Two Forces That Will Define This Cycle

The playbook above is durable. The context it is executed in is not, and two forces are changing what a credible performance improvement program has to prove.

The first is that cost programs are now underwritten by liquidity, not by the P&L. As holding periods extend across portfolio companies with significant unrealized value, limited partners are more likely to prioritize distributions to paid-in capital. The practical consequence for an operating partner is that margin now has to be provable, not merely reported. A buyer’s quality-of-earnings review will discount a reduction that looks like a freeze and credit one embedded in a redesigned delivery model. The same $10 million of savings can be worth several turns of value or nothing at all, depending entirely on whether it survives diligence. That is a design question, and it is answered 18 months before a process launches, not during it.

The second is that boards are underwriting cost curves their operating teams have not yet built. Roughly two-thirds of chief financial officers expect selling, general and administrative expenses (“SG&A”) to grow more slowly than revenue in the year ahead, with 54% putting the gap at one to five percentage points, and 42% anticipate artificial intelligence-driven headcount reduction across SG&A or support functions.⁹ Those commitments are already in the plan. Delivery is further behind: live production deployment remains far narrower than pilot activity, and it is predicted that more than 40% of agentic AI projects to be canceled before the end of 2027.¹⁰ The risk is timing, not technology. Savings were booked on a timeline the operating model cannot meet, leaving a gap that gets closed the old way, with an undesigned headcount action taken late, under pressure, by people who did not plan it.

A second-order effect is already showing up in diligence. Automating support functions relocates cost more than it removes it, converting payroll into technology and vendor spend under usage-based contracts that scale with transaction volume rather than headcount. That can still be the right trade. But it is a structurally different cost base with a different risk profile, and a management team that has not modeled it will find the savings smaller, later and less durable than the business case promised. The discipline is the same one that runs through this series: know which costs are buying you something, and design accordingly.

The Takeaway for Leaders

The instinct during performance improvement is to treat every cost as equally expendable and every cut as equally urgent. That buys short-term relief and builds long-term fragility. Organizations emerge from margin pressure stronger when they remove structural drag while protecting investments in competitive advantage.

Protecting profitability is not separate from sharpening the business. Done well, they are the same exercise. The choices made under pressure (which segments to prune, which capabilities to protect, which savings to reinvest) determine whether the business emerges simply smaller or genuinely stronger.

In the planned final installment, “Turnaround and Restructuring: Stabilizing Liquidity and Resetting to the Core,” we turn to the third lifecycle stage, where the priority shifts from defending profitability to preserving solvency itself.

Footnotes:

1: Lokhandwala, Ali, Wray, Jeff and Hughes, Jeff, “Cost as a Design Choice: How Private Equity and Corporates Use Cost To Win Across the Business Lifecycle,” FTI Consulting (June 5, 2026).

2: Lokhandwala, Ali, et al., “Transformation for Growth: Funding Scale Without Future Bloat,” FTI Consulting (July 29, 2026).

3: Gulati, Ranjay, Nohria, Nitin and Wohlgezogen, Franz, “Roaring Out of Recession,” Harvard Business Review 88, no. 3 (March 2010), 62–69.

4: Gulati, Nohria and Wohlgezogen, supra note 4.

5: O’Donnell, Shawn, “$150 Million Cost Optimization of a Leading Managed Cloud Service Provider,” FTI Consulting (Feb. 23, 2024).

6: Weyrich, Michael, Jordon, Rick and Schutzbank, David, “The Road Less Costly: How an Optimized Sourcing Strategy Delivered 30% in Annualized Savings,” FTI Consulting (July 1, 2025).

7: FTI Consulting, internal case study materials, client identity withheld.

8: FTI Consulting, internal case study materials, client identity withheld.

9: Gartner, Press Release, “Gartner Survey Shows CFOs Are Trimming Overhead, But Not Revenue Growth Ambitions in 2026” (Oct. 15, 2025) (2026 Budget Assumptions survey of 142 CFOs and senior finance leaders, fielded August through September 2025).

10: Gartner, Press Release, “Gartner Predicts Over 40% of Agentic AI Projects Will Be Canceled by End of 2027” (June 25, 2025).

The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.