Complexity has many definitions; excessive complication is the simplest. In today’s business, chronic complexity is stifling, stagnating, and bringing companies to their knees. This is why we hear so much about focus from C-suites and corporate boards. CEOs talk focus all the time and nod to its importance, but few take the necessary measures to cut through complexity and clear a path to clarity and coherence.
The truth of the matter is that business leaders are the ones adding complexity to their organizations. To thwart the impact of low-cost foreign competition and to meet the accelerating demands of customers and shareholders, they embark on doing more, and adding more. This can mean expanding product lines, entering new markets and geographies, line extending brands, acquiring new businesses, creating projects, and adding layers of management to manage the self-created complexity.
It takes discipline to say “no” to new revenue, even when the sources are strategically questionable. After all, the fixed overheads are already in place. Surely, the newfound margin will drop to the bottom line – it will not. Added complexity makes sure of that. It also takes courage to make tough strategic sacrifices, such as killing pet projects and sacred cows, and reducing the customer list. Giving up something of value for the sake of other considerations is the essence of sacrifice. Companies that appreciate the power of sacrifice also appreciate that ‘do less better’ is a winning strategy at both the corporate and functional level.
Doing less, better applies to both large and small companies. These 5 practice focus very well.
Coca-Cola’s focus begins at 30,000 feet, where corporate strategy is crafted. Back in 1989, Coke divested Columbia pictures, the last of their non-beverage businesses. From that point on, they committed themselves to soft drinks. History tells us that Coca-Cola has put corporate clarity, coherence and specialization to good work. Their economic performance supports the theory that specialists beat generalists. Although Coca-Cola sales lag those of their food and beverage arch rival, Coke’s profit and market cap significantly outpaces Pepsi. That said, $47 billion in sales isn’t too shabby for a company that sells only soft drinks. Thanks to Coke’s global reach, brand power, bottling network, and single-minded focus, I’m betting on Coca-Cola sustaining this competitive advantage.
Back in the ‘90s, LEGO had cluttered its corporate structure with the complexity that comes with acquiring a variety of businesses from apparel to theme parks. By 2004, sales and profits were in double digit declines. Complexity had brought LEGO to its knees. Something had to be done. A new management team pruned several of the acquisitions, stopped ‘doing more and more,’ and started ‘doing less better’ by giving their full attention to their core business, LEGO blocks. They launched new product kits, created the blockbuster LEGO Digital Designer, and negotiated some very lucrative licensing arrangements such as Harry Potter and Star Wars. The outcome of ‘doing less better’ in market scope has been stellar; past five years sales have doubled and earnings have tripled. With 60% of annual sales coming from innovative new products, it is clear that LEGO has not been idle. ‘Doing less better’ doesn’t mean doing less work.
3. In-N-Out Burger
MacDonald’s is the largest fast food restaurant in the world. Last year, MacDonald’s boasted sales of $28 billion. That’s a lot of hamburgers. But with a menu of well over a 100 items, MacDonald’s sells plenty more than hamburgers. By contrast, California’s In-N-Out Burger, keeps its menu simple – 3 types of beef burgers, fries, shakes and soft drinks. That’s it. If you want chicken, salad, pizza, or wraps, get out of the line-up to the counter and go elsewhere. In-N-Out understands strategic sacrifice. Simplicity is the culture; it is the cornerstone of customer service – even extends to geographies. They’ve been in business since 1948 and 80% of their 290 outlets are in California. They’ve never franchised . . . never wanted to expand to 50 states . . . and going public? Blasphemy. Now for the kicker. Despite the limited product line that doesn’t even include a chicken burger, In-N-Out’s sales per outlet rivals those of Macdonald’s.
Intuit develops financial and tax preparation software for small business, accountants and the general public. Their goal is to make accounting, simple. This vision establishes the principles for running a simple operation. But Intuit isn’t a small business. A workforce of 8,000 led by a transformational CEO, seemingly knows how to deal with the ever-changing digital world. Their evolving brands, Quicken, TurboTax, and QuickBooks continue to be strong contributors to 2014’s revenue of $4.5 billion and record earnings. Intuit is successful because they bring their ‘do less better’ cultural ethic to their customers. At tax time, there’s a broad array of options and choices available to get through the arduous task of tax preparation. Intuit cuts through that complexity with software that simplifies. Because of that, they are rewarded with brand loyalty.
Nike is known for linking the spirit of American pop culture to sports by capitalizing on the public’s idolization of athletic heroes. Ever since the launch of the ‘Just Do It’ campaign, Nike shoes have bolstered their functional product benefits with emotional pay-offs. That’s the secret to their brand power. Management power rests with focused strategies on two product categories, athletic shoes and apparel. Although this strategy led them into acquisitions of other brand names, when complexity rears its ugly head, Nike rectifies. Such was the case with the divestment of Umbro and Cole Hann, set loose to facilitate greater focus on the Nike brand of footwear and apparel. As for logistics and strategic simplicity, anything branded ‘Nike’ must complement Nike footwear and fit within the same marketing and distribution channels.
Coca-Cola, LEGO, In-N-Out, Intuit, and Nike are fortified with leaders who believe in, and practice focus and specialization 365 days a year. These companies are a testament to the power of strategic sacrifice in a complex world.