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The Keys Test: How to Determine If You Should Simplify Your New Business

If you can see a key in your business, does it belong to price- or proposition-simplifying? That will give you at least a clue as to the better strategy for you.
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The following excerpt is from Richard Koch and Greg Lockwood’s book Simplify. Buy it now from Amazon | Barnes & Noble | iTunes

Successful simplifiers always come up with a new key, or keys, to unlock and transform a market. These keys are almost never based on market research. Instead, they come from insight -- often a sudden epiphany or a bolt from the blue that nearly always arrives away from the office. But one of our aims is to simplify and systematize insight. We believe that by studying previous conceptual breakthroughs, it’s possible to emulate them and adapt them for a new context.

A striking finding of our research is that certain patterns keep recurring in the most successful simplification stories. Though there might be one initial key that unlocks the imagination -- IKEA founder Ingvar Kamprad chopping off the legs of a table to stuff it into his car boot; the McDonald brothers applying the industrial assembly-line process to their burger restaurant -- usually that key leads to another, then a third, and a fourth. So there's usually a cluster of keys.

Related: The Attitude Test: How to Determine If You Should Simplify Your Business

Another finding is that the keys for the two main types of simplifying are different, yet similar within each type. When you think about it, this isn’t surprising. Just as there are said to be only seven basic plots for a successful novel, there are only a handful of ways to achieve the objective of price-simplifying, and a different handful of ways to meet the contrasting aims of proposition-simplifiers.

Keys in price-simplifying

The sole objective of price-simplifiers is to cut costs by at least half. Here are the main keys successful businesses have used to achieve this:

  • Ford: Reduce variety, redesign product, introduce new production system (massive investment and invention of the assembly line), use better-quality materials.
  • IKEA: Redesign products, control furniture-makers, reduce variety, build giant stores, co-opt customers (self-service, self-delivery, self-assembly).
  • McDonald’s: Reduce variety, automate, speed up service, co-opt customers and franchisees, use better-quality ingredients.
  • Penguin: Reduce variety, create new distribution channels, raise quality of content, lower overheads, co-opt authors and other publishers.
  • Honda: Reduce variety, scale down product, lower costs of labor and of the main component (the engine).
  • Pepsi-Cola: Offer twice as much product for the same price, use effective advertising, introduce new distribution system, exploit the market leader’s price umbrella.

Keys in proposition-simplifying

The aim of the proposition-simplifier is to make the product or service a joy to use by increasing its ease of use, usefulness and art. Here are examples of the proposition-simplifying keys:

  • Apple Macintosh: Create high-end customer segment, make product more intuitive for the user, design a user-friendly and beautiful item that’s also more useful than existing machines.
  • Uber: Make experience of using a taxi quicker, more friendly and more reliable, and also often cheaper, through new software.
  • Boston Consulting Group: Create new high-end “strategy” product (the first new consulting product since the introduction of “time and motion”), condense ideas, so that devising strategy becomes memorable and fun, select a few principles so that any properly trained person can use them, communicate shared framework throughout the firm, prioritize actions and standardize projects.
  • Bain & Company: Create new high-end “CEO” service, co-opt the CEO, increase ease of profit improvement throughout the client firm, increase usefulness of consulting process.
  • General Motors: Create new segments in the middle and top of the market, each targeted at different customers and with different styles and appearance, raise customer utility through brand differentiation and new annual models, introduce new features to make cars a joy to drive and raise ease of purchase for customers and dealers by extending credit.

Related: The Gap Test: How to Determine If You Should Simplify Your Business

If you can see a key in your business, does it belong to price- or proposition-simplifying? That will give you at least a clue as to the better strategy for you.