What do Southwest Airlines, Capital One, Wal-Mart, Toyota and Smartphones all have in common? In addition to the obvious successes they have all attained, each has successfully addressed the complexity question in a way that meets their customers”™ ever-changing desires.
There are only a few strategies for doing this. Supply a low level of complexity to your markets by offering products or services with few options, target customers who are willing to pay a premium for higher complexity, or simplify what would otherwise be tremendously complex using digital technology.
In 1908, when cars were the “toys of the rich,” Henry Ford built the Model T, the ultimate in product simplicity because he saw a need for “transportation for the masses.” Ford controlled 65 percent of the low-cost market by 1921. That same year, Alfred Sloane, General Motors”™ new president, saw that buyers wanted more than simplicity and basic transportation. They wanted a choice of colors, power, looks, and they were willing to pay a little more for it.
Reduced complexity: Sloane first reduced some of GM”™s complexity by eliminating 15 of its 20 brands and, with the remaining five, offered different options at different prices. Sloane”™s strategy worked. As Ford”™s volume began slipping, it cut prices, but by 1928, the Model T no longer dominated the market.
Like Sloan, organizations offering more products and services than their customers actually want must eliminate them and only implement complexity that is in demand. Getting rid of complexity can lead to a competitive advantage. Here”™s an example:
- Southwest Airlines flies only 737s.
- American Airlines uses as many as 14 types of aircraft.
- American needs 14 kinds of mechanics and pilots.
- American filed for bankruptcy protection in November 2011
Conversely, organizations must be ready to realize and exploit the complexity customers will pay for. Conquering complexity doesn”™t always mean eliminating it. Capital One noticed that most credit cards had an interest rate of 19.8 percent regardless of the customer”™s creditworthiness. Customers with good credit were paying a higher rate to support deadbeats.
By building a database of credit information, Capital One offered a significantly lower rate for lower-risk candidates. Its investment in technology resulted in a low-cost means of offering high levels of complexity, and great success in a mature market.
Digital complexity: In the March 2010 issue of The McKinsey Quarterly, an article titled “The Internet of Things,” by Chetan Sharma stated that there may be 50 billion Internet devices by 2020. “Consider how, even though cars have gotten more sophisticated and certainly more complicated to repair, no more knowledge or experience is needed to drive them. The added technology works seamlessly in the background as we drive. So it will be with the 50 billion connected devices as we go about our daily lives.”
Perhaps in the future, our refrigerators will keep tabs on contents and text items needing restocking or ones to be discarded. Hospital patients will no longer need sensors attached to their bodies because of beds and garments outfitted with technology. What digital complexity, like the cars we drive, will make life safer or better”¦for your customer?
Simplify with fewer options like Southwest or with technology as did Capital One. Is your customer willing to pay more for added choices as Sloan recognized at GM? There are many different options that can eliminate complexity while paving a path to success and profitability.
Questions for discussion:
What can we immediately eliminate to reduce complexity in our organization?
Are there options our customers would like us to add and are willing to pay more for?
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Joe Murtagh is The DreamSpeaker, an international keynote speaker, meeting facilitator and business trainer. For questions or comments, Joe@TheDreamSpeaker.com, www.TheDreamSpeaker.com or call (800) 239-0058.
