Cost as a Mirror of Strategy: Closing the Gap Between Ambition and Profitability

( Audio en Español https://open.spotify.com/episode/5Ytvg3gzvKK85yJBBnRvGD?si=UUMhBCzHRIe0VMQU1SUTiw )

When LEGO Chose Less—and Won More

In 2004, LEGO was in crisis. The company was carrying over $800 million in debt, its product lines had ballooned out of control, and profitability was a distant memory. When newly appointed CEO Jørgen Vig Knudstorp walked into his first executive meeting, the expectation was clear: cut costs, launch new products, and grow aggressively.

Instead, he said this:

“We need to become smaller to grow stronger.”

He sold off the theme parks, eliminated one in every three product lines, and shut down initiatives that strayed from LEGO’s core identity. Many questioned the decision. “You can’t shrink your way to growth,” critics warned.

Five years later, LEGO became one of the most profitable toy companies in the world.

This isn’t just a turnaround story. It’s a lesson in strategic discipline: long-term profitability often requires sharper focus, not greater ambition.

The Silent Gap That Undermines Strategy

According to PwC’s Strategy That Works Survey (PwC, 2022), 56% of senior executives admit their company lacks a differentiated strategy. More strikingly, 80% say their plan isn’t well understood within their organization.

The result? A structural disconnect between aspiration and execution.

Cost structures and operating models continue down one path, while strategic ambitions race down another. A CFO at a global consumer goods firm summed it up nicely:

“Our budget still reflects who we were, not who we need to become.”

This gap isn’t just unfortunate—it’s avoidable. Closing it starts by aligning your costs with your capabilities.

The Trap of Inertial Spending

Too often, companies roll out bold strategies that fail to deliver results. Margins erode, costs balloon, and teams remain misaligned. What’s going wrong?

In many cases, strategic priorities and budget allocations are fundamentally disconnected.

The 2023 Global Cost Management Survey revealed that more than 60% of organizations do not explicitly link cost planning to strategic goals. Instead of enabling strategy, cost management becomes an exercise in backward-looking control.

Some companies even make things worse under pressure. Circuit City famously slashed its core salesforce to save money, undermining its customer value proposition and accelerating its decline. Others, like IKEA, applied efficiency with strategic intent, doubling down on its unique design, supply chain, and in-store experience strengths.

Capabilities-Driven Strategy: The Discipline of Focus

In Strategy That Works, Paul Leinwand and Cesare Mainardi argue that high-performing companies don’t try to be great at everything. Instead, they focus on doing a few things exceptionally well and align every resource around those capabilities.

Strategic coherence looks like this: a tight fit between what you offer, what you’re uniquely good at, and where you choose to compete.

Natura built its competitive edge on three distinct capabilities: direct selling, sustainable product innovation, and deep emotional connection with its customers. Danaher institutionalized operational excellence as a cultural constant. Frito-Lay invested heavily in world-class distribution to future-proof its business.

They all followed the same formula: know what makes you win, and fund it relentlessly.

From Cost Control to Cost Design

Traditionally, cost management was about efficiency. However, the Fit for Growth framework—developed by Strategy& (PwC)—reframes it as an act of design.

As management accounting pioneer Thomas Horngren put it:

“Costs should not only be controlled—they should be designed.”

This is where the CFO role is being redefined. According to PwC’s CFO Pulse Survey (2024), 70% of high-performing CFOs are now directly shaping investment and divestment decisions based on strategic fit—not just financial return.

This shift is powered by analytical tools that prioritize long-term value creation:

• Activity-Based Costing helps identify which activities truly drive differentiation.

• Life-Cycle Costing reveals the full economic impact of decisions over time.

• Zero-Based Budgeting forces a clean-slate mindset—challenging every dollar spent.

The core question isn’t “What does this cost?” It’s: “Does this make us more of who we want to be?”

The Fit for Growth Formula: Three Strategic Moves

The Fit for Growth approach lays out a clear roadmap for aligning cost and strategy:

1. Identify your differentiating capabilities—what truly makes your business competitive.

2. Reshape the cost structure—cut where it doesn't support those capabilities, and invest where it does.

3. Realign talent, processes, and culture—so execution becomes sustainable, not episodic.

Procter & Gamble flattened layers of bureaucracy to reinvest in innovation. Natura applied these principles to integrate Avon without diluting its core identity. Haier used this playbook to digitize core capabilities while maintaining entrepreneurial agility.

The pattern is clear: profitability follows when funding flows with intention.

Implications for CFOs and the C-Suite

Bridging the gap between strategy and results requires new financial leadership. The IMA’s Reimagining the Role of the CFO (2023) emphasizes this evolution: the modern CFO is not just a financial steward but a strategic architect.

That means:

• Budgeting based on future identity, not past patterns.

• Evaluating initiatives for strategic coherence—not just for ROI.

• Differentiating “must-haves” from “nice-to-haves.”

• Leading organizational redesigns that reinforce clarity and efficiency.

• Promoting a culture of purposeful frugality: spending wisely, not just less.

In this role, the CFO is no longer the controller of cost. They are the co-creators of competitive advantage.

Conclusion: When Strategy Lives in Every Dollar

In a world of inflation, disruption, and intense margin pressure, long-term profitability doesn’t come from cutting blindly or expanding aimlessly.

It comes from clarity, from investing in what truly sets you apart, and from aligning every euro, dollar, or peso with the strategy you claim to believe in.

LEGO didn’t win by doing more. They won by doing less, better, sharper, and with purpose.

Because in the end, strategy isn’t what you say. It’s what you fund.

Pedro San Martín is Principal at Asher PwC Interamericas.He can be reached at psanmartin@asheranalytics.com.

References

1. PwC Strategy&. Strategy That Works Survey, 2022

2. Strategy& / PwC. Fit for Growth: A Guide to Strategic Cost Management, 2017

3. PwC. CFO Pulse Survey, 2024

4. IMA. Reimagining the Role of the CFO, 2023