Achieve the Lowest Costs -- Simplify Simplification

by: donmitch
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How can you reduce the time and effort it takes to create attractive simplifications? Creating a totally new process will usually work better than reforming an existing process.

This approach goes counter to today's fascination with Six Sigma and other quality disciplines that wring errors out of existing processes. But if you fix an obsolete process to eliminate flaws, all you may have is a way to create error-free buggy whips. How else can you explain the paradox of Motorola's long slide in market share for mobile communications equipment and telephones during the 1990s despite the company's Six Sigma prowess?

Entrepreneurs have long understood this point. Those who have built billion-dollar businesses almost always began by creating fewer, simpler, and more effective processes for delivering high value at low cost to beneficiaries, customers, and users. This observation is equally true for those who start entrepreneurial nonprofit organizations.

Habitat for Humanity International is one of the world's largest home builders, but the organization doesn't operate like the for-profit home construction firms. Plans are simpler, offer less customization, and permit homes to be created at far less cost than for conventional construction of similar size.

In addition, the land, materials, and labor are usually donated. By the time Habitat has completed a new home, the mortgage that the new owner assumes may be as little as 10 to 25 percent the size of what a comparable new private-sector home would cost. The new homeowner pays back principal, but no interest.

Unlike the happy real estate flipper, the new homeowner cannot sell for several years. Habitat is building homes for families to live in, not creating houses as speculative investment vehicles.

In addition, the down payment won't cost the homeowner anything, but will require lots of sweat equity working with volunteers at the home site.

The Habitat construction model can also operate at astonishing speed. Annual events prove that point by constructing homes in just a few hours through careful coordination of building activities.

Had Habitat opted instead to use the traditional building model and take the errors out of it, most of Habitat's beneficiaries would still be waiting for housing.

The same lesson can be drawn from the success of the Grameen Bank, which makes low-cost, small loans to families, farmers, and entrepreneurs in Bangladesh. While a normal bank with its cumbersome lending and documentation processes would lose its shirt making $100 loans, the Grameen Bank thrives at that lending level.

The difference is that Grameen relies on its owner-depositors to do most of the lending work as volunteers. These volunteers make loans only to other owner-depositors who live in the same community. As a result, the volunteers are in a good position as a lending committee to assess credit risk and apply peer pressure to encourage repayment. Borrowers also know that if they want to borrow again they had better make good on the current loan.

Let's consider an example that's drawn from The Fortune at the Bottom of the Pyramid by Professor C. K. Prahalad. The book describes a fascinating combination of new business model and simplified processes for eye surgery.

The Aravind Eye Care System in India is dedicated to eliminating needless blindness among the millions needing surgery, particularly for cataracts, which are a leading cause of diminished sight and blindness. Dr. G. Venkataswamy, the organization's founder, was determined that such eye care could be inexpensive, mass produced, almost error free, and high quality in serving rich and poor alike.

Cataract surgeries were provided in recent years at charges of $45 to $331 for those who can pay. These prices are so low that the United Kingdom's health service can afford to fly its cataract patients to India and still save money, and the medical outcomes are better at Aravind than in the United Kingdom.

Here's the best part of the story: At those low prices, Aravind is so profitable that the organization can afford to treat many poor patients with the profits from the paying patients. How do they do it? Aravind created vastly superior new processes that allow eye surgeons to be more productive and accurate. As an example of the new processes, Aravind surgeons operate five times as often as comparable surgeons in India and gain more experience.

How can you design new business models and processes that will benefit from the cost reductions associated with absolute simplification?

About the Author

Donald Mitchell is an author of seven books including Adventures of an Optimist, The 2,000 Percent Squared Solution, The 2,000 Percent Solution, The 2,000 Percent Solution Workbook, The Irresistible Growth Enterprise, and The Ultimate Competitive Advantage. Read about creating breakthroughs through 2,000 percent solutions and receive tips by e-mail by registering for free at http://www.2000percentsolution.com .  

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