Where did all the profits go? Have you ever asked yourself that question. You work hard everyday and you’re growing in many different ways, reaching new customers, but at the end of a record quarter in sales all the hard work isn’t producing the profits you were hoping for. The harder you work the less you’re taking home. What happened? I can tell you that managing complexity is probably something you never thought of as the problem while it munches away at the profits because complexity isn’t a giant red light that flashes in your office and warns you that something is wrong. It’s like a dog whistle. Only a super accountant can hear it.
The worst thing complexity does for your business is it adds costs and hides value.
Complexity is all over the place in your P&L and balance sheet and it directly affects your bottom line. Not only that, complexity happens every minute of every day and unless you take steps to fix it, its going to be there tomorrow, too. Growth doesn’t necessarily mean profitable. Say it with me please. Say it over and over again. Managing growth is tough and expensive!
There isn’t a line item called “complexity” in any accounting program I know of but there should be. Being aware of complexity is like admitting you’re an alcholic. It’s the first step in recognizing there’s a problem that isn’t readily seen by anyone. “Hi, my name is Joe and my business is too complex.” “Hi Joe . . !”
Too many products, too many suppliers, too many product choices, too many bad customers, too much of just about everything erodes profits. I’m speaking from experience in saying and that even the smallest business can be too complex to be profitable.
“Everything should be made as simple as possible, but not simpler.”
~ Albert Einstein
One of the biggest problems identified in my ‘complexity’ research is that most businesses can’t let go of old, previously profitable, items when they add newer items. Let the old ones go and good riddence. Keeping tired and non performing items around for sentimental reasons is a huge mistake. When you keep them around all you’re doing is adding more complexity and hidden costs. Here’s why: you think keeping the item around is alright because that item is already paid for so what’s the harm. Well, the harm is, employees still have to manage the item which takes up time and space and then customers want them at a discount so you ship the item adding that cost and if there’s a problem you’re now dealing with a discontinued, non profitable item and probably an angry customer over working with newer items at a higher profit margin. Complexity is eating and chewing on those non performing items all day long.
Don’t believe me? Take a good look at the remote control device for your TV. Do you know what half those buttons are for and do you think you’ll ever use them? I’m a self described techno geek and that thing baffles me. How about this? Now connect all your remote devices to one remote for that TV. Good luck.
I just finished researching the complexity problem in business and I used several amazing books as a reference. In addition, I can write about my own personal experience in this area as well. This article is a synopsis of those books and I read them to help our clients identify this as a big problem. Just so you know, complexity isn’t just a technical problem either as some would immediately think of first. It’s hidden in people, productivity, inventory, wrong inventory and time.
Some of the examples used in my research make perfect sense in identifying complexity and the formulas practiced to eliminate this problem are easily understood. The Apple iPod was the first example of simplifying every thing regarding a hand held music device. A few color choices, a few sizes, and a simple design lead to amazing profitability. If you give people too many choices thinking that’s good customer service think again. Then, Apple added iTunes to the mix and the rest is history. Dell computer was another example used in how they eliminated a crazy amount of choices for consumers down to about twenty. One color, a few hardrive and memory choices, a few monitor sizes, keyboards, and out the door it went. For their business customers another set of choices are provided but the cases, keyboards, monitors etc., were all the same. Simple, easy, profitable. Why is Subway so profitable? Think about it.
If you think your business is too complex give us a call and I’ll direct you to some of the books I read and provide you with a full report on this topic.