When cost-cutting is just theathre
Much of what passes for cost-cutting isn’t strategic, it’s just motion.
In many companies, “cost reduction” becomes a reflex. A default response to pressure, not a deliberate choice. Leaders are praised for acting fast, but rarely questioned on whether they’re cutting the right things.
As a result:
Teams launch endless small savings projects to look active, while structural issues go untouched
Symbolic cuts like travel bans, snacks and team budgets send signals but hurt morale more than they help the bottom line
Leaders chase margin targets to please investors, even if it burns people out or kills long-term value
McKinsey warns: “Indiscriminate cost-cutting can erode competitive advantage and lead to underperformance in recovery phases.”*
Why do companies actually cut costs?
At the core, there are two main reasons:
You’re in a good place and want more — or you’re in a bad place and need to survive.
1. We’re under pressure to improve performance on paper (The business isn’t bad but it’s not good enough for what’s ahead).
Preparing for a transaction, IPO, or exit
Meeting investor expectations for higher EBITDA or cleaner margins
Showing short-term discipline to boost valuation for various reasons
2. We’re underperforming and need to stop the bleeding (The business is in trouble and the pressure is real)
Losing money due to market shifts, bad bets, or delays
Falling behind competitors
Reacting to missed signals or strategic drift
The first scenario is very tactical.
There’s usually a spreadsheet known only to a handful of people. Then comes a company-wide message about “trying harder,” vague talk of “market headwinds” even though, two months ago at the Christmas party, half-drunk managers were celebrating the best year ever.
How you view the cut depends on where you sit. Are you an employee with a bonus plan tied to it or not? Are you a top manager chasing a short-term goal? An investor prepping for an exit? Or someone focused on long-term value?
I’m not against these moves. Investors have every right to position an asset before selling. And checking if your costs are in line with market benchmarks is a rational, healthy practice. Many companies overspend in good times simply because the money is there.
The second case is different and often necessary.
Even if most teams don’t see it yet, it might be the difference between survival and collapse. The question is: do you know what and how to cut? What looks good in Excel might not survive contact with reality.
And most importantly: what comes after the cut? Will you use the savings to invest and build a new advantage? Or will you create a temporary fix that still doesn’t stop the bleeding? Are you cutting because it’s the right move or because you’ve run out of ideas?
What we cut costs for matters just as much.
Cost-cutting is part of the exploitation side of the business. But to thrive, we also need to invest in exploration. Only that balance keeps a company moving forward long term. Thoughtfulness keeps us from chaos and corporate madness.
1. We’re trying to fund something new (The strategy shifted, now the cash needs to follow)
Investing in transformation or a new growth engine
Exiting legacy or low-margin business lines
Reallocating capital toward tech, talent, or innovation
2. We want to look like we’re doing something (Not always rational, but very real)
New leadership needs fast wins
The board, investors, or employees expect visible action
We’re chasing KPIs or bonus-linked targets
Cost-cutting is a tool
In mature organizations, it’s even a process, a constant discipline of asking: Are we spending on the right things? Is this the best use of our budget?
But in many companies, it’s an erratic reflex. One that feels proactive, but can quietly destroy long-term value if it’s not done with purpose, clarity, and courage.
Cost-cutting becomes a breathing space, a pause that can create optionality. But without a clear plan, this pause often turns into drift. You cut, but you don’t move. You save money, but you lose momentum.
