The instinctive reaction in an economic slowdown is cutting out discretionary spending. This is a big mistake because it only addresses short term, not long-term profits. Unless the downturn threatens a company’s existence, savings should come from eliminating inefficiency, not modifying or sacrificing strategic initiatives, which build capabilities for long-term competitive advantage. This can be done by adding a funding category set aside for building the company’s capabilities for the future, while eliminating excesses of the past.