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Simplify: How the Best Businesses in the World Succeed, by Richard Koch and Greg Lockwood
THE need to simplify your personal life as well as your business is not new. Every second year I have brought to readers’ attention another book on the subject, so here is my biennial contribution.
What makes this book valuable is that it focuses directly on sustainable economic growth. The authors have identified two types of growth that flow from the exercise of simplification: proposition-simplification and price-simplification. These two methods of growing the company are fundamentally different and the decision to pursue one form of simplification over another must be made on reliable grounds.
The decision must take cognisance of the culture of the company and its appetite and ability to pursue one type of simplification over the other. Further, the nature of both the company’s offering and the nature of the market will affect the decision-making process.
I will describe how the two types of simplification unfold through the descriptions of some of the well-known businesses used in the book as examples.
Price-simplification
The sole objective of price-simplification is to slash the costs of the product or service to the consumer.
Henry Ford achieved price-simplification by reducing the variety of cars his company initially offered down to one, and in only one colour - black. The very design of the car was aimed at giving people what they needed and nothing more – a way to move faster than on horseback. Ford worked constantly on redesigning his factories so that more cars could be produced ever more cheaply. The company’s success was directly correlated to the constantly dropping selling price.
IKEA, the mass retailer of affordable, attractive furniture, redesigned its products so that they could be flat-packed, saving the company transport and storage costs. This price simplification model also involved co-opting customers into the sales process to further reduce costs. Not only are there no salespeople for you to discuss your decorating needs with, you select the furniture yourself and even take it home yourself in a flat-pack. Then, you assemble the furniture from their remarkably clear instructions.
McDonald’s reduced the price of its burgers by reducing variety, and automating processes wherever possible. It also speeded up the delivery of the food, so allowing for a faster flow-through of customers, and eliminated the cost of waiters. Customers essentially serve themselves.
Honda entered the American market by reducing the power of the motorcycles it offered, and scaling down its offering to the larger segment of small motorcycle users. Honda also lowered labour costs, its most expensive component, through efficiencies of production and management.
Proposition-simplification
Proposition-simplification differs from price-simplification with its focus on making the product or service a joy to use. The price is not a factor and many who are proposition-simplifiers are more expensive than their competitors. This category benefits from people’s willingness to pay more, if that is what it takes to own something that is easier to use, or more useful or more aesthetically pleasing.
Apple Macintosh effectively created the high-end customer segment by manufacturing products that were more intuitive for the user, more user-friendly and more beautiful.
Uber has made the experience of using a taxi quicker through the software that hails the drivers closest to you. The newer cars required for use by Uber drivers are expected to be more reliable, comfortable, and the whole experience is often cheaper than conventional taxis. This combination of the speed of getting a ride and the convenience of not having to pay cash are among many features that have made Uber hugely successful, and an extremely valuable company.
The computer scientists at Xerox PARC invented the modern PC, the mouse and much, much more. However, they failed to capitalise on their inventions partially because they never focused on process simplification. “They snatched defeat from the jaws of victory because they liked complexity more than they liked simplicity,” the authors explain.
Process-simplification and the monetisation of these technological innovations were left to the late, great Steve Jobs. He brought Apple back to profitability by focusing on just two models of the Mac and producing the easiest-to-use, most fun personal computer on the market.
Then came the iPod, another extraordinary example of proposition-simplification. Existing MP3 players were “horrible, absolutely horrible”. They were difficult to use and held about 16 songs. Jobs and the team devised a far simpler player that had a drive that would hold a thousand songs, with a FireWire connection to sync the thousand songs in under ten minutes, and a battery that would last through a thousand songs.
Apple is a prime example of a proposition-simplifier.
What tactics your context requires to use the principle of simplification will be completely unique. The value of this book is the awareness of the power of simplification, and the guidance it offers to the process: the rest is up to you.
Readability: Light -+-- Serious
Insights: High --+-- Low
Practical: High +---- Low
* Ian Mann of Gateways consults internationally on leadership and strategy and is the author of Strategy that Works. Views expressed are his own.
