From Cost Control to Capability Control: Why Margin Pressure Is an Executive Problem

Margin pressure has become a near-universal condition across capital-intensive, regulated, and complexity-heavy industries. In PE-backed manufacturing, it shows up as rising input costs, labor volatility, and compressed pricing power. In SaaS, it appears as slowing growth, rising customer acquisition costs, and pressure to convert scale into profitability. In energy, infrastructure, and FinTech, it often emerges through regulatory drag, capital intensity, and increasingly fragile operating models.

Yet across these environments, the dominant response remains remarkably consistent: cost control. Headcount reductions, discretionary spending freezes, vendor renegotiations, and procurement mandates are deployed quickly, often decisively, and almost always with executive sponsorship.

What is far less common is a deeper reckoning with what margin pressure actually signals.

In most cases, sustained margin compression is not a finance problem. It is not a procurement problem. And it is rarely a temporary market anomaly. It is a leadership problem: specifically, a failure to build and deploy executive capabilities that allow organizations to operate efficiently without eroding resilience, adaptability, or long-term value creation.

As we have explored in prior Kersten Talent Capital research, including Why Speed Is Now a Leadership Capability (and How PE Firms Keep Hiring Too Slowly), operational outcomes increasingly reflect leadership design choices rather than tactical decisions alone. Margin durability is no exception. The firms that protect and expand margins over time do so not by cutting faster, but by building leadership teams capable of redesigning how value is created, delivered, and sustained.

This shift—from cost control to capability control—is where many executive hiring strategies quietly fall apart.

The False Comfort of Cost Cutting

Cost cutting offers a sense of immediacy that capability building does not. It produces visible action, measurable short-term impact, and the perception of discipline, qualities that resonate strongly in boardrooms under pressure. For PE-backed organizations in particular, these moves often align with early value creation playbooks built around operational efficiency and margin expansion.

But cost cutting is inherently finite. There are only so many expenses to eliminate before the organization begins cutting into muscle rather than fat. When margin improvement efforts stall after successive rounds of reduction, leadership teams often respond with more controls, not better ones.

The underlying issue is that cost-focused strategies treat margin as an outcome to be engineered through constraint, rather than a byproduct of how the organization is led. Deloitte’s MarginPLUS Survey underscores this limitation, finding that while many companies increase the speed and scope of margin improvement initiatives, most fail to reach their targets with organizational agility and talent capability cited as persistent barriers.

In manufacturing, this can manifest as underinvestment in operational leadership just as complexity increases. In SaaS, it may appear as scaling back customer success or product investment without addressing the leadership gaps that allowed inefficiency to accumulate in the first place. In energy and industrial services, aggressive cost controls can undermine safety, reliability, or regulatory confidence, introducing risks far more expensive than the savings they generate.

Across sectors, the pattern is the same: margin pressure prompts tactical responses, while the executive capability gaps that created vulnerability remain unaddressed.

Margin Pressure as a Signal of Leadership Design Failure

When margins erode persistently, the question leaders should be asking is not “Where can we cut next?” but “What capabilities are missing from the leadership team that allow inefficiency to persist?”

In our work with PE-backed manufacturers, we often see margin pressure traced back to leadership blind spots rather than market forces. These may include an inability to standardize operations across acquired entities, weak cross-functional coordination between sales and operations, or executives who excel at cost containment but struggle with complexity management.

We explored a related dynamic in Beyond the Buzzwords: What PE-Backed Manufacturers Really Need in Executive Hires, where vague leadership criteria masked concrete capability gaps. The same phenomenon applies here: organizations frequently hire leaders with strong cost discipline credentials while overlooking whether they can actually build systems that sustain margin performance.

This pattern extends well beyond manufacturing. In SaaS and FinTech, margin pressure often reflects leadership teams that scaled quickly without developing the operational rigor needed to support profitability. In energy and infrastructure, it may indicate executives who understand regulatory requirements but lack the capability to translate them into efficient operating models.

In each case, margin pressure is less a reflection of external conditions than of leadership architecture: who is in the room, how decisions are made, and whether the organization can adapt without relying on blunt instruments.

Why Capability Control Is Harder and More Valuable

Building leadership capability is inherently more difficult than cutting costs. It requires time, intentionality, and a willingness to confront uncomfortable truths about how decisions are made. It also demands a different approach to executive hiring that prioritizes adaptability, systems thinking, and execution under constraint.

Capability control does not mean abandoning discipline. It means shifting the focus from what the organization spends to how it operates. Leaders with strong capability orientation ask different questions. They focus on process design, decision velocity, organizational alignment, and the mechanisms through which strategy becomes execution.

In From Fragmented to Future-Ready: Recruiting for Digital Transformation in Industrial Manufacturing, we highlighted how digital initiatives fail not because of technology choices, but because leadership teams lack the capability to integrate change across functions. The same logic applies to margin performance. Without leaders who can redesign workflows, rationalize complexity, and enforce accountability across silos, cost controls simply mask deeper inefficiencies.

Capability-driven leaders also recognize that margin improvement is not a one-time event. It is an ongoing outcome of how the organization learns, adapts, and responds to change. This is particularly critical in sectors facing regulatory volatility, rapid technological shifts, or evolving customer expectations, conditions now common across manufacturing, SaaS, energy, and financial services alike.

The Executive Hiring Trap: Optimizing for the Wrong Strengths

One of the most persistent mistakes organizations make under margin pressure is hiring executives who are optimized for control, not capability.

Resumes that emphasize cost reduction initiatives, restructuring experience, or aggressive efficiency programs can be appealing in moments of pressure. But without evidence that these leaders can also build durable systems, align stakeholders, and manage complexity, organizations risk cycling through short-term fixes without addressing root causes.

We see this particularly often in PE-backed environments where time horizons are compressed and expectations are high. In The First 100 Days: What PE Firms Should Expect From a Newly Recruited Manufacturing CEO, we noted that early leadership momentum is critical. When new executives default to cost cutting without establishing a capability-building agenda, that momentum is often squandered.

The same dynamic applies in SaaS and FinTech, where leaders hired to “tighten the ship” may inadvertently slow innovation or erode customer value if they lack the capability to balance efficiency with growth. In energy and industrial services, leaders who focus narrowly on cost control can expose the organization to operational or regulatory risk if they lack systems-level understanding.

The issue is not that cost discipline is unimportant. It is that cost discipline without capability is fragile.

What Capability-Controlled Organizations Do Differently

Organizations that successfully protect margins over time tend to share a common leadership profile. Their executives are not just cost-aware; they are capability-driven. They understand how decisions ripple through the organization and how to redesign systems rather than simply constrain them.

These leaders typically treat margin as an outcome of execution quality, not an isolated financial target. They focus on process design, decision clarity, and cross-functional alignment, recognizing that inefficiencies often arise at organizational seams rather than within individual departments.

McKinsey’s research on talent and performance reinforces this view, showing that companies that actively manage leadership capability and decision effectiveness generate higher long-term returns than those that focus narrowly on expense control.

Importantly, these traits are not industry-specific. They apply equally to a manufacturing COO rationalizing plant operations, a SaaS CFO redesigning revenue operations, or an energy executive navigating regulatory complexity. What differs is context not capability.

This is why executive hiring decisions under margin pressure are so consequential. The leaders brought in during these moments shape not only near-term performance, but the organization’s ability to respond to future shocks.

Reframing Margin Conversations at the Board and Executive Level

For boards, investors, and executive teams, shifting from cost control to capability control requires a change in how margin discussions are framed. Rather than asking, “Where can we reduce spend?” leaders must ask, “What capabilities are required to operate profitably under today’s conditions?”

This reframing opens more productive conversations about leadership gaps, organizational design, and long-term resilience. It also clarifies why certain executive hires succeed while others struggle, even when facing similar market conditions.

In our experience, organizations that make this shift earlier tend to avoid the destructive cycles of repeated restructuring and leadership turnover. They build teams capable of navigating uncertainty, rather than reacting to it.

Why This Matters Heading Into 2026

As we look ahead to 2026, margin pressure is unlikely to abate. Volatility, regulatory complexity, technological change, and evolving customer expectations will continue to test organizations across sectors. Those that rely solely on cost control will find diminishing returns.

The firms that outperform will be those that recognize margin pressure for what it is: a leadership challenge demanding capability-driven solutions. Executive hiring, in this context, becomes a strategic lever, not just a staffing exercise.

Kersten Talent Capital works with organizations facing these inflection points to design leadership strategies aligned with the realities of today’s operating environment. If margin pressure is forcing hard questions about your leadership team, it may be time to move beyond cost control and toward capability control.

Contact us to explore how executive capability design can strengthen margin resilience in your organization.