CHAPTER 8

How Simplicity Powers the Best Businesses

‘When everything is a priority, nothing is a priority. Attempting to maximize competing variables is a recipe for disaster. Picking one variable and relentlessly focusing on it, which is an effective strategy, diverges from the norm. It’s hard to compete with businesses that have correctly identified the right variables to maximize or minimize. When you focus on one variable, you’ll increase the odds that you’re quick and nimble — and can respond to changes in the terrain.’

—Shane Parrish 1

In the preceding chapters, we have discussed the specific solutions (specialize, simplify and spiritualize) and behaviours (clutter reduction, creativity and collaboration). In this the final section of our book, we pull everything together and highlight specific applications of our approach which combine the prescribed solutions and behaviours. Given that our professional experience has largely been confined to business and investing, we see two clear applications—simplicity in business and simplicity in investing. This chapter discusses simplicity in business; the next chapter focuses on simplicity in investing.

Simplicity in business is easier said than done. Simple ideas often require complex execution and that in turn can be waylaid by weak teams. The simplest of ideas at the board level can get lost in translation by the time it gets communicated to the workers at the coalface. Similarly, how does a leader of these teams inspire creativity among employees on the one hand and engender unity and cohesiveness on the other? We began this book by describing the stress created in corporate life as individual ambition collides with the misery of navigating India’s broken infrastructure. This same compromised infrastructure can also stifle the simplest of ideas. Is simplicity in business even achievable in the Indian context? In this chapter, we look at how giant enterprises have applied the simplicity principle in their businesses.

In their book, Simplify: How the Best Businesses in the World Succeed, authors Richard Koch and Greg Lockwood provide several case studies which illustrate that history’s most successful business leaders have also been great simplifiers. This list includes Henry Ford, the McDonald brothers and Ray Kroc, Herb Kelleher of Southwest Airlines, Steve Jobs, and many more. And if you thought Steve Jobs was the first business leader to take a complicated technical gadget and simplify its use, this is what Henry Ford said a century ago of his revolutionary Model T car: ‘[Its] most important feature . . . was its simplicity . . . I thought it was up to me as the designer to make the car so completely simple that no one could fail to understand it.’

Ford made the car affordable to ordinary families in the USA, Jobs created a mobile phone that combined beauty and utility, and Kroc saw the opportunity to scale up McDonald’s while retaining its original simplicity. With simplicity at their centre, these icons of corporate America transformed the way large industries operated. Was this easy? Not at all. In Simplify, the authors recount Kroc’s frustration when the first McDonald’s franchise failed to reproduce the same taste in French fries as the original made by the McDonald brothers in their first store in California. The breakthrough, as the book describes, came when a researcher asked Kroc to describe the procedure for making the fries: ‘The secret turned out to be that the potatoes were stored in open chicken-wire shaded bins, which allowed plenty of time for the wind to dry out the potatoes and change the sugars to starch.’

The iPhone changed the smartphone as we know it. But turning a palm-sized utility into a beautiful gadget was never easy. There was incredible complexity within the design. In his biography of Steve Jobs, Walter Isaacson quoted Jony Ive describing his own philosophy as follows: ‘Why do we assume that simple is good? Because with physical products, we have to feel we can dominate them. As you bring order to complexity, you find a way to make the product defer to you. Simplicity isn’t just a visual style. It’s not just minimalism or the absence of clutter. It involves digging through the depth of complexity. To be truly simple, you have to go really deep.’ 2

The idea of simplicity and beauty in technology has come a long way since Apple’s 2007 introduction of the iPhone. WeChat, the hugely popular messaging app in China, has more than a billion daily users, sending more than forty-five billion messages a day. 3 Harvard Business Review (HBR) conducted an in-depth study of WeChat to decipher its success. One key component of its success, they found, was that it was conceived as a work of art and not a commercial product. In his interview with HBR, this is how Allen Zhang, its founder, described WeChat: ‘Before perceiving WeChat as a commercial product, I’d rather picture it first as an impressive work of art. When I started designing user interactions for Foxmail, I complicated everything. It felt wrong because it no longer looked neat. For WeChat, I now see the necessity of subtraction – making things simpler – and focusing on the product’s aesthetic quality.’

Simple ideas, big businesses

Simplicity doesn’t always mean that you stick to one simple product. Simplicity can also mean that you go so deep into the product that you begin with, say, trading the product and over the years build everything from the raw material right until the final finished product (referred to in business jargon as ‘backward integration’).

Successful entrepreneurs take simple ideas and build them into massive businesses. Reliance Industries Limited (RIL) is an important example to highlight this concept. The vast conglomerate whose business today spans petrochemicals, retail and telecom began life in 1957 when RIL founder Dhirubhai Ambani started a yarn business in Mumbai. By 1980, Ambani, who was well-known for his ambition, had already moved up (or ‘backward integrated’) from a textile factory in Gujarat to a petrochemical factory in Maharashtra. By 1993, RIL was the fourth biggest producer of polyester in the world and the only one with production integrated from naphtha to fabrics. And this was only the beginning since the senior Ambani had plans to enter oil and gas exploration as well. Dhirubhai Ambani’s biggest dream, as per Hamish McDonald in his book Ambani & Sons 4, was building a full-scale oil refinery. By the time the said aspiration was fulfilled in Jamnagar in June 2000, RIL owned the world’s biggest refinery and the Ambani family was on its way to becoming the wealthiest family in India. McDonald puts things into perspective, ‘With Jamnagar in production, the Reliance Group accounted for more than 3 percent of India’s gross domestic product and contributed about 10 percent of the central government’s indirect taxation revenues.’

Indian corporate history has many examples of entrepreneurs who have started small and simple and then scaled up their businesses over many decades—some, like RIL, by choice and some by compulsion. For example, the TTK Group was a pioneer of the humble pressure cooker and its Prestige brand was the market leader in India. However, in 2003, the group was on the brink of collapse under the strain of excessive debt and weak sales. This is when the chairman, T.T. Jagannathan, took tough decisions, like cutting prices of products and, in parallel, expanding the product line from pressure cookers to cookware such as vessels and appliances (all of which were sold under the well-known Prestige brand). In the book Disrupt and Conquer 5, T.T. Jagannathan and Sandhya Mendonca recounted that momentous decision, ‘We ventured into cookware - stainless steel and non-stick vessels and appliances. Until now we had only been selling what we made, but we discovered that the intrinsic power of the brand could be used to the maximum.’ The strategy worked and TTK Prestige’s share price rose 700 times over the next fifteen years, thereby propelling Jagannathan into a very select league—Indian promoters whose net worth is in excess of $1 billion.

Can a product as simple as the zip (or zipper) become a worldwide brand? Yoshida Kogyo Kabushiki-gaisha (Yoshido Manufacturing Corporation), better known as YKK, is the world’s largest manufacturer of zippers. This company, which manufactures only one product, generated revenues in excess of $7 billion in 2018. 6 It is highly likely that the clothes you are wearing right now have a zip made by YKK, which has 100 wholly-owned subsidiaries across seventy-three countries. Founded by Tadao Yoshida in 1934, YKK’s reputation globally is absolutely top-notch. Yoshida’s simple idea was built out over decades into a multi-country business and a brand synonymous with zips. How did this happen?

Tadao worked at a trading company which went bankrupt. The trading company’s owner gave him the remains of the business, which included a small subsidiary that made handmade zippers. The rest was sheer determination: ‘Tadao, an inquisitive, detail-obsessed man, tried to modernize the manufacturing methods. But machine tool makers weren’t interested in his design for a custom-made zipper machine, so he made his own. When knots on large spools of thread kept interrupting his automatic zipper machines, the thread-makers refused to provide him thread without knots. Soon Yoshida had to start making his own thread, too. By the late 1950s the only ingredients YKK needed to buy from outside were plastic chips and its own blend of metal alloys.’ 7

YKK had 95 per cent market share of the Japanese zip market by the 1960s and then opened manufacturing facilities abroad. Eventually, it achieved global domination with its competitors, including many from China, far behind it.

Simple to conceptualize, tough to execute

The examples given above are of world-class brands housed inside companies with able management teams. But the challenge of achieving simplicity involves both uncertainty and complexity. Simplicity in business might be easy to conceptualize but it is very tough to execute. The best ideas get bogged down in execution and lost in detail. A start-up might think of a great product, but getting the right people might be a challenge, leave alone the myriad regulations that can consume all the time of founders. Similarly, for an established market leader, navigating choppy markets, dealing with uncertain growth conditions can take up all the bandwidth of the promoter if he does not have strong and capable teams to help him.

Asian Paints is an excellent example of a homegrown company that has successfully taken on international giants and gone on to dominate the large and lucrative Indian paints market. Not only is paints a lucrative market, it is also complex and difficult. While a consumer may have a preference for Z brand over Y brand in detergents, toothpastes, toothbrushes and other FMCG categories, paints is relatively generic. When we go to a paint store, if we have not already made up our minds, it is difficult to differentiate one product from another. We usually take the advice of the painter painting our homes. From the manufacturer’s perspective, he has to carry all types of paints, resulting in a high number of stock-keeping units (SKUs) which are stocked with the dealer. This is incredibly complex in a large and diverse country such as India where colour preferences change from region to region. Given all of this, the margins in the paints industry are typically lower compared to other consumer categories such as automobiles, foods, etc. And yet, Asian Paints has not only sustained its market leadership for decades at a stretch, staving off competition from multinationals such as Kansai Nerolac and AkzoNobel, it has done so with a return on capital employed of 40 per cent.

In Saurabh’s book The Unusual Billionaires, he has dedicated two chapters to the number one and two paints companies in India—Asian Paints and Berger Paints. Of the two, Asian Paints is far bigger (almost three times bigger).

The roots of Asian Paints’ competitive advantages go back to its founder-promoter, Champaklal Choksey, who formed the company back in 1942. From those days, Asian Paints has focused exclusively on the customer and the dealer while cutting out all the other intermediaries who eat up the lion’s share of the profit margin in almost any product distribution construct in India. At its simplest, Choksey’s vision for Asian Paints’ distribution network was based on cutting out intermediaries, such as wholesalers, cost and freight (C&F) agents and distributors, and going straight to the dealer. This also meant creating a pan-Indian network that delivered paint from its factory directly to the dealer while maintaining sufficient stocks and keeping the dealer happy at all times. Execution thus was complex.

We reproduce an extract from The Unusual Billionaires that explains the process: ‘Asian Paints has one of the largest number of manufacturing units and depots across the country in its supply chain network. More importantly, the firm leverages on a wider network of manufacturing plants and depots to operate at the highest ratio of revenues per depot or revenues per manufacturing plant, thereby helping improve inventory turnover and working capital turnover for the overall business.

‘For instance, over the past decade, Asian Paints has been setting up distribution centres (DCs) next to the manufacturing units. These DCs will serve as large-format hubs for inventory storage of both fast- as well as slow-moving SKUs. Whilst for slow-moving SKUs, the DC network will aim at replacing the RDC network in its entirety, for the fast-moving SKUs, the DC network will aim at reducing the transfer of surplus stock from one depot to another within the distribution network. The company’s size and efficiency is visible in the fact that it has the largest number of dealers (35,000 vs 21,000 for Berger). With only around 125 depots in its supply chain, its revenue per depot is approximately Rs 100 crore, more than twice that of the next highest, which is around Rs 40 crore per depot for Kansai Nerolac. Similarly, its revenue per factory is approximately Rs 1,500 crore, twice that of the next highest (just over Rs 700 crore for Kansai Nerolac).’

HDFC Bank is yet another example of how the pursuit of simple goals—such as: (a) building a low-cost current account savings account (CASA) deposit franchise; and (b) prudent lending—led to the creation of India’s largest private sector bank by market capitalization.

HDFC Bank defines its strategies, tactics and objectives top-down with the two goals highlighted in the preceding paragraph serving as overarching guideposts. The bank is legendary for how it uses specific systems and procedures to pursue these goals. During his research for The Unusual Billionaires, Saurabh spoke to a cross section of HDFC Bank insiders, ex-employees and industry veterans. During these discussions, an industry expert even called HDFC Bank an ‘SOP Bank’ (SOP stands for standard operating procedure) for its strict adherence to systems and procedures. As customers of the bank, we have seen how employees refuse to budge on simple things (such as the necessary documents required for a banking transaction) when it goes against the bank’s stated SOPs.

But achieving these goals has hardly been easy. HDFC Bank has built its reputation and position over the past twenty-five years by assiduously sticking to these goals and its SOPs. The journey wasn’t easy. When dematerialization of shares was introduced in India in the mid-to-late 1990s, the opportunity to be captured was huge. For example, while the settlement of shares between buyer and seller may be immediate (from their demat accounts), the transfer of money takes longer. In the mid-to-late 1990s, this was even more tedious since technology then wasn’t widely used in the banking sector. But HDFC Bank saw an opportunity in the complex maze of multiple parties.

The following extract from The Unusual Billionaires describes how HDFC Bank captured this opportunity:

HDFC Bank pulled in all the players in the supply chain—buyers, sellers, brokers and exchanges—and got them into an automated settlement system. It offered a solution to both brokers and exchanges. If brokers had an account with HDFC Bank, exchanges could see in real time whether brokers had money to settle payouts and, if there was a shortfall, there was enough time before the actual settlement to ask the broker to meet this shortfall. This reduced settlement risk for exchanges drove all major exchanges to sign up with HDFC Bank.

The incentive for brokers to sign up with HDFC Bank was that pay-in money was credited immediately to the broker’s account, reducing his working capital requirement. This led all the brokers to open their accounts with HDFC Bank for settlements. Since brokers needed bank guarantees for exchanges, the bank also provided credit lines to these brokers. So the bank not only earned a free float on money kept by brokers for their settlement, it also earned fees by providing credit lines to brokers. Starting with the NSE in 1998, the bank became the clearing member of all major exchanges by FY2000. Eight hundred brokers and a majority of custodians were using HDFC Bank’s services by FY2000.

In his book A Bank for the Buck, veteran banking journalist Tamal Bandyopadhyay wrote about the complexities of banking for stock market transactions and dealing with the ecosystem of brokers and exchanges, in relation to HDFC Bank:

For all this, a bank needs to have the ability to handle very tight processing cycles every single day. It also entails understanding the credit risk of brokers and brokerages as the bank takes exposure on them. This is the hard part, given all the volatility and cycles of the market and of individual broking companies.

‘It is the question of marshalling your resources - what we used to call in the early days a Germanic obsession for very tight processes with no tolerance for error and processing risk, and they [HDFC Bank] have built that in the way they operate. It was very clear very early on,’ Ravi said. 8

Page Industries is the India franchise of the premium innerwear brand Jockey. When Page began operations in India in 1993, it had a simple goal—premium quality innerwear at affordable prices. While there was a lot of demand for Jockey products in India, the Genomal family (the promoters of Page) was very clear that it wanted to reach the customer directly instead of navigating through the network of wholesalers and resellers. Sunder Genomal, the managing director of Page, took this proposition to the top hosiery retailers in India’s large cities in 1995 and got an overwhelming response. Between 1995 and 1997 he recruited a top-tier team of professionals to help him build the company. But Page also had to contend with the several established brands such as Liberty, Rupa and VIP. Despite his best attempts, however, Genomal did not get off to the start he would have wished for. As Saurabh wrote in The Unusual Billionaires:

Not everything went according to plan for Page in its first years. Given that most innerwear brands were low-end, mass produced and mass-distributed, Page found a distinct lack of quality in the Indian textile manufacturing environment. For example, establishing relationships with high-quality raw material suppliers was a challenge.

Despite initial enthusiasm from Page’s distributors, as an overall category, innerwear remained a low-profile product in retail stores. This would ultimately necessitate a high-pitched, pan-India advertising campaign from Page, but the costs were prohibitive. Competitive intensity from incumbents had already increased substantially during 1995–2000. When the company reached sales of Rs 21 crore in FY2000, Rupa and Maxwell were already at Rs 150 crore each. One level above them, in the mid-premium segment, brands like Liberty, Libertina and Tantex (TTK Tantex) were firmly ensconced. Associated Apparels (Liberty and Libertina) reported sales of Rs 100 crore during the same period.

Page got its break when in 1997 two of its competitors fell prey to labour strikes, thus creating room for Page to ramp up its presence with Jockey. Page never looked back and Jockey’s market share went from strength to strength. Page continued to build pan-India distribution much faster and in a far more effective manner than the competition. India’s demand for premium quality innerwear at affordable prices with a great brand made the Genomals dollar billionaires and allowed many of their shareholders to become dollar millionaires.

Using the Simplicity Paradigm

Given how useful it is to build an entire business around a simple idea, two questions arise:

Specialization and creativity

In a highly competitive sector, how does one develop a simple business proposition which can create a pathway to sustainable profitability? One place to start is to ignore industry norms and develop original ideas. In 2010, Saurabh was given charge of a local institutional equities (IE) brokerage in Mumbai. The brokerage industry in Mumbai is a crowded space dominated by established multinational investment banks and domestic bank-run outfits. Both sets of competitors have spent the past twenty years servicing the domestic and foreign fund managers and thus building powerful franchises. In such a market, why would any analyst or salesperson leave his established job and join a brand new domestic house fronted by a person who has never led a frontline brokerage franchise? How does one break into this market?

As described in Chapter 7, Saurabh first focused on building his research team, and carefully chose a mixture of bright chartered accountants and graduates from India’s elite institutions of higher learning—the IITs and IIMs. The rationale for this recruitment strategy hinged on the centrality of understanding financial statements in the context of identifying high-quality Indian companies and then combining that skill set with understanding the engineering or science behind the company’s products.

Next, Saurabh chose driven but cerebral salespeople—men and women in equal numbers—who were hungry to make their mark (as opposed to well-established senior salespeople who had already built their retirement savings pot). Saurabh also benefited from recruiting some of his ex-colleagues from London who had moved to India with him.

Saurabh’s idea was simple: establish cutting-edge equity research as a differentiator. The focus was on publishing path-breaking, differentiated and provocative thematic analysis of the Indian market, which looked at opportunities and threats that would develop over the long-term instead of obsessing over the impact of RBI policies and Union budgets (standard stuff which most brokerages cover extensively).

In a similar vein, company research would be written with a focus on accounting quality and primary data research (i.e. talking to customers, competitors, suppliers, ex-employees of listed companies) instead of regurgitating the dictation that companies give to brokers. These high-quality reports were then marketed by articulate salespeople to open the doors to the largest fund management houses in the world.

The strategy worked. Revenues grew ten-fold in eight years. Fund managers voted Saurabh’s team the most improved broker in India for six years in a row and the most ‘independent’ broker in India three years in a row. And underpinning this success was a simple idea—specialization around outstanding equity research executed relentlessly over the years.

The ideas of simplicity and specialization can be applied across industries. For example, in the unorganized and competitive industry of savoury snacks (or, comfort food for many of us), Haldiram’s has built a nearly $1 billion business in India. The roots of the franchise lie in a simple product—bhujia (a fried, savoury snack made of besan)—and in a nondescript town in Rajasthan—Bikaner. From that town, the Agarwal family built Haldiram’s into a pan-India brand.

As far back as the 1970s, the Agarwals used packaging and branding to differentiate their brand. As Pavitra Kumar writes in her book Bhujia Barons: The Untold Story of How Haldiram Built a ₹5000-Crore Empire 9, Manoharlal Agarwal (of the Haldiram’s family) focused on differentiating Haldiram’s from other generic brands and gave it a high-quality image. He discovered flexo-printing in Delhi, with which multiple inks could be used on plastic without smudging. Although the bhujia was a traditional Marwari snack, flexo-printing was a modern, costly way of packaging the bhujia in bright white-and-red plastic packs. The idea was expectedly resisted by the conservative family that didn’t think the extra money was worth it. But Manoharlal persisted with his idea. The results were stellar: ‘Luckily, the business did take off. Traders specifically began asking for the Haldiram Bhujiawala product. The brand stood out amongst the crowd, and patrons of the smaller shops began switching over to Haldiram Bhujiawala. Demand increased to such an extent that the Haldiram Bhujiawala store began to have an increasing number of pending orders.’

Going back to the book Simplify, Koch and Lockwood recall Henry Ford’s vision in the early 1900s to build an affordable car for the masses. That simple idea was the guiding light for the Model T but to bring that idea to light required a lot of creativity and specialization. By focusing on one product, Ford had enough room to specialize. By producing on a large scale, Ford crunched the unit cost of making a car and brought the motor car to the masses. Koch and Lockwood narrate a breakthrough that helped Ford: ‘The real breakthrough came with a proprietary innovation, designed by his production managers: the move from batch production to a continuously moving assembly line. This didn’t happen until 1913, and it was then that Ford famously insisted that all of his cars would be painted black, because only Japan black paint could dry quickly enough to keep up with the speed of the line.’

Collaboration

Large organizations have teams that seem to work at cross purposes. For example, in the institutional brokerages where we have worked, the research team analyses and recommends stock while the sales team sells these recommendations to clients in order to generate trades and earn commissions. The research analyst bases his recommendations on many hours of painstaking research and meetings with companies and primary sources. The salesperson builds his relationship with the client over many hours of personal contact, timely recommendations, getting access to big chunks of popular stocks and attending to every need of the client (including cricket match tickets, emotional support, data crunching, etc.). The salesperson is the frontline for the brokerage to earn commissions. The research analyst is the foundation on which a brokerage earns credibility, reputation and thought leadership. The research-sales collaboration is the most critical relationship for every successful equity brokerage. This relationship literally starts the business day for the brokerage with the morning meeting, where the research team pitches its key recommendations for the day to the sales team.

And yet, heated morning meetings are normal in the institutional brokerage industry as salespeople and analysts clash routinely. The reasons are predictable: recommendations. While an analyst might be sticking his neck out on, say, a bank stock as ‘sell’ because the bank has understated non-performing assets, the sales team has heard that the same bank is in fact on the verge of a turnaround because market information indicates a new CEO is about to take charge. Or an FMCG stock is trading at prohibitively high valuations but the analyst still likes it because it is a brand leader and a ‘safe’ stock with high standards of corporate governance and a visibly steady trajectory for earnings growth. The salesperson knows that every brokerage in Mumbai has a ‘buy’ on the stock. And with the stock being eye-wateringly expensive, does the world really need another ‘buy’ recommendation on the stock?

What takes these confrontations to an even higher voltage is when both the analyst and salesperson are highly rated and ranked in industry surveys. How do you resolve an argument between the best analyst and the best salesperson (who will advise the biggest fund managers)? What if the salesperson tells his client to sell a stock to protect his relationship with the client, whereas the analyst stakes his reputation on buying the stock because he has conviction in his research? Such conflicts between research and sales often tear brokerages apart.

Similar conflicts are visible across all large organizations. For example, in banks, the risk function might not like a potential borrowing candidate whereas the sales or lending function believes that the candidate is worthy of a loan. The compliance team might add even more complexity to the relationship.

How, then, can an organization resolve complex relationships and work towards presenting a simple product or service to a client? How can sales teams at brokerages aggressively push their analysts’ recommendations to clients without jeopardizing their relationship with the client? How can banks provide loans in a conservative way while maintaining the quality of their book? These objectives aren’t impossible but only a small minority of firms are consistently able to achieve these objectives. These firms have strong teams and the ability to collaborate in the face of differences of opinion among team members. Such collaboration in turn requires the team members to be secure, self-confident individuals. Simple rules can then be implemented by teams when everyone is aware of their role in the team and is not riddled with insecurity. This is where the role of leaders in corralling team members towards a common goal becomes central.

Saurabh, for example, encouraged analysts to cultivate their own independence of thought and leave conflicts with salespeople to him. Analysts had to be rigorous in their thinking and once they were confident of their recommendations, they would sit with the head of research to convince him. Salesmen, similarly, were trained to think of the analyst as a team member and not as an adversary. Candour was encouraged but rudeness was unacceptable, and nasty morning meetings were stamped out. Salesmen were encouraged to take ownership of the relationship with their clients and work hard in being the first port of call for the client on anything related to a particular stock. Once the identity of both groups was reinforced, research and sales learnt to work with each other and not against each other. Every six months, both research and sales were encouraged to let off steam in each other’s company. Once a year, the whole team would decamp to a resort for an extended weekend of full-on partying in scenic locales such as Goa, the backwaters of Kerala or Thailand.

Not every team has to party as frenetically as Saurabh’s colleagues did. Leaders can also hold less boisterous events to break the ice. In A Bank for the Buck, Bandyopadhyay narrates an example of how Aditya Puri, who has famously held the many teams in the many silos at HDFC Bank together, settled the conflict between the branch banking and retail products teams: ‘To break the ice, Aditya called them for an informal outing at Lonavla over a weekend. In the evening, three groups were formed led by Sashi [Sashidhar Jagdishan, currently executive director], Arvind Kapil of the direct sales group and Ravi Narayan of branch banking. The three walked Aditya’s dogs - Scooby, a highly energetic Mudhol hound, was given to Sashi; Arvind led Pogo, a mix of a Doberman and an Alsatian; and Ravi, Bushka. There were thirty-odd people and none of them really knew how to walk a dog. So, they had to share tips and help each other manage the three unruly pets. By the time they came back to Aditya’s house after the walk, everybody was talking to each other. The party started in right earnest and by nine o’clock Aditya ran out of the stock of booze. It was business as usual in the office next week.’

Why does simplicity in business work?

As all the examples quoted above show, a simple strategy is easy for people to follow. When you deviate from the strategy, the in-built simplicity itself ensures that the deviation is spotted early, course corrected, after which the team gets back on track. If, even by mistake, a loan to a risky borrower is approved within an HDFC Bank, the standard operating procedure in place will ensure that the loan is flagged off before approval. Thus, simplicity in business works because it is effective.

While in recent times General Electric has ceased to be the powerhouse it once was, there are many management lessons from its glory days that still apply to business today. In 1989, HBR interviewed the then chairman and CEO of General Electric, the legendary Jack Welch, and asked him what makes an effective organization. His reply was characteristically blunt: ‘For a large organization to be effective, it must be simple. For a large organization to be simple, its people must have self-confidence and intellectual self-assurance. Insecure managers create complexity. Frightened, nervous managers use thick, convoluted planning books and busy slides filled with everything they’ve known since childhood. Real leaders don’t need clutter. People must have the self-confidence to be clear, precise, to be sure that every person in their organization—highest to lowest—understands what the business is trying to achieve. But it’s not easy. You can’t believe how hard it is for people to be simple, how much they fear being simple. They worry that if they’re simple, people will think they’re simpleminded. In reality, of course, it’s just the reverse. Clear, tough-minded people are the most simple.’ 10

Does simplicity in business yield financial results?

The short answer is that it does and that too in ways beyond just profits and return ratios. In Simplify, Koch and Lockwood divided firms that simplified into two categories—price simplification and proposition simplification. Price simplification is when a company cuts prices of its new product by half or more such that the new and cheaper product is not the same as the old product but ‘fulfils the same basic function’. The new product is a simpler version of the older product and aimed at a new target group of customers who could previously not afford the product. The six case studies used by Koch and Lockwood are Ford, McDonald’s, Southwest Airlines, IKEA, Charles Schwab and Honda.

Proposition simplification, on the other hand, ‘. . . involves creating a product that is useful, appealing and very easy to use, such as the iPad (or any other Apple device of the last decade), the Vespa scooter, the Google search engine or the Uber taxi app.’ Thus, proposition simplifying can create markets that didn’t exist before; moreover, proposition-simplifying products have the potential to carry a price premium in contrast to price-simplifying products. To investigate the benefits of proposition simplification, the authors studied Amazon, Google, Apple (the iPod years), Advanced RISC Machines (ARM), Tetra Pak and Boston Consulting Group (BCG).

The results of the study of these twelve companies (six price simplifiers and six proposition simplifiers) were summarized as follows: ‘The twelve case studies of simplifying companies all display very high increases in market value, high annual rates of increase and significant outperformance when compared with rival companies or stock market indices. The returns from both price-simplifying and proposition-simplifying are very high, with no indication that one type ultimately results in higher financial returns than the other. (The sample sizes are very small, however, so more extensive research might reveal some differences that we have not detected.) The increases in value for all twelve of these simplifiers have persisted for decades, even once the major period of simplifying innovation has ended.’

‘Alan Siegel and Robert Gale run the brand strategy and design firm Siegel+Gale, which is part of the Omnicom Group. The firm’s tagline is ‘Simple is smart’, and their website states, ‘We believe in the power of simplicity. At Siegel+Gale, we own it, defend it and live by it.’ 11

Siegel+Gale run the Global Brand Simplicity Index, ranking the world’s simplest brands. Their 2018–19 report states that the firm ‘. . . surveyed more than 15,000 people across nine countries to understand which brands and industries provide the simplest experiences.’ 12 These ranked companies were Netflix, Aldi, Google, Lidl, Carrefour, McDonald’s, Trivago, Spotify, Uniqlo and Subway. The key findings from the report are summarized and quoted as under:

Thus, the findings of the study by Koch and Lockwood as well as the returns on the 2018–19 Global Brand Simplicity Index seem to indicate that simplicity does yield impressive financial results too.

* * *

Key takeaways from this chapter

How Apurva Purohit Built Radio City around the Tenet of Simplicity

The Victory Project

Apurva Purohit is the president of Jagran Prakashan Limited, which owns publications such as Dainik Jagran and Mid-Day as well as various other media businesses. Apurva is a veteran in the media and entertainment industry and worked with the Zee Group and the Times Television Network before joining the FM radio station Radio City (corporate name Music Broadcast Limited—MBL) in 2005. In 2015, the Jagran Group acquired Radio City, and in 2016, Apurva became president of Jagran Prakashan.

Apurva is a graduate from Stella Maris College in Chennai, where she played hockey for Madras University and then represented Tamil Nadu in state-level hockey tournaments. She holds a PGDM degree from IIM Bangalore and is also the author of two books—Lady, You’re Not a Man!: The Adventures of a Woman at Work 14 and Lady, You’re the Boss!: The Adventures of a Woman at Work – Part 2 15.

Apurva has a refreshing take on simplicity in business. In a tough and niche business such as FM radio, Apurva led MBL to profitability in FY13 and the firm has stayed consistently profitable since then, clocking impressive financials along the way. She is a big believer in organizations having a simple, no-nonsense, no-frills vision and communicating it clearly across the firm.

We met Apurva at the colourful MBL office near Bandra Kurla Complex on 12 September 2019, which was the last day of Ganpati Visarjan and also an expectedly rainy Mumbai morning.

Apurva uses a very interesting concept—called F1—to introduce clarity in all business debates which take place under her command. We will explain F1 to you in a bit, but before we do that it is interesting to understand the origins of Apurva’s F1 thinking. She told us that the idea went back to her college days when they had to play one sport and she chose hockey, ‘My F1 was to be in the team, so I applied for goalkeeper. I knew no one was trying to be the goalkeeper. So I trialled to be the goalkeeper and I got selected and went on to play for the Tamil Nadu state. If I was trying to be centre forward, I would never get in because that was the most fought for position.’ Apurva believes that the four ashramas of Hinduism (brahmacharya or student, grihastha or household, vanaprastha or retirement, and sanyasa or renunciation) can teach us what to focus on in each stage of life. ‘You can have it all but not at the same time. Clarity comes from reflection,’ she told us.

How does one develop thinking with such clarity? Apurva shares from her early life when she was not a very popular student: ‘I was this student who comes first, sits very earnestly in class, always reads her books . . . not very popular with people.’ This wasn’t easy when you are a child and are seeking approval and validation from the entire world. But over time, Apurva learnt that rather than worrying about what people around her were saying she should listen, instead, to her voice within.

Recalling her advertising days setting up Lodestar Media, Apurva told us, ‘The good or bad part of the advertising industry then was that agencies were unstructured organizations. I had no mentors, no KRAs [key result areas], no boss.’ This lack of a higher authority or a mentor did not affect Apurva. She made it work for her and even today advocates that while we can draw lessons from mentors, we should look within ourselves and not worry about being popular. Apurva is also a big believer in moral compass and fairness. ‘I think the earlier you develop a moral compass and know what’s fair and what’s not, the better it is for you,’ she told us.

But life isn’t fair and neither is corporate life. How does Apurva then ensure fairness within her organization? She outlined her philosophy to us, saying, ‘Fairness is the hallmark of the Radio City culture and it has been difficult to convince managers on this virtue despite my fifteen years of working there. People can tolerate a lot as long as they know you’re being fair to them. You need to put your objectives clearly—that it is about the whole process. You need to demonstrate fairness and walk the talk, consistently. For example, I believe in appraisal-based increments that happen once in a year. I would not do mid-term corrections. I can’t tell you how much pushback I got for this. But I don’t make exceptions. Exceptions are the biggest destroyers of fairness.’

Toughness can cause dissent and alienate people. How does she ensure common ground? Apurva refers to the balanced scorecard (BSC) performance management tool. The BSC tool, as propagated by American accounting academician Robert Samuel Kaplan and management consultant David P. Norton, outlines four areas of measuring performance: financial perspective, customer perspective, internal business perspective, and innovation and learning perspective. 16 Apurva learnt the term ‘F1’ from the BSC tool, which specifies a primary goal at the top (F = financial). ‘If we can do this at a company level, we can do this at a function level,’ she told us.

While these concepts in clarity work in small businesses, would they really work in larger, complex, diverse organizations? Apurva believes they can, depending on how exactly your F1 is framed. If the F1 is restricted to increasing margins at the consolidated level, then a company operating in infrastructure can even look at acquiring an IT services firm. But if the F1 is framed as making the core business more efficient, then the firm can look at acquiring companies in the supply chain, distributors, etc. and entering other adjacent/complementary businesses.

How can we apply F1 to our lives, say, for a young person starting his or her career? Apurva tells us that they should start by listing down key motivational factors such as learning, money, power, etc. and choose the non-negotiable ones, without being too bothered with what the world says. ‘Prioritize those factors that are non-negotiable and then go for the jobs that deliver those factors,’ she tells us. For each of us, Apurva believes, there can be at any point in time only one F1. That F1 is your north star. That is what you need to prioritize above everything else.

‘Don’t run the race everyone else is running,’ she tells us, giving her own example. Apurva laughed about how she wanted to start her career in the unconventional (for IIMB graduates at that time) areas of brand building, communication and creativity: ‘I joined advertising straight out of IIM Bangalore. My salary brought down the average of the batch. But then if I’d worried about that, I wouldn’t have become the youngest CEO of my batch twenty years ago.’ Similarly, for those looking to reinvent themselves in their mid-careers, Apurva believes they should start with the small things that make them happy daily and marry those things with their broader purpose: ‘As Annie Dillard says, “The way we spend our days is, of course, how we spend our lives.”’

Apurva loves reading and when we ask her for her favourite books, she mentions Bertrand Russell’s classic The Conquest of Happiness 17. She also mentions All Things Shining 18 by Hubert Dreyfus and Sean Dorrance Kelly, which had an immense influence on her.

As we wrapped up, we asked Apurva why she did not carry her mobile to our meeting, as most CEOs are not seen without their mobile phones. ‘All of us focus on building a CV but we don’t focus enough on building our reputation. But reputation doesn’t get built on a piece of paper, reputation is in interactions. As Gulzar wrote: Ek bar waqt se, lamha gira kahin, wahan dastan mili, lamha kahee nahi [Loose translation: Once a moment fell out of time, a story was found in that moment even as the moment vanished] 19. So I might never meet you again, but there is a reputation getting formed,’ she explains. As we walked towards the Radio City car park we realized that the reputation being formed was a formidable one.