This is generally viewed as an acronym for, keep it simple stupid. This concept represents a significant challenge to managements, who seek to optimize revenues, sometimes by attempting to offer everything to everyone, while maintaining an efficient business model. Two opposite approaches are reflected by a comment attributed to Henry Ford, “Any color the customer wants, as long as it’s black,” and Starbuck’s struggles with an excessive variety of drinks. The company says there are more than 170,000 possible drink combinations, while outside estimates put the number at more than 300 billion. This can’t be efficient.
Investors should be aware of the complexities involved in establishing the right product mix, when seeking to evaluate management, before making a portfolio decision. While generalizations are risky, investors should be cautious if management appears to be adding potentially costly, and/or, financially marginal complexity.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA
