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The Next Business Shift

Complexity and Value - The interchange leading the Next Shift

Monday, May 18, 2020

 

4 Traits of the Business Shift

 

There’s a trend that I’ve noticed for years –for small businesses to remain competitive, they need to grow. I’ll give you two examples. I know a third-generation barn painting business. When the grandfather started the company, the grandfather had a ladder, a bucket of paint and a paintbrush. When the grandfather expanded, he bought a second ladder, more paint and hired a second painter. When the father took over the business, the father invested in trucks, spray painting equipment and more staff. Now the grandson took over, and the grandson must buy trucks that have buckets, scaffolding and more personnel. However, the grandson’s business isn’t more profitable than the grandfather’s. The grandson’s business is more complicated but still offers the same value.

I’ll give you another example. Ever notice how there are fewer and fewer dentists working independently when a generation ago, most dentists worked alone? Most dentists will now work in a group with five or more other dentists and a dozen or more dental hygienists. The solo dentist is finding it harder and harder to retain dental hygienists because hygienists can earn more at larger clinics and have more paid time off. They can take more vacation in a larger clinic because there are others to cover their patients. However, if you look at the larger clinics, they aren’t necessarily more profitable. They must rent a larger space to accommodate more patients, hire more administrative personnel to handle claims and receive patients, and must invest in more equipment. There’s also the added complexity of managing the additional personnel and handling more patients.

As businesses figure their way through COVID-19, many of them are re-examining their business models. Some companies are experimenting with work-from-home options, and others can’t wait for self-isolation to end to ensure a return to higher productivity. Other companies are re-examining their books to see if it’s profitable to return to how they operated before COVID-19.

A conversation needs to be had between complexity and value. The end-user might see a simple product, but the making of the product might be complex. There are many tools out there to help companies examine the dynamic between value and complexity – to name but a few: the Kano Model, the Value vs Complexity Quadrant and weighted scoring. These and other tools are helpful, but don’t go far enough.

These tools examine how complicated a project will be. They don’t examine the changes in organisational structure required to achieve those tasks. They don’t take into consideration how it will change the cost structure of a product and the company. The more complicated something is, the higher the cost to execute and maintain.

Sometimes it’s more profitable to scale down operations and focus on a narrower range of products. There are fewer inputs, fewer managerial complexities, less administration.

That’s one solution. We’ll see more of it the longer into social isolation we venture because there won’t be enough demand to maintain full operations.

Another solution is to re-examine business ecosystems. Certain business relationships require a lot of effort to maintain but deliver high value. I suggest there will be a shift in business relationships, away from trying to score the next big client, towards companies of similar size. Having larger partners often means burdensome relationship requirements. By this, I mean, larger companies tend to expect business lunches, travel to their headquarters, and more time to maintain the relationship. All of these actions carry a cost. A cost more and more companies won’t be able to maintain.

I'd like to hear from you. How can your business shift away from complex relationships towards simpler ones that offer more value?

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