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  Theory
T
heoretical insight into Strategic Simplification

Take care to get what you like or you will be forced to like what you get.

George Bernard Shaw


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The following 4 quadrants diagram illustrate the theoretical foundation of Strategic Simplification.

  1. Quadrant I highlights the relationship between the product or service specificity and the cost of delivering it, i.e. of providing it to the customer. The non-linear relationship is a consequence of the 80 - 20 rule. Delivering a product that meet 80 % of the functionality cost [roughly] 20 % of a one hundred percent compliant product. Obviously, the higher the product or service specificity, the more generic the delivery system has to be. 
  2. The relationship between the cost of a product and the readiness of a prospect to spend that amount of money is shown on quadrant II. Obviously the lowest the cost, the highest the readiness to purchase it. The multiple "parallel" curves are function of the perceived value of a product. This value is related to the brand prestige and to the perceived quality of the product. The larger the perceived value, the higher up the curve establishing the relationship.

  1. Quadrant III shows the relationship between the product and/or service specificity and its acceptance readiness from a functional or technical perspective. Obviously the closer to the customer's needs the product or service is, the more readily accepted it will be, "functionallywise" . Here again the 80 - 20 rule applies. A significant increase in specificity beyond a certain threshold yields only a marginal increase in acceptance readiness.
  2. The overall readiness of a customer to make a purchase decision is displayed on quadrant IV. It is a combination of two essential aspects:

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the spending readiness, as shown on the x-axis 

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the functional acceptance readiness, as shown on the y-axis

A procurement decision inevitably integrates those two aspects. Every organization is ready to make a compromise on its technical requirements as long as the price is low. Essential requirements like product safety or reliability have to be met but there exists almost always a trade-off between price and functional compliance. 

The likelihood of a purchase decision is proportional to "the spending readiness times the functional acceptance readiness". It is therefore proportional to the area delimited by two corresponding points on the x- and y-axis. As shown in quadrant IV area 1 > area 2 > area 3. These 3 areas correspond to situations of increased functional compliance but also of even faster cost increase. 

When applied to the whole customer base, the individual situations described on this graph are consolidated. The sales volume becomes proportional to the area of the quadrangles. The turnover is therefore maximized and the profitability is optimized by taking full advantage of the Pareto law.   

Conclusion

Trading off specificity for cost is always a profitable operation given the skew created by the 80 - 20 rule. This finding lays at the root of IT Cortex approach to boosting organizations' service efficiency. However, it is essential to realize that a trade-off alone is not sufficient. It must be accompanied by compensating measures like quality improvement, brand building campaigns and business process automation.

Should you want to gain more theoretical insight into our strategic simplification approach, feel free to contact us.

IT Cortex

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