You can do both!

By Nicolas Agathocleous, Partner and Board Member, RSM Cyprus

Finance leaders across Europe are now focused on controlling costs. Cost-cutting is back on every CFO agenda, but many organisations are doing it in ways that quietly weaken their ability to grow.

The European Commission's Spring 2026 Economic Forecast projects GDP growth of 1.1% in the EU and 0.9% in the euro area in 2026, as a new energy shock has pushed inflation higher and weakened economic sentiment. Inflation is now expected to rise to 3.1% in the EU, while higher financing costs, weaker profits and elevated uncertainty are weighing on investment decisions. The Commission also expects gross fixed capital formation to slow, as many firms postpone or scale back investment plans in response to the weaker outlook.

Still, leaders understand that cutting costs alone is not enough to secure long-term success. Leaders want innovation, clients expect progress and competitors continue to invest.

The key question finance leaders are asking is simple: how can we reduce costs without damaging our ability to grow?

The real question is not whether to cut costs, but how to do it without harming the factors that support long-run growth.

The risk of short-term thinking

When market pressure increases, the first reaction is often to act quickly. Reducing the number of team members, freezing budgets, and pausing investments are common steps that seem to deliver quick results.

However, this approach is risky. Organisations that cut costs without a clear strategy are frequently weakened during recessions. While costs go down, so do capacity, skills, and confidence, both within the company and among clients.

Many cost plans fail, not because companies don't cut enough, but because they cut the wrong things.

The organisations that do best after tough times are those that treat cost reduction as a strategic process, not just a quick reaction.

Performance improvement is not the same as cost-cutting

Many leaders underestimate the importance of this difference. Cost-cutting means spending less. Performance improvement means making better use of what you already have. These can overlap, but they address different needs.

Cost-cutting asks where you can spend less. Performance improvement asks where spending does not create value, and how to shift those resources to areas that will.

This is the shift many CFOs are now making, from cost reduction to planned cost reallocation.

This change in thinking makes a big difference. Instead of a general cost reduction across all operations, you make targeted choices. You keep investments that give you an edge and cut activities that do not.

Where to start: four areas worth examining

Every organisation is unique, but most leadership teams can find real opportunities in four key areas without losing sight of their strategy.

Operational processes

Over time, many organisations develop inefficiencies, for instance, manual tasks that could be automated, overlapping roles, or outdated processes. Fixing these issues can save money without cutting capacity.

A practical first step is to run a short operational diagnostic to identify processes that consume time but add limited value.

Organisational structure

As companies grow, extra layers of management can slow decisions and increase costs. Improving the structure boosts efficiency and helps the business adapt faster.

Leaders should ask: Are decisions being made at the right level, or passing through unnecessary layers?

Supplier and contract management

If you have not reviewed your suppliers in a few years, you are likely paying too much. Renegotiating contracts, combining suppliers, and checking service levels can free up cash.

Where exactly are we overspending, and which supplier relationships still represent current market conditions?

Digital and technology investment

It is important to think carefully here. While it may seem easier to delay technology projects when budgets are tight, many of these investments are important for future efficiency. The real question is whether your current digital tools are being used as effectively as possible.

Before cutting technology spending, organisations should first check whether they are fully utilising what they already have.

Protecting what drives growth

A common mistake in cost-cutting is treating every expense the same way. Not all costs have the same impact.
Investing in client acquisition, product development, digital skills, and talent usually brings future benefits. Spending on old systems, duplicate processes, or weak projects does not. Cutting the latter to protect the former is wise. Doing the opposite can set organisations back.

Finance leaders should clearly distinguish between investments that create future value and those that maintain the current status quo.

This calls for honest analysis. Leaders need a clear view of where money goes and what it achieves. Without solid evidence, decisions are based on guesses or office politics rather than on facts.

The role of strategy in cost decisions

Perhaps the most important point is that cost decisions should always be consistent with your overall strategy, not separate from it.

If your strategy is to grow in new markets, cutting your business development capacity will hold you back. If your strategy depends on service quality, reducing your frontline team will cost you clients. If digital transformation is important to your competitive position, delaying that investment may lead to bigger problems later.

The European Commission's Spring 2026 Forecast reinforces this point. In fact, the Autumn 2025 Forecast had pointed to a firmer investment outlook, supported by favourable financing conditions, stronger-than-expected momentum, and continued backing from EU funding. But by Spring 2026, that picture had changed. Higher financing costs, weaker profits and elevated uncertainty were prompting many firms to delay or scale back investment plans. Yet the Commission noted that not all investments are affected equally. Equipment investment is expected to come under greater pressure, while software and R&D investment are expected to remain relatively resilient. It suggests that even in a weaker environment, the investments most closely tied to long-term capability and competitiveness still need to be protected.

At RSM, we increasingly see that organisations that maintain disciplined investment during uncertainty recover faster and outperform peers when conditions improve.

So, the choice is not between discipline and growth. It is about discipline that protects the parts of the business that will matter most when conditions improve. The evidence shows that maintaining productive investments, even during tough times, helps you recover faster when things get better.

Moving forward with confidence

None of this is easy. Balancing costs with planned investments means determining clear priorities, preserving strong oversight, and having tough discussions. Getting an outside view from financial advisors can help, since it is hard to spot your own inefficiencies from the inside.

Organisations that succeed do not see cost and growth as opposites. They treat financial management as the basis for smart investment.

In practice, this means taking structured action, such as conducting a 90-day cost-and-value review across business units to align spending with corporate priorities.

If you want to talk about how your organisation can improve performance and stay focused on ongoing growth, contact an RSM adviser today.

Sources:

Spring 2026 Economic Forecast: Slowdown in growth as energy shock drives up inflation.

Autumn 2025 Economic Forecast shows continued growth despite a challenging environment.