Managing Rising Operating Expenses

Three Big Learnings from Q2 Earnings Calls - Part Two

In Part One of this series, Valuations and Market Capitalization,  we explored the first of three key themes I’ve observed after completing twelve Decoding the Earnings Call (DTEC) sessions for Q2 2025. These sessions span industries from specialty chemicals to pharmaceuticals, high tech, and professional services, and they all share a common goal: helping leaders connect financial results, strategic execution, and market realities.

The DTEC workshop is a business acumen masterclass that builds on the skills participants develop in our simulation-centric training programs. By examining what Wall Street is saying, how executives deliver their quarterly story, and what the numbers reveal, participants learn how to spot patterns, evaluate trade-offs, and link business choices to shareholder value.This blog series distills the three most prominent themes from Q2 2025 earnings calls:

1. Valuations and Market Capitalization
2. Managing Rising Operating Expenses
3. Increased Merger & Acquisition Activity

Part One focused on the complex relationship between operational results and market cap. In this installment, we turn to a topic that cuts across nearly every industry this quarter: rising operating expenses and what leaders can do about them.

The Expense Challenge of 2025

If there was a single phrase that popped up in nearly every Q2 earnings call, it was “cost pressures.” While the sources vary by industry, the trend line is unmistakable: operating expenses are rising faster than many companies anticipated, and leaders are under pressure to maintain margins without stifling growth.

The drivers include:

• Labor costs – Competitive talent markets, wage inflation, and the need to upskill employees for technology-driven roles.
• Input and raw material costs – Even as supply chains stabilize, commodity prices remain volatile, creating uncertainty in planning and pricing.
• Technology investments – Ongoing digital transformation and AI integration require significant upfront spend, with payback periods that may span several years.
• Regulatory compliance – New and evolving requirements in data privacy, environmental standards, and trade compliance add to administrative overhead.
• Energy and logistics – Fuel price volatility and the cost of moving goods continue to put pressure on operating budgets.

In today’s environment, cutting costs indiscriminately can damage brand equity, customer experience, and long-term growth prospects. The challenge is finding the right balance between cost discipline and strategic investment.

How Business Acumen Helps Leaders Navigate

Managing rising operating expenses is not just a finance problem; it’s a leadership and decision-making challenge. Leaders with strong business acumen can:

• Distinguish between “good” costs and “bad” costs – Strategic investments that drive growth, innovation, and competitive advantage should be preserved or even increased. Inefficient processes, redundant systems, and low-value activities should be targeted for reduction.
• Connect expenses to value creation – Understand the ROI of each major cost category and make decisions that protect profitability without undermining future potential.
• Leverage data for smarter trade-offs – Use financial and operational metrics to identify where efficiencies can be gained without sacrificing quality or capability.
• Communicate cost strategies clearly – Align internal teams and external stakeholders by explaining the rationale for cost adjustments and linking them to the broader business strategy.

Lessons from Q2 Earnings Calls

In reviewing dozens of earnings calls, I heard three approaches that stood out as best practices for managing expense growth:

1. Zero-based budgeting for select functions – Rather than rolling over last year’s budget with an inflationary bump, leaders are rebuilding budgets from the ground up to ensure every dollar has a clear purpose.
2. Strategic automation – Companies are investing in automation not just to reduce headcount, but to redeploy talent to higher-value activities that directly improve customer experience or innovation capacity.
3. Supplier collaboration – Forward-looking firms are working closely with suppliers to find joint efficiencies, secure better terms, and innovate on materials or processes that reduce costs without compromising quality.

The Takeaway

Rising operating expenses are here to stay—at least for the foreseeable future. The leaders who will thrive are those who can see beyond simple cost-cutting and instead make disciplined, value-driven spending decisions.

In other words, the winners will be leaders who view expense management as a strategic lever rather than a reactive necessity, linking each decision to long-term growth, resilience, and shareholder value.

Coming next: Part Three of this series will explore the third big Q2 theme: Increased Merger & Acquisition Activity and what it signals for market strategy and leadership priorities.