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Conquering Complexity in Your Business
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A case study in customer demand When integrated circuits were first sold commercially, industrial firms were allegedly concerned about noise sensitivity Texas Instruments sales department kept pressuring marketing to force engineering to develop a noise insensitive product to counteract that effect and meet the market need In fact, such a product had been developed by Amelco It achieved high noise thresholds by using high voltages, which resulted in high power dissipation (ie, was not power efficient) Engineering at TI felt that this was the wrong answer To resolve the issue, TI s marketing department conducted a survey of likely industrial customers who were not yet buying any integrated circuits The survey of over 100 companies indicated no plans to ever buy the Amelco product Texas Instruments Marketing VP Dick Hanschen, con, cluded: This is a huge potential market, but with no demand! In fact, as soon as industrial customers saw that the standard circuits were not noise sensitive, huge industrial demand for the standard circuits took off The high-voltage circuits would have generated so much waste power that only very simple circuits were possible Had TI misdirected engineering effort, it could never have created the complex functions with which it later destroyed Fairchild s lead in the industrial market Amelco is now only a distant memory, along with other failures like Clevite, Transitron, Philco, Sylvania, Tung-Sol, and on and on
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It s all Marketing s fault or Manufacturing has no idea about customers
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While most companies understand the dynamic of product/service life cycles and the need to introduce new varieties and brands, very few companies have methodologies in place for systematically managing the end of a life cycle So it is not unusual that functional groups in the organization tend to blame each other for the creation of complexity In his 1977 Harvard Business Review article, Can Marketing and Manufacturing Coexist, 16 Benson Shapiro described the paramount need for cooperation Over the last 30 years, the speed of the markets,
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9: Simplifying Product and Service Lines
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the increased sophistication of customers buying habits, and the rise in global competition has supercharged that requirement Only with a cross-functional perspective (and therefore team) can successful offering deletion and management strategies be executed and become a cultural norm Divert blame-issues and instead set about building cooperation Achieving consensus in a timely fashion on these issues is intrinsic to small organizations, or to large organizations organized around small units as described above It can only be achieved in larger, functionally organized units by deliberate mapping and process improvement
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Conclusion: Biting the simplification bullet
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In Only the Paranoid Survive, Andy Grove, then the CEO of Intel, described the ordeal of withdrawing from the memory market The forces that impeded this change were monumental and required nothing less than a major turnover of management whose skills were no longer of value to the corporation On a smaller scale, every company has some products or services that are stars, and other that do not and never will earn their cost of capital The desire to protect what we all produce or deliver is strong, even in the most forward-looking of companies The best counter to those concerns is a complexity analysis based on facts and calculations of EP It can demonstrate without a doubt whether a product or service is creating or destroying value That s not to say you should write off any offering that does poorly in the analysis; indeed, much of this book is dedicated to ways you can improve PCE and remove non-value-add costs to make offerings more economically profitable But even so, don t hesitate to bite the simplification bullet when needed and open up new possibilities for strengthening and growing the strategic core that remains In any case, remember this is a top-down effort If you are in a subordinate position, you must engage P&L managers in the process for it to have any success
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