A recent article in Strategy + Business pointed out the best reason why a company should design for frugal growth … it lays the foundation for explosive growth when the situation presents itself. To see this, let’s look at the design for frugal growth triangle that clarifies the five things a company designing for frugal growth has to focus on:
A company that is prepared for frugal growth is accountable for every dollar spent, and only spends dollars that lead to organizational improvement, such as increased efficiency, quality or productivity; cost savings and avoidance; and innovation-focussed R&D.
A company intent on frugal growth is constantly innovating new processes to improve efficiency and quality and reduce costs and innovating new products to bring to market to increase profitability.
- Pull-based Functional Relationships
A company designing for frugal growth does not tie up working capital in unnecessary and excess inventory … it uses a flexible and responsive supply chain to pull products and services on an as-needed and timely basis.
- Differentiated Capabilities
A company focussed on frugal growth knows that it needs to differentiate itself if it is to survive, especially in a down market.
- Ability to Leverage Scale
A company that has adopted the frugal growth philosophy has created economies of scale by consolidating research, manufacturing, and distribution. It has also established cross-functional teams and close collaboration between business units, removing the bottleneck that plagues so many of today’s departmentalized corporations.
All of this helps prepare a company for explosive growth when opportunity knocks. Here’s why:
- Innovation Mindset Recognizes New Opportunities
A company with an innovative mindset is always looking for problems to solve as well as new solutions to existing problems and will be the first to recognize a new opportunity when it presents itself.
- Accountability Provides Focus
An accountable company, used to focussing on getting results for every dollar spent, will be able to focus on the opportunity, develop a plan to take advantage of the opportunity, and execute the plan with the resources it has.
- Differentiated Capabilities Enable New Product Design
A company with differentiated capabilities will be able to quickly design new products to meet the specific opportunity presented to it, or streamline production processes to meet a surge in demand for existing products.
- Pull-based Functional Relationships Allow for Rapid Response
A company with optimized pull-based functional relationships will be able to quickly scale up production to fuel explosive growth when the time is right.
- Ability to Leverage Scale Opens Up Markets
A company that can leverage scale can use the same cross-functional capabilities to open up new markets, and expand globally when the opportunity arises.