A lot of companies in a lot of places these days have been struggling to cut costs. Most of them are discovering the hard way that they have for too long put up with too much redundant and wasteful activity. For many, the problem is only starting, largely because thus far they are simply "mandating" cost reductions either across the board or to meet hastily set one-time targets. For these companies, cost cuts are likely to be no more enduring than a one-time haircut.
A few special companies, however, have taken the recessionary squeeze pretty much in stride. These are companies who, like Southwest Airlines, FedEx, and Emerson Electric, have historically been the role models for low cost operation. They seem to always have a cost advantage, and as a result they get through tough times almost as easily as they capitalize on good times. It's not that they don't tighten their belts when the economy dries up a bit; rather it is that they seem to know where and how to tighten in ways that do not inhibit their long-term capability to compete and grow. What's in their secret sauce?
In a nutshell, it is a culture that is "proud to be cheap" in good times and bad. Their people cut erasers in half, turn off the lights when they leave the building, bring their lunch to work, fly in the back of the bus, and stay in Day's Inns. More important, they are always on the alert for ways do things on the job more cheaply, without compromising quality and service standards. Nothing is wasted, nothing is redundant, and nothing is overlooked when it comes to doing it on the cheap.
Some of our colleagues would prefer we use the word "frugal," because cheap seems to suggest "shoddy." If you share their distate, read "frugal" where we say cheap; the relevant question is how do they do it, not what we call it. And the answer is by motivating their people to devote relentless attention to the small details that add up to significant cost cuts — throughout the informal nooks and crannies of their work — as well as within the formal lines and boxes of their official responsibility.
We think that "proud to be cheap" captures the mind-set of people in all parts of these enterprises. Moreover, their leaders seem to instinctively recognize that if you are motivating instead of mandating low cost rigor, you will capture the emotional as well as the rational side of human behavior. Anyone who has ever flown on SWA knows how much fun employees have — and howinfectious it is to their customers, who'd rather eat peanuts on SWA than a meal on some other airlines.
The well-worn story of The Home Depot's rise and fall is worth a reprise here. Before founding HD,Bernie Marcus and Arthur Blank obsessed over their frustrations as clerks at a Handy Dan's hardware chain. They were determined to find a better way to give customers the best possible personal service at the lowest possible cost. So they created the amazing "Agent Orange" culture at HD, which motivated people emotionally as well as rationally. The entire workforce became as proud to be cheap as they were determined to make every customer leave with a smile on their face. Impossible, said many pundits of the day.
Maybe so, but Bernie and Arthur were not listening to pundits, and proceeded to build The Home Depot into the fastest growing and largest building materials retailer in the country. As size and diversity caught up with them, however, there was a real need for more discipline and order as well as scale and control. So the Board understandably hired Robert Nardelli fresh from his stellar leadership roles at General Electric to take control of the place. And that he did.
Unfortunately, however, Agent Orange was left by the wayside in favor of more formal performance management techniques borrowed from GE. Because many of the informal leaders of the HD culture believed their motivational contributions were being overlooked, they resisted. Long story short, valued associates and leaders left, progress slowed, competitors emerged, and Nardelli was replaced. Simply put, the formal, programmatic game was no match for an increasingly de-motivated and change resistant Agent Orange. Mandates, programs, processes and controls alone could not offset the loss of the emotional commitment of old.
What does this tell us about "proud to be cheap"? Mostly that it can be a powerful motivating force if it taps into people's positive emotions without relinquishing its hold on rational disciplines and controls that are essential for maintaining a low-cost operating structure.
Have you seen "proud to be cheap" organizations in action that you can share?
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