“Most geniuses, especially those who lead others, prosper not by deconstructing intricate complexities but by exploiting unrecognized simplicities.” – Andy Benoit
In Chapter 3 of the book "The Innovator’s Prescription – A Disruptive Solution for Health Care," Clayton Christensen provides a great case study that has some useful implications in terms of how we can make better decisions.
The case study is about Michigan Manufacturing Corporation’s manufacturing plants.
MMC manufactured automobile components such as axles, suspensions systems and gear boxes in a network of nine plants in the Midwest.
Of the nine plants in the network, the plant with worst product quality is the Pontiac plant (based in Pontiac, Michigan), and the plant with the best product quality is the Maysville plant. You might think that the Maysville plant has better equipment and higher labor cost. But interestingly, the Pontiac plant with the worst product quality also has the highest overhead burden whereas the Maysville plant with the best product quality has the lowest overhead burden. What’s more fascinating is that the Pontiac plant seemingly had everything it needed.
It turns out the difference in both quality and cost can be traced to the difference in complexity. The Pontiac plan can manufacture any part, but each part requires a different process route. There were 20 different pathways products took.
Coordinating 20 different serpentine paths through the plant required a lot of administrative oversight and planning. Things easily got lost. Mistakes and rework were common because workers couldn’t get in a standard “rhythm” of work. And bottlenecks would unpredictably arise when the same pieces of equipment were suddenly needed at the same time by products whose pathways intersected at that point.
In contrast, the Maysville plant only had two different product pathways – two straight product lines. The plant only made products that can be made through one of these two sequences of operations of activities. As a consequence, complexity was reduced to a minimum.
Christensen summed it up nicely:
The Pontiac plant and the Maysville plant operated two different business models, which required different sets of resources. The Maysville plant value proposition was making a limited range of high-value products at low cost. On the other hand, Pontiac’s value proposition was to make any product it was asked to make, even in small volumes. While indeed there were economies of scale at the Pontiac plant, there were countervailing costs of complexity: the more product families produced in a plant, the higher the overhead burden rates seemed to be.
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