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The Value of Simplification | Black & Decker Case Study
When you look at the winners in our emerging digital economy, things that they have in common is standardisation, automation and simplification. The first of these, standardisation, is perhaps the most counter-intuitive as people often fear risking customer satisfaction or revenue erosion, when in fact the truth is usually the reverse of both.
You know when a principle is a good one when it can cross domains, and standardisation is certainly not unique to digitisation, it has been good for business and customers well before the information revolution.
Think back to the 1970s, we had cool hair, cool music and cool parties. Sadly I missed all of that as I wasn’t born yet, but it was also the year that Black and Decker faced a wicked problem. Their market was about to be disrupted by offshore competitors offering cheaper alternatives whilst their own business struggled with compounding costs and value erosion. This was largely due to a massive portfolio of 122 different products, with 30 different motors, 60 different motor housings and 104 different armatures. Worse yet, each of these required separate tooling, with few shared components or processes. Consequently, cost blowouts were common, propagating into inventory, storage and manufacturing, and then simply passed onto the customer.
The board realised in order to survive, it needed to quickly change its entire approach from product design and manufacturing, through to delivery and support. This scale of change for Black and Decker was more revolution than evolution, it wasn’t easy and required the whole team working in concert. However within three years what they had achieved, was to reduce variations down to just a single motor, alongside reductions in facilities, parts and with faster production times. Production costs were cut by 85%, armature by 80%, failure rate fell from 10% to 1%. New products were introduced to the market in weeks instead of months and the customer benefited with a price reduction of 30% whilst profit margins remained at 50%.
The standardisation effort catapulted Black and Decker to become so dominant that it ultimately forced many of its competitors including Sunbeam and General Electric, out of the consumer power tools market. The challenge was simple, but it wasn’t easy.
Standardisation isn’t a technical challenge, it’s a challenge in the six inches between human ears.