Simple Is Beautiful — Complex Is Ugly

Those of us who believe in the 80/20 Principle will never succeed in transforming industry until we can demonstrate that simple is beautiful and why. Unless people understand this, they will never be willing to give up 80 per cent of their current business and overheads. So we need to go back to basics and revise the common view of the roots of business success. To do so, we must get involved in a current controversy over whether size in business is a help or a hindrance. By resolving this dispute, we will also be able to show why simple is beautiful. For something very interesting, and unprecedented, is happening to our industrial structure. Since the Industrial Revolution companies have become both bigger and more diversified.

Until the end of the nineteenth century, nearly all companies were national or subnational, having the vast bulk of their revenues confined to their home country; and nearly all were in just one line of business. The twentieth century has seen a series of transformations, changing the nature both of business and of our daily lives. First, thanks largely to Henry Ford’s sensationally successful quest to ‘democratize’ the automobile, there was the burgeoning power of the assembly line, multiplying the revenues of the average firm, creating mass branded consumer goods for the first time in history, slashing the real cost of those goods and giving more and more power to the largest enterprises. Then there was the emergence of so-called multinational enterprises, that initially took the Americas and Europe, and later the whole world, as their canvas. Next came the conglomerates, a new breed of corporation that refused to confine itself to one line of business and rapidly spread its tentacles across many industrial sectors and a myriad of products. Then the invention and refinement of the hostile takeover, fuelled equally by management ambition and the financial lubrication of leverage, gave further impetus to size.

Finally, in the last 30 years of the century, the determination of industrial leaders, mainly from Japan, to seize global leadership in their priority markets and as much market share as feasible provided the final reinforcement to the cult of corporate size. For various reasons, therefore, the first 75 years of the twentieth century witnessed a progressive and apparently unstoppable expansion in the size of industrial enterprise and, until recently, in the proportion of business activity taken by the largest firms. But in the past two decades, the latter trend has suddenly, and dramatically, gone into reverse. In 1979, the Fortune 500 largest US firms accounted for nearly 60 per cent of US gross national product, but by the early 1990s this had slumped to just 40 per cent.