The High Cost of Complexity

The High Cost of Complexity

 

Keeping things simple frees up time and energy.

 

One the best ways to conserve time and energy in an organization as well in our personal lives is to keep things simple. The more products and variations of products we sell, the more complex we make things. We multiply our inventory, work in progress, suppliers, overhead and hidden costs. If you have to seek out new customers for your new products, it is worse. There is a high initial cost in recruiting new customers.

 

Richard Koch referred to a study of 39 middle sized German companies that found only one characteristic differentiated the winners from the less successful firms - simplicity. The winners sold a smaller range of products to fewer customers and had fewer suppliers.

 

Koch concluded that cutting the number of products, customers and suppliers usually leads to higher profits since it allows you to focus on the most profitable activities and it also allows you to cut costs drastically. Drop the less profitable customers and products, raise prices, and don't be discouraged if sales initially decrease. They will probably pick up again. And even if they don't, you're making more money with less effort.

 

Henry Ford became the richest man in the world at one point with his Model T car, which was available in any colour as long as it was black. McDonalds found out what people wanted and supplied it in quantity at reasonable cost.

 

Michael L. George and Stephen A. Wilson, in their book, Conquering Complexity in your Business (McGraw-Hill, 2004) offer three rules of complexity for business:

 

1. Eliminate complexity that customers will not pay for.

2. Exploit the complexity customers will pay for.

3. Minimize the costs of the complexity you offer.

 

George and Wilson claim that most businesses carry more products and services than their customers really want.

 

Jim Collins, in his book Good to Great (Harper Collins, 2001)cites simplicity as one of the factors in the exceptional success of some of the great companies. He says they take one simple concept and do it with excellence and imagination. Collins' formula for success involves three things: Doing work for which you have a God-given talent, getting paid well for it, and loving the work you do. He quotes Warren Buffet of Wells Fargo, "They stick with what they understand and let their abilities, not their egos, determine what they attempt." Wells Fargo people claimed they focused entirely on those few things they knew they could do better that anyone else and didn't get distracted into areas that would feed their egos and at which they could not be the best.

 

Outsourcing is also a great way of cutting complexity and costs. Focus on the profitable segments of the business. A simple business is always better than a complex business. Spend most of your time, energy and money on the people, program and products that produce most of the results.

 

Simplicity in our personal lives frees up time and energy as well. There's an excellent book called Your Money or Your Life by Joe Dominguez and Vicki Robin that describes a Fulfillment Curve. This curve plots money along the horizontal axis with fulfillment along the vertical axis. The more money you have to spend, the greater the degree of fulfillment - up to a point. After fulfillment goes through the "survival" stage, "comforts" stage and "luxuries" stage, it levels off. As you start accumulating more luxuries, your degree of fulfillment starts decreasing. In other words, once you have achieved what the authors refer to as "enough," acquiring more simply makes you unhappier.

 

Whether you call it overabundance of possessions or just plain clutter, material things do consume a lot of our time. People spend their precious non-renewable resource, time, in order to acquire more money and possessions, only to discover that the possessions do little to further their enjoyment of life. In fact, possessions consume even more of this non-renewable resource. Not only does it take time to earn enough money to buy this stuff, it takes time to shop for it, learn how to operate it, maintain it in good working condition, repair it, upgrade it, insure it and use it.

 

It's not surprising that the more we acquire beyond a certain point, the unhappier we get. We are afraid of losing it, breaking it or having it stolen. We frequently have to make payments on it, acquire more space to accommodate it, and worry about keeping the neighborhood kids or the family dog away from it. There also comes a time when we have to figure out how to get rid of it.

 

Keep life simple and you will conserve enough time and energy to enjoy it.