Dear readers, a while ago I wrote a post on the MaFI-festo, a discussion paper that makes some suggestions on how to make development more effective (Boosting development effectiveness: what would need to change?). The basic assumption of the paper is that if we facilitate the market systems to change from within rather than through a number of direct and distorting interventions, we have better and more sustainable results.
most successful companies share three virtues. They have a highly distinctive core business. They make great efforts to keep their business model as simple as possible. And they apply it relentlessly to new opportunities.
The authors use examples such as Lego that lost it’s focus on their bricks and started expanding into so-called ‘adjacencies’ like theme parks, television programs, clothes, watches and learning labs. Only after hitting a wall (and getting a new boss), Lego returned to its core business and did better. Other cited examples are IKEA, McDonalds or Berkshire Hathaway. Or Apple, with its successful succession of iProducts.
The authors call this the ‘simplify and repeat’ formula with which the companies avoid complexity. The Schumpeter columnist notes, however, that
[c]omplexity is no easier to avoid than cholesterol. Companies need to keep hammering away at the simplicity mantra.
Well, I would say you cannot avoid complexity if you are acting in the global economy. It’s as simple as that, really. I am also a big fan of simplicity, I think that’s one reason I love my Apple products that much. Reduce to the max. Form follows function. And so on. Nevertheless, I think it is a false way to ‘avoid complexity’ by ‘simplifying’ ones activities.
It is probably easier to manage a company that has one core business or one business strategy than it is to manage a company like such as Samsung or Mitsubishi with their uncountable divisions (I am always surprised when I find out what things they are producing). This is, however, not the big secret why companies like Apple or Lego are so successful. It’s because they know how to evolve in an ever-changing dynamic global economy.
This is one of the fundamental theses in Eric Beinhocker’s book ‘The Origin of Wealth’, which I found a fascinating read. He writes in connection with the complexity and unpredictability of the economy and the subsequent search for the best strategy for companies:
We may not be able to predict or direct economic evolution, but we can design our institutions and societies to be better or worse evolvers.
The concept of repeatability is based on the assumption that there exists such a thing as a ‘sustainable competitive advantage’. Beinhocker is very clear in his book that such a thing does not exist and he uses many examples of successful and less successful companies to illustrate that.
Apple is a good example. If Apple had just stuck to its core business – simplified and repeated – it would still build only personal computers, improved versions of the Apple II (or most probably it would build nothing at all any more). But Apple evolved together with its clients and into new fields of business. It developed new products like the mentioned iProducts and was hugely successful with it. Indeed, Apple now makes more money with other products than the traditional personal computer. At the same time, Apple remains true to its fundamental values as the mentioned ‘form follows function’ principle and the search for the most elegant, most simple solution for a given problem.
‘Simplify and repeat’ is not the silver bullet in business strategies. Successful companies evolve and adapt. Simplicity does not hurt, though. Therefore I would rather say ‘simplify and evolve’.