Conquering Complexity in Your Business: How Wal-Mart, Toyota, and Other Top Companies Are Breaking Through the Ceiling on Profits and Growth How Wal-Mart, Toyota, and Other Top Companies Are Breaking Through the Ceiling on Profits and Growth

by George, Michael; Wilson, Stephen

• ISBN13: 9780071435086
• ISBN10: 0071435085
• Edition: 1st
• Format: Hardcover
• Copyright: 2004-07-12
• Publisher: McGraw-Hill Education

Summary

Conquering the complexity in products and services can generate larger contributions to profits and growth than nearly any other business strategy Here's a guarantee: Somewhere in your business, there is too much complexity. You may also be losing out by having too little complexity where it counts - in the products, services and options you offer to customers. Either way, the impact of complexity is enormous in terms of lost profit and missed growth opportunities. Conquering Complexity in Your Businessshows how to break through the ceiling on profits and growth by implementing the three rules for conquering complexity: Eliminating complexity that customers willnotpay for Exploiting the complexity that customerswillpay for Minimizing the costs of the complexity you offer You'll find methods and tools you need to: Identify the offering and process complexity in your business Quantify the impact of that complexity Decide which complexity you want to keep and which to eliminate Select specific approaches to eliminate different kinds of complexity This knowledge will significantly improve your ability to grow profit, revenue, and shareholder value.

Author Biography

Michael George (Dallas, TX) is the author of Lean Six Sigma and Lean Six Sigma for Services . He is founder and CEO of George Group, a consulting company that delivers rapid and sustained improvements in shareholder value through unique methodologies. George Group is the global leader in Lean Six Sigma.

Stephen Wilson (Dallas, TX) is the director of the Cost of Complexity practice at the George Group. He also has expertise in strategy development, Valued Based Management and Lean Six Sigma, the process improvement methodology. He holds an MBA in Strategy and Finance from the Wharton School.

Table of Contents

About the Authors	x
Acknowledgements	x
Preface	xi
PART I Complexity: The Silent Killer of Profits and Growth
Chapter 1 The Overwhelming Case for Conquering Complexity	3	(22)
A Tale of Two Companies	4	(2)
The Three Rules of Complexity	5	(1)
Complexity Rule #1: Eliminate complexity that customers will not pay for	6	(3)
Case #1 : The story of Southwest Airlines vs. American Airlines	6	(3)
Complexity Rule #2: Exploit the complexity customers will pay for	9	(2)
Case #2: Capital One vs. MBNA, Bank of America, et al	9	(2)
Complexity Rule #3: Minimize the costs of complexity you offer	11	(7)
Case #3: The real secret of Toyota	12	(2)
Case #4: Experience bought, not taught	14	(4)
Finding the Right Combination of External and Internal Complexity	18	(2)
The Complexity Value Proposition	20	(1)
Conclusion: The competitive advantage of conquering complexity	21	(4)
Chapter 2 Exposing the Silent Killer: How (and how much) complexity drains time and resources in your business	25	(16)
How Complexity Silently Kills Profits and Drains Resources	26	(3)
Process Cycle Efficiency: The foundation for quantifying complexity	29	(2)
Quantifying What Affects PCE: The Complexity Equation	31	(4)
How Variation in Mix Destroys PCE and Profit	35	(1)
What Lever to Pull?: Advice on improving PCE	36	(2)
The Power of Numbers	38	(2)
Conclusion	40	(1)
Chapter 3 How Complexity Slows the Flow of Critical Information	41	(12)
Information Flow Complexity = Too Long to Reach Decision Makers	43	(3)
Complexity Creates Noise in Information Systems	46	(1)
Dell and Compaq: Better to be fast than first	47	(4)
How Does Dell Achieve Fast Information Flow?	48	(3)
Conclusion: Cumulative effect of complexity on strategic decision making	51	(2)
Chapter 4 How Conquering Complexity Drives Shareholder Value	53	(18)
The Challenges of Accounting for Complexity	55	(3)
Making Decisions That Benefit Shareholders: Earnings Per Share vs. Economic Profit	58	(4)
Key Lessons About EP and Growth	62	(1)
The Complexity Imperative in Fast Markets	62	(4)
The Links between Complexity and Value	66	(2)
Conclusion	68	(3)
Chapter 5 Complexity as a Strategic Weapon	71	(15)
Six Precepts For Strategic Use of Complexity	72	(8)
Precept #1: Customers define value	73	(1)
Precept #2: The biggest gains from conquering complexity come from step-change improvements	73	(1)
Precept #3: Focus on what matters most-100% of your value creation probably resides in only 20% to 50% of offerings	74	(1)
Precept #4: Think value share instead of market share	75	(3)
Precept #5: Growth results from value-driven application of finite resources	78	(1)
Precept #6: First eliminate offerings that can never generate positive Economic Profit, then attack internal complexity	79	(1)
ALDI International: A case study in strategic complexity	80	(3)
Eating Away the Competition	81	(1)
ALDI's Secret of Success: Eternal watch against complexity	82	(1)
Conclusion (and a look ahead)	83	(3)
PART II Complexity Analysis: Quantifying and Prioritizing Your Complexity Opportunities
Executive Overview of Complexity Analysis	86	(3)
Chapter 6 Identify Strategic Complexity Targets
(Complexity Analysis Phase 1)	89	(26)
Overview of Target Selection	90	(2)
Step 1: Identify areas of greatest value-at-stake	92	(4)
Data You'll Need to Identify Value-at-Stake	92	(2)
Interpreting Economic Profit	94	(1)
Getting More From Your Waterfall Chart	95	(1)
Step 2: Analyze the strategic position of selected value-at-stake units	96	(10)
Data You'll Need to Evaluate Strategic Position	96	(1)
Using and Interpreting Strategic Position Data	97	(2)
Mining Market Profitability and Competitive Position Data	99	(5)
Outcome of Strategic Analysis	104	(2)
Step 3: Develop a Complexity Profile of selected business units	106	(9)
Data You'll Need for a Complexity Profile	106	(1)
Charting and Interpreting a Complexity Profile	107	(2)
What You Can Learn From a Complexity Profile	109	(1)
Summarizing Phase 1 Lessons: Sources of exploitable advantage	110	(3)
Conclusion	113	(2)
Chapter 7 Map & Quantify the Impact of Complexity
(Complexity Analysis Phase 2)	115	(28)
Overview of Mapping Complexity & Quantifying Impact	116	(3)
Step 4: Identify the strategic value of your core processes	119	(10)
EGI Case Study, Part 1: Core Process Analysis	125	(4)
Step 5:. Determine family groupings	129	(3)
EGI Case Study, Part 2: Identifying product families	130	(2)
Step 6: Create a Complexity Value Stream Map	132	(3)
EGI Case Study, Part 3: CVSM	135	(1)
Step 7: Computing PCE baselines	135	(7)
Data You'll Need to Compute PCE Baselines	136	(4)
Calculating PCE Baselines: EGI example	140	(2)
Conclusion	142	(1)
Chapter 8 Build a Complexity Value Agenda
(Complexity Analysis Phase 3)	143	(38)
Overview of Developing a Complexity Value Agenda	144	(2)
Step 8: Calculate EP% for offerings	146	(4)
Data You'll Need to Calculate EP% by Offering	147	(3)
Step 9: Perform a substructure analysis	150	(2)
Data You'll Need to Perform a Substructure Analysis	150	(1)
Interpreting a Substructure Analysis	151	(1)
Step 10: Calculate PCE Destruction and complete a Complexity Matrix	152	(7)
Data You'll Need for PCE Destruction and the Complexity Matrix	155	(2)
Completing and Interpreting a Complexity Matrix	157	(2)
Step 11: Evaluate potential impact of process
or offering changes	159	(1)
Path A: Value creation from process improvement	160	(2)
Path B: Value creation from offering improvement	162	(4)
Adding Numbers to the Options: What-If analyses with the Complexity Equation	166	(3)
Step 12: Select options and build business cases for selected opportunities	169	(3)
Step 13: Create a Complexity Value Agenda (and Execute!)	172	(9)
The EGI Case Study: Prioritizing and Building a Value Agenda	172	(5)
Conclusion	177
PART III Implementing Complexity Agendas
Chapter 9 Simplifying Product and Service Lines
Going for Big Gains in Economic Profit	181	(4)
The Pricing Lever	185	(4)
Simplifying Product or Service Configurations: Exploiting naturally occurring configurations	189	(1)
Adjusting Your Customer Portfolio	190	(4)
Options for Deletion of a Product or Service	194	(4)
Managing Deletions	196	(2)
Roadblocks to Simplification	198	(7)
Conclusion: Biting the simplification bullet	205	(2)
Chapter 10 Finding the Complexity That Customers Value	207	(20)
A Case Study in Choice Explosion	208	(5)
What Customers Want vs. What They Value	213	(12)
Technique #1: Key Buying Factor analysis	213	(2)
Technique #2: Kano analysis	215	(2)
Technique #3: Functional analysis	217	(4)
Technique #4: Conjoint analysis	221	(4)
Conclusion: Considering complexity when developing customer-focused strategies	225	(2)
Chapter 11 Avoiding the Big Costs
Using Complexity Principles to Simplify Product Designs	227	(2)
Simplicity Principle #1: Emphasize commonality	229	(9)
A. Commonality Through Modularization	230	(2)
B. Commonality Through Platforms	232	(2)
Case Study: IPM's applications of platform thinking	234	(2)
Benefits of Commonality	236	(2)
Simplicity Principle #2: Exploit design reuse/recycling	238	(1)
Simplicity Principle #3: Design with the life cycle in mind	239	(1)
Benefits of Life Cycle Planning and Execution	240	(1)
Example: Simplifying brake design in bikes	240	(4)
Improving Design-to-Market Cycle Time	244	(2)
Conclusion: Start with the end in mind	246	(1)
Chapter 12 Achieving Service and Process Simplicity Optimizing work flow with Lean, Six Sigma, and complexity tools	247	(14)
Complexity and Waste	249	(1)
Approach #1: Exploit commonality to reduce duplicative effort	250	(3)
Approach #2: Ensure standardization of tasks	253	(2)
Approach #3: Eliminate the delays and impact of task startup and task switching	255	(4)
The Four Step Rapid Setup Method	257	(2)
Conclusion	259	(2)
Chapter 13 Using Information Technology to Deliver Complexity at Lower Cost	261	(16)
Using IT to Deliver Variety (Good Complexity) at Low Cost	263	(1)
The Cost of IT Complexity	264	(2)
Fighting Back Against IT Complexity	266	(1)
Principle #1: Don't rely on IT to fix a broken process (it won't!)	267	(1)
Principle #2: Reduce the complexity in your systems architecture (because your customers won't pay for it!)	267	(1)
Principle #3: Outsource complexity where strategically desirable	268	(2)
Principle #4: Use modularity in your hardware and software	270	(2)
Conclusion	272	(5)
PART IV High-Return Investments When Conquering Complexity
Chapter 14 Creating a Culture that Can Conquer Complexity	277	(14)
Cultural Ingredient #1: Believe conquering complexity is an imperative	278	(2)
Cultural Ingredient #2: Ongoing executive engagement	280	(4)
Cultural Ingredient #3: Target high value-at-stake opportunities	284	(1)
Cultural Ingredient #4: Dedicate organizational resources	285	(1)
Cultural Ingredient #5: Provide an analytical methodology and toolset	285	(1)
Cultural Ingredient #6: Align metrics, incentives, policies with complexity goals	286	(2)
Cultural Ingredient #7: Nurture close customer connections	288	(1)
Conclusion	289	(2)
Chapter 15 Conquering Complexity in Your Product and Service Value Chain	291	(18)
Value Chain Configuration: Extracting the full value from conquering complexity	292	(5)
Strategic Sourcing: How complexity drives the make-or-buy decision	294	(3)
Managing Upstream Complexity: Strategic supplier segmentation	297	(4)
Planning for Value Chain Changes	301	(3)
Downstream Complexity: Smashing the retail paradigms	304	(1)
Conclusion	305	(4)
Chapter 16 Applying Complexity Principles to Mergers and Acquisitions	309	(10)
Complexity Due Diligence	310	(5)
Win the Deal, Lose the Synergies	311	(4)
Addressing Complexity Can Accelerate Integration	315	(3)
Making Complexity Due Diligence (and M&A) a Repeatable Process	318	(1)
Conclusion	319	(2)
Appendix	321	(10)
Index	331