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 ;
Edition: 1st
Format: Hardcover
Pub. Date: 2004-07-12
Publisher(s): McGraw-Hill Education
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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

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