Simplicity - a winning formula

These are dangerous times. We have experienced economic and financial crises before but we have never been in a situation where the governments of major economies are such an integral part of the problem.

After flying too high, our elected gods have fallen to earth and become mere mortals, subject to the market forces that they always presumed to control. In this situation, who will save us from calamity?

This is a reasonable question, but it is often eliciting an unreasonable, anxious, response from business leaders. We sense that we must now save ourselves, which is true, but we think salvation lies in closing down and being busy. We become excessively cautious, we stop planning, we try harder and we make more, and longer, lists of things to do. In short, we make things more complicated.

So, what would be a reasonable response; how can we best frame our thinking and our actions so that we stay safe and make progress?

It doesn't help much to say 'you must be more determined and resourceful'. Business people generally possess these qualities in good measure. Nor does it help to say 'you must be more clever', as cleverness on its own doesn't always equate to good outcomes. Enron was full of clever people. So were Lehman Brothers and Merrill Lynch. They went wrong with confidence (to use a marvellous expression coined by John Ralston Saul).

We should probably be more imaginative and more creative, and ideally we would be wise, but these three qualities are elusive, hard to cultivate, and often more easily recognised in hindsight.

There is one quality, however, that can be cultivated and that enables us to approach all of the above. This is the quality of simplicity.

Simplicity is synonymous with effortlessness or easiness, and with straightforwardness. It is this quality which, over many years of advice, I have come to associate most closely with success in business. It is the quality that brings clarity to strategy, believability to proposals, and workability to processes. It has the effect of creating energy in the management team rather than depleting it.

Simplicity accommodates cleverness but requires it to be disciplined. It provides a natural home for creativity because it is not anxious. Simplicity is not the same thing as wisdom but represents a tangible and actionable proxy for it.

There are four areas where you should seek to cultivate simplicity in your business – in financial management, in strategy, in operations and in conversations. Here are some suggestions for how you can do this in each case.

Simplicity in the numbers

- How we measure our success in creating wealth should drive everything, including strategy, so we must pay close, and constant, attention to this.

- What you must achieve is a mirror image of what shareholders want – a good return on funds employed, and reasonable growth in earnings per share. These must be achieved with appropriate gearing. That's it. Simple. You don't need to be concerned about your share price – it is outside your control.

- There are only four things that determine profitability: sales, margins, overheads, and assets. Just four, irrespective of the type of business you are in. So, map these, identify the levers, and work the levers. It's not that complicated.

- The main financial implications of your strategy should be reflected plainly in your budget and in your KPIs.

Simplicity in strategy

- You must have a medium-term plan that is clear about your purpose, what winning looks like, and what you must excel at to win. The last step – being clear about what you must excel at – is the key to simplicity. It translates intent into capability and makes your goals attainable.

- You should be able to see the insights and powerful ideas that are driving the strategy. These will be simple but elegant ideas about how you can build on your good habits to achieve meaningful difference.

- Take your action plans out of the 12-month budget time frame and put them into a simple two-column format – one for 180 days, and one for 24 months. These are much better action planning horizons, and make things easier to do.

Simplicity in operations

- Ensure that your core business processes are uncomplicated and easy to work with, and that they dovetail seamlessly with each other.

- To do this, use the 'customer moments of truth' approach to audit and refine your processes so that they are driven by good customer outcomes.

- Check whether your management reports make it easy to focus on the operating levers.

- Ensure your meeting agendas are short and to the point.

- Make sure the key work groups in your business understand what they are supposed to be achieving. This is the level where accountabilities really matter.

Simplicity in conversations

- People love to win. Tell them how they can be part of a winning team by communicating your strategy simply and clearly.

- Practice speaking with each other in plain, no-nonsense terms, avoiding jargon. Do this by regularly asking 'what does that actually mean?'

- Consider whether your team makes decisions easily. If not, discuss the reasons. Be willing to have tough conversations about this.

- Check on your customer conversation. What is the message? Does it rise above all the market noise?

I am sure you can think of other tests for the presence of simplicity, but the above list is a good start.

If you want to survive and succeed in the dangerous times ahead, make simplicity something that you recognise and cultivate in everything you do. When simplicity is informing all the activities of the business you will sleep well at night, and that is a very good thing!

Christopher Tipler is a Melbourne-based management advisor and author of Corpus RIOS – The how and what of business strategy. His web site corpusrios.com contains more material on this and related topics.