Does Simplifying Pay?

All twelve simplifiers have enjoyed high growth, and there is no evidence that price-simplifying is better than proposition-simplifying, or vice versa. While twelve cases is a very small sample, we may surmise that, for the highest returns, it does not matter which type of simplifying is employed. Certainly, either approach can lead to stunning increases.

The increases are astonishingly high in six cases – ranging from more than 20,000 times to almost two million times.

The route followed by these six cases (Ford, BCG, McDonald’s, Charles Schwab and Google – as well as by ARM, Southwest Airlines, IKEA and Tetra Pak) is based on developing a new, simpler product that is so much cheaper – or so much better to use – than its predecessors that it inflates the market to such an extent that this becomes the platform for an exponential increase in company value. Essential to this mind-blowing growth is a process of internationalization, based on a universal (or nearly universal) product with huge scale and/or network advantages.

Then there is the route followed by Amazon, Apple and Honda. Here, the company designs something – an engine, an electronic device, a new way of doing business based on simplifying the customer’s experience – that can be replicated in several different markets, one after the other. Each new market or product builds on and reinforces the simplicity and competitive advantage that has already been secured with other products and/or in other markets in a number of ways: for example, by increasing the customer base and selling more items to each customer, which lowers the cost of acquiring more sales; by using the company’s skills in a different context, which again lowers costs and reinforces the skill base; by increasing the company’s leverage with suppliers and other market participants; and, perhaps most importantly, by growing fast in a new market without the investment and launch costs that a new entrant which lacked skills honed in other markets would face.

 

Market Value Growth

Each company's growth in market value from the start to the end of their respective study periods

 

Outperformance vs Rivals

Increase in company’s market value divided by increase in value of best rival or index over the same period