The Art of Competitive Frugality

Bruce Piasecki

The magnificently complex health care legislation embodies the compromised but effective ways in which an imperial President works. Today’s smaller world requires such “real politic” in business and society.

Through a full court press, the White House worked the media, the Hill, their opponents, and the industry coalitions to get what he (and most of his party) wanted. The net effect: More will have health coverage.

The surprising social and industrial lesson from this change: Most of us will learn how to spend less on medicines, surgery and health care in general. It was a lesson in which political compromise, complex deal-making, and awareness of capital constraints brought all of us into a more frugal way of dealing with our shared future.

I call this the art of competitive frugality. What do I mean by this term?

I mean decision-makers like CEOs and the top executives of nations are finding new ways to do more with less. Here is why. There are many more of us in a smaller world, 6 billion at least. We all consume more than our grandfathers, often by a factor of 20.

These higher facts of “the age of the consumer” are being recognized by corporations with real material constraints before them. Even politicians with visions as grand as those of President Obama are exacting compromises based on this change.

Recognizing these higher facts is what some celebrated recently on Earth Day year 40. This 21st Century change makes us more competitive and frugal at the same time. In this smaller world, we must all become like Ben Franklin - frugal, inventive, diplomatic and witty in the face of opposition and limits.

Now many have called diplomacy, lobbying, and politics “the magic arts.” I see no magic in this historic development. This relentless change in industrial thinking is reshaping politicians and corporations. It allows us to compete for more with less.

This higher historic fact defines the world we now live in, whether rich or poor, whether industrialized or aspiring to be industrialized. I am not sure if the Democratic core, the Republican core, or the emerging extremes like the Tea Party fully grasp this smaller world concept yet. But I am certain those running the great corporations understand this change. Let’s see this as a positive social result of the last 40 Earth Days.

Like a transaction, the world has become swift and severe, not pausing long or patiently to contemplate the full meaning of this change. There are winners and losers. We live in an age of “social response capitalism”, a world where we compete on price, quality and social needs. Health care was a known social need. We could no longer afford doing without it, but we could not afford its future price at the quality we expected. Thus, let’s pay attention to this compromise. It is a harbinger of things to come.

Why do I say this?

Social history is always reactive, a rebalancing of the roles of governments, innovations in science and technology, and the logic of markets. The Obama effect rose from this historic context, a three decade response to the policies of Reagan and Thatcher. But the real lesson is to be found in corporate mansions, well outside of Washington, Istanbul, Athens, and the great capitals of this world.

Who Runs the World If Not Nation States

What have I learned from watching the first year of Obama?

Not as much as I learned from watching the great corporations respond to the needs of today in the first 10 years of the 21st Century. If you look at poverty, disease patterns and the strains on water, land, and forests, non-profits frame the questions that corporations rise to answer.

As I articulate in my latest books (World Inc, 2007, and The Surprising Solution, 2010), the last 10 years require that we learn this classic art of frugality all over again—and now apply it aggressively in industrial cultures. It has reshaped politics, corporate life and your nest egg in the blink of a few seasons. I see it as the great differentiator in corporate and political life.

Again, this change of consequence to industry was not inspired, in essence, by national leaders. It is a feature of advanced industrialism.

Why does this matter? Well, if we do not adjust to this higher imperative for competing on frugality then we will feel the severity even worse.

Falsely, Americans often believe we can make the needed changes on issues as complex as fossil fuels, immigration and health through regulation alone. It will take more creative agility and more technical nuance than simply more regulation to compete better in this carbon – and capital – constrained world.

The corporations gets this, at least the best ones do.

We must go global as we go green.

We must go lean as this world is far swifter than our best thoughts. It will punish the wasteful, and waste the wrong-headed.

Another way to sum up this new training in social leadership is to contemplate this industrial paradox: The world of corporate events, which is the leading force defining social history today, is far more severe and competitive than our best philosophies and our time-honored beliefs.

This is why we will need to become Ben Franklin all over again.

We must become incredibly inventive in new forms of energy over the next decades, and become incredibly frugal in our investments. We must develop and explain this art of frugality to achieve great peace and prosperity. The well-dressed ambassadors of frugality must offer this logic as the long sword of our politics, and as the hymns of our work days, and our nights.

Everything Franklin wrote in his “Way to Wealth” is appropriate for CEOs and White House officials to read this month.  So stop reading this article, and go back to Franklin (only kidding).

If Thought Ran This Zoo

With the foamy wake of this new century still rolling its salt and spray before us, we need to face these historic and disruptive waves with the resolve of a lone fisherman in a storm. The best in us will allow this artful frugality. It is the new form of American pragmatism, and the longer arm of advanced global capitalism.

I am certain, in the next years of industry, we should expect rapid and difficult legislative changes on big issues like carbon taxes, renewable energy portfolio requirements, and significant additional tax requirements for small and large business in a matter of years, not decades. The next wave after health care reform will be financial reform.

I predict a common theme to dominate our next decade in business and society: We will need to do more with less.

We have a new global equity market where the wasteful get wasted faster, and where the efficient turn once inefficient things into gold.

Another Lesson on Frugality

What we witnessed in health care debates, we should expect next in financial market reforms. More want these markets re-regulated than wanted health care. Here is a story to keep this next wave in perspective.

One of the leading management gurus of last century, Peter Drucker, had just turned 95 when I last spoke with him in the middle of 2005 –just a few months before his death. Drucker was shockingly clear. He said:
“Teaching twenty-three year olds in an MBA program strikes me as largely a waste of time…They lack the background of experience. You can teach them skills—accounting and what have you—but you cannot teach them management.”

I believe we are all experiencing this value shift towards efficiency:  some are muddling towards it, some are in defiant denial, and most are moving in a way that makes sense. This is what adds so much scandal and drama to financial reporting.

Summary for those Hurried and Distracted

Peter Drucker spent 70 years trying to teach corporations not to act like 23-year olds. We did not pay attention enough to him. We were on a high, an irrational exuberance, that sailors know to prove deadly.

Here again I quote Peter Drucker, “At the peak of a boom, investors come to expect 10% growth in revenue, and 10% growth in profits, which by simple arithmetic, cannot be done forever. When that becomes clear, management begins to play with the figures. It happens in every cycle.”

The strength in this new world’s sustainability movement is that “sustainable value” is more needed and measureable than ever before.

Our politics and our sense of citizenship will realign along these new plate tectonics. What’s surprising is that this new education has come to our leaders and our citizens from corporations. GE is known to be efficient, relentlessly so. Wal-Mart is known to squeeze efficiency and price reduction from its suppliers. My clients like Suncor Energy, ArvinMeritor and Shaw Industries are fierce in their pursuit of this art of competitive frugality.

This new art of competitive frugality enables three further questions for you to contemplate as your run your business and life across the next decade:

  1. Can we compete and grow on sustainability?
  2. Can we move fast forward into smart growth and innovation?
  3. Can we keep a world spinning without wearing away our resources and ourselves?

In sum, recent history is calling for this new art of frugality. It is an art appropriate for CEOs going back to the school of social leadership.

Bruce Piasecki, is the founder and president of the AHC Group, which provides environmental sustainability consulting services and corporate governance workshops for multinational corporations. He is the author of seven books on corporate governance, environmental sustainability, and innovation.
Copyright 2010, author retains ownership. All rights reserved.

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