Heuristics of our Methodology

Products or services can be made highly specific to fulfill the most convoluted requirements, meet intricate specifications or artificially bloated expectations or...

they can be made simple, straigthforward and generic.

Obviously, the more generic the products or services are, the simpler the production and delivery system – i.e. the commercial or public organization. Alternatively, the more specific, personalized or ad hoc the products or services are, the more sophisticated and flexible and expansive the production or delivery system has to be. The cost of running and operating such systems increases much faster than its sophistication level because the resources that it requires are not only more numerous but also more expensive.

The key element that ultimately determines the commercial success of a product or a service is the "customer value/product price" ratio (except for a few markets like the luxury market or for safety and security services). There exists an implicit proportionality relationship between customer value and price. However that relationship is "quite loose" and the overall purpose of Strategic simplification is to de-correlate, to the largest possible extent, the two components of that relationship in order to maximize customer value while minimizing cost. Customer value increases by raising process efficiency. Product and service supply cost is therefore substantially reduced by pruning off unnecessary complexity.

This places the organization at an efficiency optimum that enables rapid growth and high profitability.

The optimum is reached by focusing on the most easily achievable 80 % businesses objectives while working out the inefficiencies of the remaining 20 %. This does not necessarily translate itself in a significant amount of lost business. Customers have a much greater resilience to product or service specifications than what is usually assumed. However they always show little tolerance toward breaches in product or service quality and unmet promises. Much of the complexity is driven up by customers trying to get the best possible bargain from their suppliers (see complexity drivers). This includes negotiating tiny and irrelevant details (product or service features, pricing structure, payment conditions, delivery conditions, packaging, warranties, etc.). If the supplier makes no concession in order to keep its offering as standard as possible the prospect can either walk away or consider that he gets enough value for its money and still become a happy customer. The crux of it all consists in accepting that a few customers walk away because making the necessary concessions required to keep them would add too much operational complexity and therefore too much operating cost (i.e. the organization would move further away from Pareto efficiency. Based on the Pareto law the number of customers so impacted (i.e. pushed toward the competition) is marginal whereas the effect on cost and therefore on margin is quite significant.

It takes always business courage to forfeit some customers simply because attracting them would deteriorate the overall efficiency. It goes against the ingrained commercial tendency of constantly increasing the turnover. It also goes against the idea that companies have to attract customers by offering high added-value services in order not to have to compete on price. One must always keep in mind that the prevailing purpose of business is to maximize its growth rate. This becomes translated into maximizing shareholders' value because the market, by nature, internalizes growth perspectives. This growth is best achieved by skimming the most profitable activities and extending those activities to more market segments and/or other geographical areas. 

Even though this approach might look simple at first glance it is quite sophisticated and quite hard to implement. It requires vanquishing numerous and heavy natural internal resistances. Whatever biased this might sound, achieving success in strategic simplification requires resorting to external assistance.