x Abu Dhabi, UAEFriday 28 July 2017

Firms advised to keep it simple to profit more

Mark Gottfredson, the co-leader of Bain & Company’s complexity practice in the Americas, says businesses in the region can root out complexity to cut costs and grow sales.

Mark Gottfredson, the global head of Bain & Company’s complexity practice, says reducing complexities could result to reduction in costs for companies. Mona Al Marzooqi / The National
Mark Gottfredson, the global head of Bain & Company’s complexity practice, says reducing complexities could result to reduction in costs for companies. Mona Al Marzooqi / The National

As companies expand and add products and services, they often become more complex. This can risk stunting growth and reducing efficiency. Mark Gottfredson is the global head of Bain & Company’s complexity practice and a partner at the management consultancy’s office in Dallas, America. He visited the UAE and Saudi Arabia last month to advise businesses on rooting out complexity to cut costs and grow sales.

How does complexity develop in a business?

It actually comes out of the best part of human nature and that’s a desire to improve. That’s the irony of it. In an effort to improve, you put things in place that make sense incrementally but collectively add up to increasing bureaucracy – too much choice and confusion. All of our accountancy systems and everything else comes from a desire to improve incrementally.

Is this a challenge for this region as much as anywhere else?

I think it’s increasingly a challenge for this region. There’s actually a lot of simple companies in this region, but in developing economies you tend to have a lot of local conglomerates which, for example, you will find are in cement and food. With the desire this region has to diversify their economies, they will inevitably have to allow more foreign competition to come in. The challenge for companies that are highly diversified today is to migrate to a strategy where they can really compete internationally.

Is there one strategy that works for any company in cutting complexity?

Strategy will be different for every company, but the core principles of what they have to think about are common across them. They have to find out what is core to their capabilities, the things that do give sustainable competitive advantage and figuring out how to apply those most effectively.

There are a lot of family-owned businesses in the region. Is complexity a particular issue for them?

Absolutely. The problem with family-owned businesses is that their businesses are like their children and they love all their children. The biggest struggle they have as family-owned businesses is letting go sometimes; being able to think of their businesses as a portfolio that they should trade in, as opposed to loving them all.

How much can companies save from reducing complexity?

On cost savings, we have seen anywhere from 10 to 35 per cent reduction in costs. And we’ve seen anywhere from 10 to 40 per cent uplift in revenues. That’s across about 400 different clients globally.

Are simpler companies generally better performing?

The data we have suggests yes. Our data, looking historically across industries and just looking at returns, show the returns are better, on average, for the low-complexity companies than the high-complexity companies.

To look at a real-life example, how would you compare the success of Samsung versus Apple in managing complexity in their products?

Steve Jobs was an animal about complexity reduction. Since he’s been gone, Apple has come out with the [iPhone] 5C that has five colours. Has it increased their sales? No, it has not increased their sales to add that complexity. Of all the things Apple has lost with Steve Jobs, it may be that. Jobs once said, “I’m more proud of what we haven’t done than what we have done.” The [iPhone] 5S and the 5C are the same size, same shape, different colours, but they really haven’t changed anything. That’s different to Samsung, as their products have different sizes, which means different segment needs. Apple’s going after the same segment now with more configurations and, for me, that doesn’t work.

tarnold@thenational.ae