B2B Thought Pieces

Making It Simple: how overcomplexity stifles growth, and how to cut through it

Apple is one of the world’s most valuable companies. Ever. However, one fact about Apple gets little mention: Apple’s product portfolio is incredibly lean for a business of its size. In fact, it can pretty much be summarised in 5 words: iPhone, iPad, iPod, Watch, Mac. This didn’t happen by accident; Steve Jobs took an axe to the product range when he returned to Apple in 1997 and refocused the business on what he believed really mattered to customers.

Overcomplexity is a common ailment in businesses across all sectors. Many executive teams wrestle with large, unwieldy product and service portfolios. The result is often lacklustre growth and a less-than-perfect customer experience across the board. While senior executives almost always recognise the problem, sorting it out is tough. Most of us are neither lucky enough to have a super-empowered, axe-wielding Steve Jobs at the helm, or unlucky enough to be forced in to action by the threat of imminent disaster (Apple was reported to be 4 months from bankruptcy).

If simplification is going to deliver true, sustainable benefits to the business it absolutely must start where Apple and ExampleCo (see panel) did: at the front end of the business, where products and services are delivered to customers.  Too often simplification is used as a euphemism for cost cutting. A former colleague now works for a technology company that radically cut costs in its back office, while growing its product offering in a quest for growth. The result? Employees who were tired, demotivated and frustrated. Frustrated because they really cared about their customers and could see that no matter how hard they tried, they couldn’t deliver the level of service and support that was needed. The company’s excellent reputation was suffering, and it wasn’t hard to predict what would result if nothing changed.

So, how should business leaders tackle this challenge? Firstly, CEOs need to own the process. In our experience, most good business unit or division leaders are optimists who will defend the product and service offerings in their portfolio with almost the same passion that they would defend their families. I remember when I ran a P&L once arguing loudly and tenaciously for a software business in my portfolio and being furious that ‘Head Office’ insisted on selling it. With more experience and distance I can see now that the business was a terrible fit with the rest of the division, and the decision to divest it was the right one.  Objectivity is critical: CEOs cannot step back and let their teams sort this out. They need to be front and centre of the effort to reduce complexity and to recognise that tough, sometimes unpopular decisions will need to be made, and it is ultimately their job to make them.

Secondly, data will take you a long way. If a business is going to reduce complexity in its offering, it is absolutely critical to understand the profitability of products and services, and also of customers. This should not require months of analysis. Marketing, Commercial and Customer Service teams usually have a good idea of where they are spending money, time and resource. They need to work closely together with Finance, using a clear process to work out which parts of the business really make money.

And finally, simple tools that are easy to understand are indispensable as a way of structuring discussion and decision-making. At The B2B Strategy Group we are big fans of the simple Nine Box Matrix that was much used in the 1970’s and, we think, prematurely abandoned in favour of more sophisticated tools that allowed consultants to make more money (!).

I would really welcome thoughts and opinions on this article – please do get in touch if there is anything you would like to discuss.

Published on August 10, 2015

Example

ExampleCo (not its real name), an international professional services firm recently had to face into this problem: regional P&L leaders (a really strong and entrepreneurial bunch of people) had for years been encouraged to go for growth wherever and however they could find it. The result was an organisation that served every size of customer, from one-person SME’s to huge multinationals, in every industry sector, with an astonishingly broad range of offerings. The creeping impact of this complexity was evident in a slow but relentless decline in both customer satisfaction and profitability. The new CEO did two things: firstly a detailed customer profitability exercise surprised everyone by revealing a true pareto effect: 80% of profits really were coming from 20% of customers.  Secondly, each P&L leadership team was asked to complete a portfolio analysis exercise to understand which service offerings were most attractive for investment in the long term. On the basis of these activities, the Executive Team of the business undertook a radical streamlining of service offerings and customers. It was tough and pretty scary for the teams involved to let go of so much activity, but the results speak for themselves: after two years revenues had returned to previous levels, but net margins had doubled.

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One never notices what has been done; one can only see what remains to be done.

Marie Curie