Dirty Word #21 – Frugality
January 13, 2009
If you read the Wall Street Journal, you may have noticed an article last week entitled New Frugality Worsens Downturn. It talks about the perils of individual frugality for the larger economy. (If you want entertainment, sample the response of WSJ readers who commented on the online article – let’s just say they have little sympathy for the argument that it’s our patriotic duty to spend!)
I won’t jump into that particular debate right now. Instead, I’ll share an insight I got a few years ago about money and what happens when it’s in shorter supply. Some readers may know that after 10 years with a consulting and training company, I decided to quit in April of 2003. Our family had saved a cash cushion and I decided to take a sabbatical of up to one year.
The sabbatical was a great experience on many levels and I probably learned more in that year than in most 12 month periods of my life. One of the biggest lessons I learned was how many problems I had solved in the past simply by throwing money at them. A little bored with what’s in the cupboard? Go out to dinner! Have a friend who’s down? Buy them a gift! Curious about a book or movie? Click on amazon.com! Sick of the normal family vacation? Go to Spain!
That all changed when I took the leap out of the corporate world. Of course we still spent money, but we started to look for other, more ingenious (dare I say frugal) ways to meet needs and wants. I took up cooking again. We discovered our local library. We had fabulous family vacations camping in the north woods. I mowed my own lawn again. I even dug out dandelions by hand. And while I was very happy to see cash flowing back into the family, I must say we had some wonderful times learning to solve our problems creatively during that year.
Here’s my point: perhaps as a country, as companies, and as non-profits, we have over-depended on money to solve our problems over the past 20-30 years. Frugal people aren’t necessary less happy – but they are more ingenious! They find ways to solve problems with no (or less) dollar signs attached. They work together to solve a problem ingeniously (how about sharing a snow blower or lawn mower instead of everyone owning their own?).
Necessity can be the mother of invention and a downturn can be the mother of ingenious, “hey, we did it!” solutions.
Haircut vs. Pruning
January 7, 2009
I was talking with a senior financial leader at a very large private company the other day. Like so many companies, they are battening down the hatches for the storm we’re all riding through. That partly involves making cost cutting decisions and it got us talking about the challenges many leadership teams face when they are cutting costs.
Too often, she said, we end up trying to give the whole organization a haircut. You know how it goes – we’ll ask each unit to submit a plan for cutting 10% or 20% of costs (or worse, people). Often that directive ends up getting passed down the line so that we’re cutting a little bit of everything. It’s a “trim.” We think about cutting everyone’s salary by a percentage or reducing everyone’s work week to justify a pay cut. I even remember being in an executive team meeting where we talked about reducing the medical supplies in the first aid kits of the office building. (I’m not making this up!)
Would you like half a band-aid for that nick?
My financial friend said that, of course, the right way to go about cost cutting is to do pruning instead. Look at the enterprise and ask, which areas of activity are yielding the most value? Which ones are most consistent with where we think we will be when the market turns around? Which workstreams should we trim, which should we cut all the way back, and which should we pull up by the roots? Just as importantly, which should we preserve?
That one has to go…
So if pruning is more effective, why do we so often get haircuts instead? Here’s a starter list – and I’d love to hear back from you what you have experienced:
- We’re too busy/in too much crisis to take the time to think about pruning
- Pruning implies some parts of the organization are more important than others – and that’s too sensitive a topic for our leaders to face head-on
- We don’t really have a strategy, so we have no basis for a decision
What would you add or change? Click on the comment button or email me and let me know.