There's been some confusion over my recent post criticizing the Business Week article on Toyota's “frugality.” I do not believe that Toyota is frugal (read: “cheap”). Rather, I believe that the company is simply focused on value.
The distinction I make is subtle, but I don't think it's trivial. Here's the way I look at it: frugality (or cheapness) makes cost-cutting the goal, rather than the means to the end — which is to deliver the most value to the customer.
As I mentioned in my earlier post, if Toyota really wanted to cut indirect costs, they'd close down their dormitories instead of just turning off the lights. The dorms are not adding any value to you or me when we buy a car, except insofar as they help the company develop competent workers. And (in my mind, anyway) that's the road you'd take if you were just interested in cutting costs/being frugal.
Kirk Paluska, an instructor at the Lean Enterprise Institute, once pointed out that lean isn't a cost-savings strategy; it's a cost-avoidance strategy. That's a subtle distinction, too, but I think it gets to the heart of the difference between frugality and lean.
Avoiding costs is a strategy that places the customer and value front and center. Cutting costs puts the income statement front and center. And once you start doing that, you're on the road to layoffs, outsourcing, and all the other productivity-improving chimeras that so many companies chase.
What do you think? Please scroll down (or click) to post a comment. Or please share the post with your thoughts on LinkedIn – and follow me or connect with me there.
Did you like this post? Make sure you don't miss a post or podcast — Subscribe to get notified about posts via email daily or weekly.
Check out my latest book, The Mistakes That Make Us: Cultivating a Culture of Learning and Innovation:
IMO, Dan’s central premise is right: lean focuses on maximizing value vs. cutting cost. However, I think “frugal” implies the same emphasis on value. Frugal originates from the Latin word “frugalis” and connotates economical or sparing – the essence of value!
This is very different from “cheap” which implies a false economy through reducing expenses. So, I would rephrase the point as “Toyota/Lean is frugal, but not cheap.”
Any word experts want to weigh in?
Not a word expert, but I think frugal represents a way of thinking and behaving. To me, frugal means not wasting what is available no matter how much is available. In the US manufacturers tend to be free to waste resources because they are relatively easy and inexpensive to attain. This easy availability tends to make the thinking lax and the waste high. A small example is the easy availability of color copies. They are all over the work place and used without much thought, but a color copy is around 25-30 cents or so and a black and white is around 5-6 cents. A small issue for one copy, but a large issue for thousands of copies. Here is another small example- When I am in a factory after hours there is usually a symphony of hissing from equipment that leaks air. Air is expensive to generate. Why are these leaks not corrected? When I mention it it is usually shrugged off as insignificant. In addition machines are running, conveyors moving, fans turning, lights burning,- and there is not a person to be seen! For Toyota the frugal mindset was born out of necessity and as the have become affluent as a company they have become more sensitive to the possibility of losing that mind-set. When Toyota is worried they dig in even more and strengthen the position. I heard from friends inside Toyota that the San Antonio launch was the most frugal yet, but the profits are at the highest level now. Toyota thinks differently.
On my visit to the Toyota plant in Kentucky last year I was struck with how frugal Toyota was in terms of “waste” and the simple, unsophisticated (compared to other companies trying to copy lean) methods to do the work. At the same time I realized how lavish Toyota is towards the PEOPLE. For example there are several pool tables and ping-pong tables throughout the plant. Toyota spends several hundred-thousand dollars on the annual company picnic and perfect attendance celebration (and gives away 15 cars). Very few other companies would spend this much on people (not to mention the on-site facilities, amount of training, etc.).
So the idea is this- why not save money where it does not provide value (as mentioned in the post) and spend it were it matters the most- on people and creating value?
Why do we think it is ok to waste things just because they are readily available? Being frugal is sensible. Toyota is by no means “cheap” but they are sensible about how to save where possible and spend where it is beneficial. Sounds like a good business model to me.
Posted by David Meier who seems to have forgotten his log in password!