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Using Requisite Variety to Understand how Customer Demand Shapes Your Business

February 9, 2014

William Ross Ashby was a British scientist who worked in diverse fields of research, including systems theory and cybernetics. Possibly his greatest contribution to science and management theory was his law of requisite variety [1], [2].Ashby was interested in control systems and his law implies that for a system to survive it requires a certain level of flexibility. That level is related to the level of variety the system has to deal with in its environment. While seemingly simple this idea is very powerful and is a key concept for managers to understand as they endeavour to respond to or anticipate turbulence in the environment and to design better responses to the variety in the environment in the form of customer demand.

We experience the law of requisite variety every day. Interaction of citizens with their government often affords good examples of systems where the law of requisite variety is not being fulfilled by the government. Consider this simple scenario. You want to apply for a driving license and proceed to the local administration to get the necessary forms and have your need fulfilled. From your perspective you are met with stupefying red tape, having to visit several different departments, perhaps at different locations before you get all the needed forms to complete and get them processed. Well, congratulations you were the victim of a system that didn’t exhibit the requisite variety to deal with your demand successfully. Systems that are not designed to deal efficiently with the variety in demand have to externalise costs in order to meet the demand. In this case, the government administration externalises the cost for its own inefficient systems to you in the form of additional travel between departments, lost time and possibly even lost earnings.

Entire industries are organised and sometimes revolutionised as a response to the law of requisite variety. The history of the automobile industry may be better understood as a series of responses to Ashby’s law. When Henry Ford adapted the idea of the assembly line to the production of his cars he changed the industry from a small scale, craft based industry which responded to the demands of a few wealthy clients to one that could fulfil the demands of a much wider public for affordable travel and personal independence. Ford stated famously that the customer can have any colour car he wants as long as it is black! This lack of variety was acceptable to the customer as long as their basic demand was for cheap transport. Alfred P. Sloan built General Motors into the biggest and most successful company in the world by recognising that Fords approach to the market was not fulfilling all the demands of the customer – that is, that Fords one colour and limited model range was not an adequate level of flexibility given the demands of increasingly sophisticated customer.

Sloan’s innovation in terms of annual changes to models, a full range of cars which locked customers into the brand as their wealth increased and industrial and innovative design allowed GM to respond to a greater range of variety in customer than Ford and ensured decades of dominance for GM.

The modern era of the automobile has seen further advances in the industry’s ability to respond to the variety in customer expectation. Lean technologies, just-in-time delivery, and mass customization based on automotive platforms that allow a high degree of reuse while offering almost limitless variety in term of engines, interiors and electronic systems enable the automobile companies meet an incredible degree of variety in customer demand and still make a profit. The modern automobile industry has thus developed systems that allow it to respond in as many ways to customer demand as there are types (variety) of demand. Where potential customers want variety beyond that offered by the great automobile makers, others meet this unusual demand in niche markets through customisation of standard designs.

So what might the law of requisite variety tell us about the future of the automobile industry? What new demands will the always online, environmentally aware, city based citizen of tomorrow bring to the automobile industry? Some trends are already starting to become apparent. Young city dwellers see the car as less of a status symbol than their parents and grandparents. Their demand is for occasional usage of a car that they may not even own. When they drive a car they expect it to offer 24/7 connectivity to all the platforms they can connect to through their tablet or smart phones and that the car act as a service platform and not just as a mean of transport. These very different and greatly expanded demand profiles will mean yet another radical remake of the automobile industry in the next few years as it struggles to provide the variety of demand its environment throws at it and its struggles to fulfil Ashby’s law of requisite variety!

References

[1] Ashby, W.R. 1956, “An Introduction to Cybernetics”, London, Chapman & Hall

[2] Ashby, W.R. 1958,”Requisite Variety and its implications for the control of complex systems”, Cybernetica (Namur) Vo1 1, No 2, 1958

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