The Attitude Test: How to Determine If You Should Simplify Your Business When you don't know if you should simplify your price strategy or your business proposition, this test can help you decide which method is best for you.
By Richard Koch •
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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
To be a price-simplifier or a proposition-simplifier -- that is the issue. Here's a key question that will help you decide which one you should be:
Do your firm's attitudes -- its policies and culture -- make it more disposed to pursue price-simplifying or proposition-simplifying?
Try taking the test presented below. Record your answers on a piece of paper. Give your first response without thinking about it for too long. Your answer, which should be placed on the scale from 0 to 10 that appears below each question, should indicate where your firm currently resides. In most cases, the answer to the question will be either a straight "Yes" or "No," so, wherever possible, choose either 0 or 10. Move toward the middle of the scale only when there's no clear answer. Note that "Yes" is sometimes positioned on the left of the scale, and sometimes on the right (and the same is true for "No," of course).
1. Do you believe that your firm or a competitor could cut costs and prices by more than 50 percent?
a. No
b. Yes
(a) 0 1 2 3 4 5 6 7 8 9 10 (b)
2. If you started again from scratch, would you see more potential in:
a. Making the product or service a joy to use
b. Making it simpler so that you could cut prices by a large amount
(a) 0 1 2 3 4 5 6 7 8 9 10 (b)
3. What are the operating margins in your business? (Operating margin is EBIT -- earnings before interest and tax -- divided by revenue.)
a. Over 25%
b. 11–25%
c. 10% or less (including losses)
(a) 0 1 2 3 4 5 (b) 6 7 8 9 10 (c)
4. Are you currently the lowest-cost and price competitor in your market?
a. No
b. Yes
(a) 0 1 2 3 4 5 6 7 8 9 10 (b)
5. Has your firm invested in state-of-the-art systems to speed product or service flows and drive out cost?
a. No
b. Yes
(a) 0 1 2 3 4 5 6 7 8 9 10 (b)
6. Which do you think is more important -- your firm's operating margin or the return on cash invested?
a. Operating margin
b. Return on cash invested
(a) 0 1 2 3 4 5 6 7 8 9 10 (b)
7. How long is your time horizon when you make a serious capital investment?
a. 1–5 years
b. 6–10 years
c. More than 10 years
(a) 0 1 2 3 4 5 (b) 6 7 8 9 10 (c)
8. How important is revenue growth to your firm?
a. Important
b. Vital
(a) 0 1 2 3 4 5 6 7 8 9 10 (b)
9. Is -- or was -- the founder of your firm:
a. A visionary obsessed with "insanely great" products or services, making them a joy to use and solving customer problems
b. Frugal and penny-pinching
(a) 0 1 2 3 4 5 6 7 8 9 10 (b)
10. Is your firm's culture:
a. Meritocratic/elitist -- the top 5 percent of the firm make or break it
b. Egalitarian -- for example, similar office space and facilities for everyone, emphasis on teamwork, no reserved parking spot
(a) 0 1 2 3 4 5 6 7 8 9 10 (b)
11. Does your firm believe in using simplicity mainly:
a. To make products/services better
b. To make products/services cheaper
(a) 0 1 2 3 4 5 6 7 8 9 10 (b)
12. Is it important for your firm to hide complexity from customers so that the product/service is easy for them to use?
a. Yes
b. No
(a) 0 1 2 3 4 5 6 7 8 9 10 (b)
13. Is the product/service's usefulness, ease of use and appearance or emotional appeal to customers very important to the firm?
a. Yes
b. No
(a) 0 1 2 3 4 5 6 7 8 9 10 (b)
14. Is the price of the product or service the most important thing?
a. No
b. Yes
(a) 0 1 2 3 4 5 6 7 8 9 10 (b)
15. Does the firm believe that being the leader in the market overall or being the leader in a premium segment that will pay more for the product is more important?
a. Being the leader in the premium segment
b. Being the leader in the market overall
(a) 0 1 2 3 4 5 6 7 8 9 10 (b)
16. Which do you think is more important -- investment in people or investment in production and delivery systems for customers?
a. Investment in people
b. Investment in systems to deliver consistency for customers and to keep costs low
(a) 0 1 2 3 4 5 6 7 8 9 10 (b)
17. How important is constant and relentless innovation in your firm?
a. Vital
b. It's more important to get the business system right to start with, and then make gradual improvements afterwards
(a) 0 1 2 3 4 5 6 7 8 9 10 (b)
18. Which is more important in your firm?
a. Developing new projects
b. Making the existing business system run smoothly
(a) 0 1 2 3 4 5 6 7 8 9 10 (b)
19. Is there a continual buzz about change in your firm, or is it more valuable to do the basics right every time?
a. Buzz about change
b. Basics right every time
(a) 0 1 2 3 4 5 6 7 8 9 10 (b)
20. Which is the better description of your firm?
a. Dynamic and free-wheeling
b. Disciplined and predictable
(a) 0 1 2 3 4 5 6 7 8 9 10 (b)
21. How much does your firm encourage risk-taking?
a. It is fine to take big risks, even if they don't pay off
b. Only moderate risk-taking is acceptable
(a) 0 1 2 3 4 5 6 7 8 9 10 (b)
22. Does your firm aim to:
a. Captivate the customer with something new
b. Impress the customer with great value every day
(a) 0 1 2 3 4 5 6 7 8 9 10 (b)
23. Which is more important?
a. Designing the product or service itself
b. Designing the business system underpinning the production and delivery of the product or service
(a) 0 1 2 3 4 5 6 7 8 9 10 (b)
24. Does your business aim to provide a universal product or service that is the same always and everywhere?
a. No
b. Yes
(a) 0 1 2 3 4 5 6 7 8 9 10 (b)
25. What is the level of your organization's overheads (general administrative and sales expenses, marketing, product development, research and development and so forth)?
a. High
b. Low
(a) 0 1 2 3 4 5 6 7 8 9 10 (b)
Add up the scores for all twenty-five questions. The minimum score is zero and the maximum score is 250. As you may have realized, the scales below each question are designed so that the left-hand side represents the typical answer of a proposition-simplifier, and the right-hand side that of a price-simplifier. For a more precise appraisal, though, this is how to interpret your total score:
0–30: Your organization is highly suited to proposition-simplifying, and not at all to price-simplifying.
31–50: Your organization is quite well suited to proposition-simplifying, but not to price-simplifying.
51–99 :There's a slight leaning towards proposition-simplifying. If your organization wants to proposition-simplify, it will have to change some of its policies. Price-simplifying probably isn't feasible.
100–150: There's no substantial leaning towards either form of simplifying. This is a red light -- your organization is probably unsuitable for either strategy.
151–199: There's a slight leaning towards price simplifying. If your organization wants to pursue this strategy, it will have to change some of its policies. Proposition simplifying probably isn't feasible.
200–219: Your organization is quite well suited to price-simplifying, but not to proposition-simplifying.
220–250: Your organization is highly well suited to price-simplifying, and not at all to proposition-simplifying.
