Frugal companies are consistent, not reactive

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Frugal companies succeed commercially, in part, because they consistently control spending and are resourceful with people and products rather than cutting cost reactively, according to a new University of California-Davis study.

The paper, to be published in the journal Contemporary Accounting Research, explores frugality as a business culture rather than as a reaction to recession.

“The research was motivated by all of the headlines that came out during the worst parts of the recession indicating that firms were becoming frugal, as evidenced by layoffs and other cuts,” says Shannon W. Anderson, professor at the University of California-Davis Graduate School of Management and co-author of the study.

The research confirmed that “today’s reactive, heavy-handed cost cutting is the antithesis of true frugality,” and should not be mistaken for frugality, she adds.

“... frugal companies control labor costs through greater use of incentive pay, control material costs through supplier-sourcing strategies, and focus capital expenditures on efficiency-enhancing investments,” the study said.

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