Corporate Frugality: Theory, Measurement and Practice

Abstract

This paper uses a mix of field research and survey methods to provide evidence on the existence of 'frugality' as a company characteristic. Drawing upon established scales of frugality in the literature on consumer psychology, we develop and validate a multi-item measure of corporate frugality. A key part of scale development is establishing discriminant validity, the uniqueness from and relatedness to extant constructs. We demonstrate that frugality differs from budgetary control, and is not associated with organizational culture types in the Competing Values framework (Quinn and Rohrbaugh, 1981). Further, we investigate the association between frugality and business strategy using Porter's (1980) typology of low cost and product differentiation strategies and find that frugality is equally present in companies with both strategies. Having established frugality as a distinct construct, we examine its nomological validity, the consequences of frugality for cost management practice. We find that frugal companies control cost differently and make greater use of a broad range of cost management practices. In sum, we develop and validate a theory-consistent measure of corporate frugality; a construct that has been present in descriptions and anecdotes of business practices of cost management for decades, but which has gained new currency in modern economic times.

Keywords: Corporate Frugality, Cost management, Organization culture, Budget culture, Business Strategy

JEL Classification: M41, M20, M14