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  Examples
Examples and counterexamples

Any customer can have a car painted any color that he wants so long as it is black.

Henry Ford (of the model T-Ford)


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If you still wonder how Strategic Simplification become incarnate into real life situations, the following examples highlight how it materializes into various businesses.

Car Renting

Easy Car rents only A-class Mercedes and applies a simple and straightforward tariff. It targets the bulk of the car rental market, it does not cater for specific requirements like sport cars, 4-wheel drive, big limousines or vehicles at rock-bottom prices. It compensates for the absence of choice in car models by top quality service (reliability of the reservation, availability and overall condition of the cars, reasonable price, etc…). Easy Car does not target the whole car rental market. It skims that market by making its offer attractive in its "80 %" target segment and has not qualms leaving the multiple segments of the remaining 20 % to the competition that, inevitably, has to carry much higher unit costs.

 

Restaurant

Fast-food restaurants target the bulk of the market with easy-to-cook and highly standardized food. Their profitability has enabled them to grow fast, at least until food scandals have raised consumers’ suspicion towards meat. Fast food might not be healthy, but their economic model is quite sound. They compensate the dullness of their food offer by [relatively] low  price, fast and no-frills service, strong brand and strict hygiene controls (especially valuable in our era of food scandals).

An alternative to offering “standard” tasteless and lifeless food would consist in drastically limiting the choice on the menu card. A restaurant, that would, for example, offer only one high-quality daily meal (different every day), would most probably be as successful as the fastest growing fast-food restaurants. It has of course to compensate the lack of choice by fresh ingredients, good cooking, nice presentation, right scale, adequate situation and trendy environment. If 80 % of the perceived customer value comes from the combination of food quality and eating environment and the remaining 20 % comes from the choice on the menu card then there is no point increasing the operating cost and jeopardizing food quality by attempting to offer a wide and diversified choice.

Hereafter are a few counterexamples of what should not be done.

Frequent Flyer programs.

Bonus miles are distributed by airlines according to complicated and ever changing rules. It is illusory to believe that air travelers adjust in any way their flight behavior to take advantage of a given promotion campaign. No airline customer - even those with a PhD - ever bother to know, understand or compare frequent flyer programs. The system has some success because it is free and can offer some advantages (like upgrades or free travel) most of the time paired with numerous and intricate applicability clauses. As far as influencing air travel behavior these programs are a complete failure. They should therefore limit themselves to being not more than straightforward fidelity gifts.

There is no reason whatsoever not to drastically simplify and freeze the Byzantine rules according to which bonus miles are granted. This would have at least the same global effect on customers but would reduce significantly their management cost.

Mobile telephony tariffs

Mobile operators have an aversion to compete on price. They deploy every conceivable trick and means to make their offer not comparable with those of their competitors. In addition to "shuffling their cards" they try to lure new customers by promotion campaigns based on intricate tariff schemes. The net effect of opaque and ever changing tariff structure combined with promotional offers is that customers have given up on the idea of understanding the respective benefits of each mobile operators. The purchase decision is often made in the store on the impulse of the moment.

But the key aspect to keep in mind is the effect on cost of this tariff versatility and volatility. When complex and ever changing tariff is weighted against its impact on operating cost it looses all its attractiveness. If more than 80 % of the market [much more actually] does not care about intricate and variable tariff details why should operators bother sustaining their huge operating costs ?

  

Fiscal and social legislation

Once again this is a matter of comparing the effect of highly variable and ever more complex rules against the benefits that these perpetual "refinements" provide. Fiscal and social laws become always more intricate in a vain attempt to fine-tune their impact and to fill in the loopholes left gaping by the previous waves of reform. If that growing complexity had as sole consequence to leave that area to specialists and experts that would not be too bad. But the cost of that complexity is disproportionate with its benefits. People willing to comply with the law tend to get lost in its Byzantine intricacy and people who want to fiddle with the law get better protected by the fact that law enforcement officials get drown into work overload. Sometimes those rules become so intricate and ever changing that people rightfully do not even want to bother with them even if it is the law: depending on their temperament they undergo it passively or bypass it. The end result is that the fiscal or social administration looses its grasp on law enforcement. Instead of a fine-tuned system they get an increasingly inefficient system. Well thought but simple and straightforward laws would be much more effective and easy to enforce than a legislation that is now growing like a cancer. This would of course force members of parliament to reconsider what to do with their time so freed.

Should you be interested in how to apply Strategic Simplification to your particular business situation, do not hesitate to contact us

 Ó IT Cortex

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