Frugality is a good word. Being frugal does not mean being miserly or stingy, instead it means being mindful. Frugality makes one less stressful, because one buys what is necessary, therefore he wastes less.   It can’t be termed as a tactic, it is a mindset which makes life more joyful. Frugality is about saving money, financial freedom and creating the long-term life one wants to live; it’s about living a life with simplicity and honesty. It is about personal accomplishments and satisfaction that comes from learning new skills, fixing things, and enjoying all of the gifts we already have. It’s about lessening the junk, it’s about being your own person and not the person society wants you to be.

Successful people have recognized the importance of frugality. Warren Buffet, Chairman and CEO of Berkshire Hathaway prefers living in the same home he bought for $ 31,500 in 1958, his net worth is $69.1 billion.  Azim Premji, Chairman of Wipro Ltd drives secondhand cars also and he always reminds employees to turn off lights when not required, and his net worth is $ 16.6 billion. So friends, prosperous people have recognized that frugality is environment friendly which simply means having a lifestyle that is healthier and saves the environment. Frugality helps us take small steps towards mother earth so as to make this planet a better place for us and generations to come.

A good way is to start with conserving water, driving less and walking more, consuming less energy, buying recycled products, eating locally grown vegetables etc hence creating less waste.  Frugality means live and let live.  If we do not save and oil, our life might come to a standstill. The world badly needs oil for many purposes: to power its cars, to plant it fields, to operate its oil-powered irrigation pumps, and to act as a raw material for making many kinds of products, including medicines and fabrics. Royal Dutch Shell Oil Company has predicted that the world will face an energy crisis unless investment in fossil fuels production is conserved.

Nearly every frugal strategy doubles as an environmental boon such as driving less, buying new things only when required, not wasting food, and not creating clutter by hoarding more and more. Although frugality can’t solve each environmental problem that modern society has created, it’s a humble start. The beginning is always small.

John Ruskin, an art critic in the 19th century, once wrote, “Every increased possession loads us with a new weariness.” He was so right. Think about it. The more materialism we accumulate in life, only adds to our frustration blocking our cupboards and wardrobes, and our energies. Frugality is not about spending less money……….it is how you choose to spend your time and how you choose to conserve other resources in totality. Carols Slim Helu, who is a Mexican business magnate, investor, and philanthropist was ranked as richest person in world from 2010 to 2013, Slim has lived in his same old house of six bedroom more than forty years. And, Charlie Ergen an American businessman and is the co-founder and current Chairman of the Board, and former President and CEO of Dish Network still packs a brown bag lunch. Brown bag lunch originally referred to the practice of employees bringing a packed lunch from home.  Living frugally means deciding what is most important to you and directing your energy and money towards getting more of whatever you intend to have in your life. It doesn’t mean sacrificing your joy and happiness.

The biggest fact of frugality is, if we live life with simplicity, there is no boredom. It allows you to constantly use your creativity, exploring your hobbies such as cooking, gardening, singing, dancing which involves living a very real, very tangible existence. Frugality allows us to use our hands a lot. We don’t pay for easy solutions. And it relaxes our nerves to a great extent. Mark Zuckerberg may be frowned upon by many traditional investors and self-made millionaires but he is one of the richest people in the world and is undoubtedly more popular than most. Imagine a man who is worth more than thirty billion driving in a saloon car that costs just around twenty thousand. His obsession for grey tees is known and has a ton of those in his wardrobe. He and his wife have shown time and again that you don’t need to spend money needlessly, even if you have a lot of it.

Ratan Tata of Tata Group is regarded as one of the humblest industrialists you would ever meet. He wears affordable suits, drives affordable cars made by his group company and he has never indulged in any so-called needless luxury that is often synonymous with the life of the rich and famous.

Frugality brings peace and simplicity into your life. Evaluate your priorities. Evaluate the words of Edmund Burke – Irish Businessman “frugality is founded on the principal that all riches have limits”

Nothing is free; even things that appear free often have to be paid for in the end. “There ain’t no such thing as a free lunch”.  The maxim refers to the idea that it is impossible for a man to get something for nothing. The “free lunch” refers to the once upon a time, common practice followed in the bars and saloons in United States providing a “free lunch” to patrons who would purchase at least one drink. The variety of foods on offer were high in salt such as ham, cheese, salted nuts, salted fish, salted crackers, salted cashews etc. Those who ate them would end up buying a lot of beer. Naturally, foods high in sodium make you thirsty. The saloons/pubs/bars used this idea to fast sell their alcohol. Isn’t this cheating? Would you call it a great selling gimmick? This is a common practice even today by the bars and pubs of providing salted nuts, salted cashews, pakodas and papads as starters.

Rudyard Kipling wrote about free lunch in 1891 when he entered a saloon in San Francisco. There were pictures of men with hats on the back of their heads eating food at the counter. The beer bars those days offered free lunches to patrons who bought drinks. The cost of drinks was less than a rupee a day and they ate as much as they wanted. The free lunch concept spread from big cities to the whole nation. By 1930, big city bars around the United States were offering a free lunch to drink-buying customers. Some bars jacked the price of drinks up a few cents to cover the cost of the lunch but others absorbed the food cost and made their money by selling more drinks (volume). In 1934, the new mayor of New York, Fiorello La Guardia, said, “No more free lunch.” He wanted to put an end to the sleaze. The El Paso Herald published one article in Economics which was titled as “Economics in eight words” with acronym “TANSTAAFL” There Ain’t No Such Thing as a Free Lunch.  The phrase became so catchy and caught attention of many readers and thinkers it continued in many articles those days from 1942 till 1947.

If some individuals or group gets something at no cost, somebody else ends up paying for it. If there appears to be no direct cost to any single individual, there is a social cost. Similarly, if somebody is getting benefit for “free” from a public good or service, remember someone else is paying the cost of producing these benefits. If you’re travelling without ticket on the local train, remember many lakhs of people are paying for the monthly pass and buying tickets. We don’t realize that major problem and reason why free riders often enjoy without paying is because the property rights are not clearly defined and imposed. There are many loopholes in law and order.

When stores offer some discounts – sometimes up to 50% and 60% discounts aimed at drawing customers into stores; in many cases, those bargains are a carefully engineered illusion. The common assumption is that retailers stock up on goods and then mark down the ones that don’t sell, taking a hit to their profits. But that isn’t typically how it plays out. Instead, big retailers work backward with their suppliers to set starting prices that they wish to pay for the unsold goods; after all, the markdowns will yield the profit margins they want. A lot of discounts are already priced into the product. That’s the reason we see much more stable margins.

Same is the case is with travelling and touring packages. We find many discounted packages in rainy season. Travelers feel great to visit some enormous destinations in half the prices. In fact every service offered in the package is calculated backwardly. You end up paying for breakfast, lunch, even the parking, internet and Wi-Fi connections, transportation pick up and drop to the airport, parlor services – you name the service and it’s charged cleverly. Nothing comes free. The hotel room charges get fluctuated depending on the season and business. The slack seasons are already calculated in annual budgets and trickily priced.

The healthcare segment as well does not spear us from hidden charges. We are charged on anything and everything. The health care system is an unusual squander associated with its multi-payer private insurance system. The administrative costs in healthcare mounts due to the insurance system, including not only the marketing and utilization-control costs and the profits reaped by the insurance companies, but also the costs imposed on physicians, hospital maintenance, food and catering and other service providers by the complexity of the insurance system. The Insurance players hike the prices, which the health insurances buyers don’t understand while buying the insurance packages. Hospitals are the most powerful players in a health care system that has little or no price regulation especially in developing countries. Rising costs of drugs, medical equipment and other services, and fees from layers of middlemen, play a significant role in escalating hospital bills.

The adage of TANSTAAFL initially was as “every choice you make has a next, best alternative that you could have chosen but didn’t.” That obvious opportunity is known as opportunity cost; that is, the price you paid for doing whatever it is you did was the opportunity you can no longer enjoy. Whether or not you are successful in life depends almost entirely on how well you manage your own, personal opportunity cost.  What if Sam Walton hadn’t started Wal-Mart stores at 44 years old?  What if Warren Buffett had listened to his father, and his mentor, Benjamin Graham, and not gone to work in the investment industry?  What if J.R.D Tata hadn’t started Tata Airlines in 1937 which later became Air India? The opportunity cost of each of those decisions would have been overwhelming, in retrospect. That is the nature of life.  You are the CEO of your own life, and your time here on Earth; you have to decide how to manage your own opportunity costs.  You have to choose what you want be in life; how much money you want to make; how much you want to invest; whether you want to run your business empire or work for in an organization.  Opportunity cost is all around you.

Let us understand this clearly that the vast majority of goods are scarce. There are a few non-scarce goods, which economists call “free goods.” air, sunlight and water are supposed to be free goods in most situations. Clean air is sometimes a free good. That is if you go to some pollution free zone like hilly area or a village. But to enjoy the clean air you need to spend money in travel and hotel booking. Water is a free good in many situations. It is clearly a free good at the river, the sea or ocean. However, when you are at the ocean, salt-free water is not a free good – that’s the catch. The fact that the vast majority of goods are scarce, not free, leads directly to trade offs. If we want more of something, we have to give up a little or more of something else. If you want more leisure time, you have to give up some income. If you want the latest, SUV in the market, then you would have to give up spending the money on something else or you would have to save less. We cannot get rid of tradeoffs in life.

What about the richest people in the world? Do they face tradeoffs? Yes, they do. We can point to the standard tradeoffs with spending: if Azim Premji spends few crores of rupees on trying to improve schools in the Uttarakhand, then he needs to compromise a bit on improving schools in Rajasthan. Azim Premji Foundation has allotted about Rs.9000 crores to start 1300 schools across India. If the foundation spends more in one state, it has less to spend in another.

But there’s another way that Mr.Premji faces tradeoffs every day. He is simple to the core. He has transferred 8.6% of his stake in his company Wipro, worth about Rs 8,646 crore, to the Azim Premji Foundation. This is the biggest act of individual philanthropy in India.

Like everyone on earth, successful people also have the same 24 hours which they chose to use wisely. My dear friend, time is a scarce resource. We don’t realize this.  Time is probably the scarcest resource we all have. When we start thinking about the value of our time, we realize that some activities that seem cheap are actually expensive. More colloquially, if we want more of something, some other thing must decrease in our life. Trade offs occur every day for many reasons. So friends, nothing comes free in life.

Core competence and competitive advantage

Core competency: Organizations with core competencies enjoy global leadership. It represents the organization’s will to harmonize their multiple resources and skills. It distinguishes the firm in a market place because of its products and service’s uniqueness and because they become difficult to imitate by others. In such an organization, all business strategies revolve around the core competency. Core competencies give a company one or more competitive advantages, in creating and delivering value to its customers in its chosen field. Organizations which believe in spending generously on research and development can and the ones which experiment and investigate the processes can develop core competency. Core competencies lead to the development of core products. Core products are not directly sold to end users; rather, they are used to build a larger number of end-user products. For example, let’s take the example of Honda’a expertise in engines. Honda was able to exploit its core competency to develop a variety of quality products from lawn mowers and snow blowers to trucks and automobiles. Honda can boast of its sharp and competitive engineer’s team who can be credited for its core competency. In another example, Microsoft has expertise in many IT based innovations where, for a variety of reasons, it is difficult for competitors to replicate or compete with Microsoft’s core competences in building software.

The term was popularized by Hamal and Prahalad, back in 1990 in the Harvard Business Review. Peter Drucker was one of the first to mention it in 1964 when he focused on ‘strength analysis’. A core competency comprises of reliable processes, synergy with customers & suppliers, a patent, an industrial design, know-how, unique product development, a brand/s, marketing strategy, business strategy, supply chain etc.

Core competencies are a pack of skills and technologies that are very difficult or impossible to copy or match; skilled employees, tacit knowledge, organizational endowment, collective values, supreme technology, and organizational ethics culture – these are some features which add to the core competency of an organization. The primary reason for 3M’s success is its people. 3M has always motivated its employees to innovate, think different and progress in their relative careers. This company has been blessed with generations of imaginative, industrious employees in all parts of its enterprise, all around the world.

Globally leading organizations are realizing that one of the components of core competency is people. A study was conducted on three hundred and fifty-eight Managers across the Johnson & Johnson Consumer & Personal Care Group (JJC&PC Group) globally to assess if there are specific leadership traits and competencies that distinguish high performers from average performers. The company did not stop only at conducting a study, it designed and organized educational and developmental programs for its employees across different ranks globally, to familiarize employees with the concepts of emotional, social and relational competency, and to share strategic leadership process. These sessions also served as the launch for the newly enhanced leadership models. As usual many other organizations have already replicated them.

Companies with core competencies identify their key business processes, manage them centrally, and invest in them heavily, looking for a long-term payback.

Sony’s  innovations have become part of mainstream culture, including: the first magnetic tape and tape recorder in 1950; the transistor radio in 1955; the world’s first all-transistor TV set in 1960; the world’s first color video cassette recorder in 1971; the Walkman personal stereo in 1979; the Compact Disc (CD) in 1982; the first 8mm camcorder in 1985; the Minidisc (MD) player in 1992; the PlayStation game system in 1995; Digital Mavica camera in 1997; Digital Versatile Disc (DVD) player in 1998; and the Network Walkman digital music player in 1999.
Today, Sony continues to fuel industry growth with the sales of innovative Sony products, as well as with the company’s convergence strategy. The company has never compromised on persistence in R&D.

Back home, a cigarette manufacturing company ITC has got into a wide range of diversifications such hotels, processed foods, biscuits and greeting cards. How does ITC manage this unrelated diversification? Unrelated diversification will succeed only if it is based on the core competency of the firm. ITC has leveraged beautifully on its core competency of distribution, brand building capability and its strength of quality outsourcing.

Core competencies take a long time to build and practice. Organizations which continue the practice with perseverance by adding accuracy and particular sets of skills succeed in building core competency. New sets of skills and newly acquired knowledge should be steadily spread in the organization to facilitate the processes.

Competitive advantage is a business strategy where companies find ways to differentiate themselves from their competitors to attract more business. Service-based industries, such as hospitality, banks, health care use competitive advantage strategies to gain an elevated position in the field. Usually competitive advantage is sought out of one or more functional advantages. Competitive advantages give a company an edge over its rivals and a capability to produce greater value for the firm and its shareholders. The more sustainable the competitive advantage, the more complex it is for competitors to offset the advantage.

There are two main types of competitive advantages: comparative advantage and differential advantage. Comparative advantage, or cost advantage, is a firm’s ability to produce a good or service at a lower cost than its competitors, which gives the firm the ability sell its goods or services at a lower price than its competitors or to generate a larger margin on sales. A differential advantage is created when a firm’s products or services differ from its competitors and are seen as better than a competitor’s products by customers. Today India can boast of comparatively younger, English speaking low cost labour as one of her competitive advantage. This factor has given boost to outsourcing business in India.

The sources of competitive advantage have their limited life. Therefore, businesses are engaged in a never ending search to find new angles of competitive advantages. It’s all about finding some way of differentiating products and services from the competitor’s offerings. The whole purpose of business strategy is to find new sources of competitive advantage. Wal-Mart’s success lies in their cost cutting. Wal-Mart’s most operational processes are carried out in China because of their labor costs are which are much lower than many countries in world.

Toyota is Japan’s biggest car company and the second largest in the world after General Motors.   The fundamental reason for Toyota’s success in the global marketplace is its competitive advantage which lies in its corporate philosophy, the set of rules and attitudes that govern the use of its resources. The Toyota philosophy is often called as the Toyota Production System. The system depends partly on human resources management policy that stimulates employee creativity and loyalty besides Toyota has also built a highly efficient network of suppliers and components manufacturers. Much of Toyota’s success in the world markets can be attributed directly to its competitive advantage of its policies in human resources management and supply-chain networks.

One of the competitive advantages Hindustan Unilever enjoys is its edge over competitors in procuring raw material at low cost.  The company in past faced slow volume sales in categories such as soaps, laundry and tea, where rivals managed to gain market share through aggressive price cuts. But, HUL managed the price correction soon after sourcing more suppliers who offered the raw material at more competitive prices.

Warren Buffet the most successful investor of all times has always given importance to businesses with durable competitive advantage. He always relies on an extensive research-and-analysis. Buffet says that the global economy is complex and volatile, the economy and the stock market do not move in sync with it. The market discount mechanism moves instantly to incorporate news into the share price and last but not the least the returns of long-term equities cannot be matched anywhere else.

By “competitive advantage” Buffet meant a unique product or service that a business either makes or provides. Even if the employees can walk away from the business but they cannot take the business’s “competitive advantage” with them. Some examples of businesses with competitive advantage Buffet considers – are business’s brand names, for instance, Bell, Pizza Hut, Kentucky Fried Chicken or Wal-Mart. He gives importance to a business’s regional monopoly. We have plenty of brand names in India which enjoy regional monopoly such as Ghadi Detergent, Sasa washing powder, Wagh Bakari Chai, Sapat Chai, and Wai Wai noodles. The regional brands can afford to lose their micro focus from their markets. They have such a grip on their markets that national or international products need to spend tremendous resources to fight their regional counterparts. Buffet believes that durable competitive advantage companies can pass on their saving to their shareholders, and their investors.

When we think of best deal we think of Wall mart. Owing to its size it has enormous bargaining power with suppliers and sells at heavily discounted prices. They are low cost buyer and seller- Here the margins are traded for volumes; the advantage is buying at the cheapest price and selling at lowest prices to induce customers to its stores all over the world.

According to Hamel and Pralhad, the process of developing core competencies starts with the strategic intent of being a leader in the market by leveraging the resources. This thought of being a leader in the market is called strategic intentand it points at identifying various opportunity gaps.