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Everybody says that you should simplify your message, your communications, your business processes. But how is that going to bring you more sales or higher margins? And is there a right way to simplify?
In this book, the authors answer both questions to convince you of the merits of simplification. They guide you to pick the right destination for your company and then take the right steps to get there. If you get it right, simplification can be a sustainable competitive advantage that should translate into higher sales (and profitability)..
Richard Koch has been successful in business and investing by applying what he calls the Star Principle: starting or investing in companies that can become Stars. The concept of Stars is based on a 2×2 matrix developed by the Boston Consulting Group. It categorizes businesses based on:
- their market share position in a market
- that market’s growth
Companies with a leadership position in a high-growth market are Stars.
But how do they become Stars? What’s the common thread across companies like Apple, IKEA, Southwest Airlines, McDonald’s, Google, and Uber? In their research, the authors arrived at the answer is: simplification.
They all have simplified a core element of their offering: design, logistics, service, systems, processes, etc. This drive to simplify allows them to focus relentlessly on fewer things, and become much better at them.
But how do you simplify?
In their research, the authors made a follow-up discovery: there are 2 ways to simplify. You can be a price simplifier OR a proposition simplifier. The former is about the science of cutting costs. The latter is about the art of delighting customers.
Who’s a price simplifier
Price simplifying requires that you remove all the bells and whistles in order to bring down the cost of your offering by 50 or even 90%. Think of Ford, or the McDonald’s food assembly line, or IKEA asking customers to do their own furniture assembly!
This is obviously hard… Usually, you have to go back to first principles: what’s the primary function of a product or service, and what can we do without or change. Maybe it’s about cutting out intermediaries, or crowdsourcing…
Price simplifying works because when you cut prices so drastically, there’s exponential new demand coming out of the woodworks that will further drive down costs through scale economies, and produce sustainable profits.
Who’s a proposition simplifier
Proposition simplifying on the other hand, means that you look at a product and you create another product that serves the same function… but is a true joy to use. Think of Apple and Uber.
Here, the absolute priority is: adding convenience. The focus is on the user experience. It has nothing to do with cost, and when you proposition simplify you can charge a premium for the convenience and delight you provide.
So which one is better: price- of proposition- simplifying?
A price simplifier has the advantage that radically lower prices result in huge volume, which in turn can drive costs lower… resulting in a virtuous cycle. A competitor would have a very difficult time to catch up, unless it has extremely deep pockets and it’s worth splitting the market.
In contrast, a proposition simplifier enjoys fat margins but is in the somewhat precarious position that it needs to stay ahead of evolving behaviors and trends.
At the end of the day though, for most companies it’s not really a decision because these are 2 very different strategic directions. Instead, you have to figure out what type of simplifier you CAN be based on your resources, skills, and capabilities.
Once you make the decision that you want to simplify, your options are limited and clear: can you drive costs much lower and grow the market, or your talent and structure can better accommodate simple design and user experiences?