Most CEO’s are well aware of the profit killers in their business: price wars, staff bloat, manufacturing cost blow outs and inefficient sales processes.
But few address a more subtle but often more dangerous profit attacker.
Complexity erodes profit margins by gradually increasing costs and slowing down day to day business efficiency. Eradicate it and you are far more likely to build a more successful business. In fact Bain & Company found that simply structured companies grew 30-50% faster.
So how do you reduce the creeping weeds of complexity in your business?
Here are some good places to start:
FIND OUT WHAT YOUR CUSTOMERS TRULY VALUE.
Get clear about the 2-3 central needs of your customers – not the nice to haves, their intense product demands. Then deliver those superbly rather than catering to their every whim or mild interest. Too many business operators have only a general idea of what their customers are seeking, their priorities and hierarchies of pain. Ask them often and adapt your company quickly to reflect what they truly find important.
KEEP STAFF LEVELS TEN PERCENT LOWER THAN IS TYPICAL.
Few companies lose business because they are short staffed. Usually they run too fat. When times are good, staff numbers tend to expand in the name of ‘preparing for growth’, but in most cases companies run better when employees are pushed and stretched beyond what they believe is comfortable. Curiously, I have found that when the team is lean morale is often better not worse.
STRIP YOUR PRODUCT LINE DOWN.
The 80/20 rule is alive and well when it comes to product offerings. What are the products/services that bring home most of the bacon? How can you delete, diminish or outsource the others? And importantly, if you must keep them, how can you charge much more for them so they become valuable? The less products you sell, the more focus you will give them. Improvements are a virtual certainty.
CUT OUT ALL MARKETING THAT DOESN’T LEAD TO CLEAR SALES.
Don’t be soft on your marketing. Take the time to create simple systems that record results (asking new customers “How did you hear about us?” is a good place to start). If you can’t see a direct financial return from your marketing then in most cases you should either kill it or redesign the offer so that it’s easier to track results. If your marketing is producing a profit the next question to ask is ‘Can I finesse any part of it to increase its effectiveness?’.
These are four highly effective strategies that will go a long way to reducing complexity, making your company healthier and much more profitable.
All you need to do is put a note in your diary to review them every six months and watch how your company improves. Ironically, fixing complexity can be that simple.