Cost Reduction Through Simplicity

There is thus a natural tendency for business, like life in general, to become overcomplex. All organizations, especially large and complex ones, are inherently inefficient and wasteful. They do not focus on what they should be doing. They should be adding value to their customers and potential customers. Any activity that does not fulfill this goal is unproductive. Yet most large organizations engage in prodigious amounts of expensive, unproductive activity. Every person and every organization is the product of a coalition and the forces within the coalition are always at war. The war is between the trivial many and the vital few.

The trivial many comprise the prevalent inertia and ineffectiveness. The vital few are the breakthrough streaks of effectiveness, brilliance and good fit. Most activity results in little value and little change. A few powerful interventions have massive impact. The war is difficult to observe: it is the same person, the same unit and the same organization which produces both a mass of weak (or negative) output and a smattering of highly valuable output. All we can discern is the overall result; we miss both the garbage and the gems. It follows that any organization always has great potential for cost reduction and for delivering better value to customers: by simplifying what it does and by eliminating low—or negative-value activities. Be mindful that:

• waste thrives on complexity; effectiveness requires simplicity
• the mass of activity will always be pointless, poorly conceived, badly directed, wastefully executed and largely beside the point to customers
• a small portion of activity will always be terrifically effective and valued by customers; it is probably not what you think it is; it is opaque and buried within a basket of less effective activity
• all organizations are a mix of productive and unproductive forces: people, relationships and assets
• poor performance is always endemic, hiding behind and succoured by a smaller amount of excellent performance
• major improvements are always possible, by doing things differently
  and by doing less.

Always recall the 80/20 Principle: if you study the output your firm generates, the chances are that a quarter to a fifth of the activity accounts for three-quarters or four-fifths of profits. Multiply that quarter or fifth. Multiply the effectiveness of the rest, or cut it out.