Frugality as a driver of growth
“ Less is more. ”
Concept adopted in 1947 by architect Ludwig Mies van der Rohe
Today, around the world, many entrepreneurs practice frugal and agile innovation, popularized by Navi Radjou in his book Jugaad, a Hindi word meaning “the art of crafting ingenious solutions.” This concept of frugality, or “less is more,” is regularly revisited, whether in architecture or business, and is experiencing a resurgence due to the planet’s resource crisis.
Frugality is a positive way to promote best practices in cost control: Jeff Bezos applied it from Amazon’s early days, where cost management is as obsessive as customer relations. And it works!
Legend has it that the first employees made desks by attaching legs to old doors, for lack of resources. Twenty-five years later, these desks still symbolize the company’s frugality. “Door Desk Awards” are given to the most economical employees, with the ultimate goal of reinvesting to lower sales prices!
Employees travel in economy class and stay in budget hotels. Managers, even senior ones, have no budget: “When you have a budget, you spend it,” explains Anne-Marie Husser, Amazon’s HR Director. “When you don’t, you innovate. You have to come up with a creative idea and then find the resources to implement it.”
No expense is considered trivial: at the 2009 annual general meeting, Jeff Bezos proudly announced that all snack machine lights in warehouses had been removed to save a few thousand dollars per year. Amazon is also known for never hiring external consultants and, until recently, preferred printing its logo on delivery boxes and relying on word-of-mouth rather than paying for TV ads.
Facing growing economic and budgetary constraints, many companies adopt work organizations inspired by Lean Management to improve performance, quality, productivity, and reduce lead times.
The guiding principles are inspired by the production system developed in Japan by Toyota in the 1960s and 70s:
Continuous improvement (kaizen) involving employees and aiming to eliminate actions considered non-value-added (muda) in the customer’s eyes,
Quality control in production (jidoka),
Mastery of demand variability (just-in-time).
Often, one consequence of these reorganizations is the reduction of hierarchical levels and an increase in the number of people per team.
Another alternative is BBZ, zero-based budgeting, which aims to review and challenge all “traditional” budget expenditures. Unlike the usual procedure of basing a budget on the previous year’s, BBZ requires that all expenses be justified for the upcoming budget, giving a score of “0” to each line item, which is then increased according to the expected results of the expense. The overall idea is to make deliberate budget choices rather than simply sprinkling small reductions here and there.
Remember, the key to cost control or reduction is keeping a holistic view of the customer experience. Observe what the customer can do themselves (like self-checkout systems) or what they are unwilling to pay for. Additionally, reducing overhead or the number of suppliers are well-known, proven strategies. Applying them consistently is essential to effective management.
In summary, leadership must set the example, as it is the leader’s responsibility to create a culture of cost reduction and lead by example. Ultimately, it is the customers who benefit directly from the resulting lower prices.
And you, how much energy do you dedicate each week to thinking about how to reduce your expenses?
Stay tuned next week for the continuation of this article!
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