Being Frugal vs. Being Lean

The October 20, 2008 issue of Business Week features an article on page 55 called “The New Age of Frugality”. The article, about “confronting the debt culture” in the U.S., describes a handful of real-life stories from people who recently overextended themselves, and were forced to learn some hard lessons about finding the natural limits of their spending capabilities.

As individuals and families find it necessary to become more frugal, it is reasonable to think that companies might also `find themselves in this situation. But what does it really mean to be frugal? According to the Random House Unabridged Dictionary, “frugal” means:

1. economical in use or expenditure; prudently saving or sparing; not wasteful: a frugal manager.
2. entailing little expense; requiring few resources; meager; scanty: a frugal meal.

So to be frugal, you must be economical; you must be cautious with your expenditures, save for a rainy day, try to get the most out of limited resources, and don’t waste. This last part reminded me of the lean philosophy – but does lean also embrace judicious investing?

What is lean? The five principles of lean, from Womack & Jones (1996), are understanding value, understanding your value streams (that is, how the value is generated), embracing the concept of flow, employing “pull” within processes, and committing to continuous improvement. By understanding value generation, we can refine a process so that every action is productive. By employing pull, we ensure that we use resources only when they are needed, and thus don’t waste. By committing to continuously improve, we agree to consciously approach each element of the process, and reflect on value and flow often to find new opportunities to improve. In other words, once we’re done improving a process, we don’t stop thinking about it and learning from it. And in learning from it, we can make it even better.

How can you confront your own attitude towards debt and spending using lean principles?

  • Understand what purchases or investments will REALLY help you add value
  • Understand how that value is generated (by you or your financial institution)
  • “Pull” from your checking accounts, savings accounts and investments just-in-time, and only when it directly contributes to adding more value
  • Commit to reflecting on your expenditures regularly, and evaluate how much value you have been able to create from what you’ve spent

These principles can also be applied in your work environment. Value is sometimes reflected in metrics like Return on Investment (ROI), but not always. For example, are you creating value in the form of goodwill? This counts. Lean principles can help you be more frugal, but being frugal will not make you lean – spending less does not necessarily mean that you are generating value more effectively.

Womack, J. & Jones, D.T. (1996). Lean thinking. New York: Simon & Schuster.

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