Complexity control regimes

It is clear that companies have adopted different complexity philosophies. Companies such as Apple and Bang & Olufsen offer an extremely controlled variety to the market. Dell Computers offers, in an extremely controlled way, a lot of variety to the market. And companies such as Snapple are geared towards providing the market with an overwhelming variety – but have adapted their delivery system accordingly. Automotive companies on the other hand create apparent variety while minimizing the variety that consumers can't see. The philosophy these companies have adopted dictates their dual control, or prevention, of complexity:

• ensuring a properly configured delivery system
• being intolerant towards providing variety outside of what this delivery system can handle effectively

Mismatch of complexity reduction approaches
A mismatch occurs with complexity management or complexity reduction approaches. Many of them dive straight into the detail to fight complexity at the SKU, ingredient, or component level without bothering to make explicit the type of overall complexity regime they have adopted. This approach has potential downsides.

First of all, if a company does not make complexity control regimes explicit, it risks creating a complexity impasse when multiple complexity control regimes are necessary. For example, a fast moving consumer goods (FMCG) company, offering both highly differentiated products as well as more mainstream products, will need different regimes for controlling complexity.

The differentiated products benefit from a complexity regime consistent with their short term life-cycle, such as the ability to quickly ramp up new products and get innovations to the market. For the mainstream products, containment of complexity costs is essential in order to be competitive and make attractive margins. If both types of products are part of a complexity reduction effort, lively discussions are likely to occur between sales & marketing and supply—with marketing passionate about their flexibility to support the differentiated products, and supply knowing they have to strictly control complexity through harmonization and larger production batch sizes.

Interestingly, we also encountered situations in which business units of FMCG companies adopted wholesale the most glamorous complexity control regime, the type that is best for differentiated premium products. In reality, a substantial part of their offering should have been managed with a much stricter, mainstream product-focused complexity regime.

Complexity regime and ongoing governance
Another downside of not using complexity control regimes is that the regime itself provides important input for determining the appropriate ongoing governance. For the differentiated products in our FMCG example, the sales & marketing department should be in the driving seat, and for the more mainstream products, supply should provide the main direction for optimizing the business.

Getting the governance right can be an enormous boost for the overall effectiveness. Unilever's ice cream business discovered this first hand. At the end of the 90s, the ice cream division was on an innovation roll. It had just created the Magnum—a highly indulgent and rich ice cream, benefiting from a newfound ability to add a coating of chocolate. When the division started to flex its promotional muscle and needed to ramp up production of various new ice creams, it could not. The factories were full of different variants of all sorts of ice creams produced for all the different countries. This roadblock obviously got the attention of the sales and marketing departments, and together with supply, they established a complexity control regime to ensured that the lifecycle of ice creams could be optimally managed.

Co-existing regimes
Clearly, it is beneficial for complexity initiatives to determine the overall complexity control regime. By assessing the ways in which “pure” play companies control their complexity, we identified the several complexity control regimes that can co-exist in many businesses:

• Scale/standardization
  Costs matter significantly in environments such as mainstream cars, basic financial products (e.g., property & casualty insurance and lending), and base chemicals. Complexity is often a real risk, and variety – especially the kind the customers or consumers can’t see, feel, or experience – is unwanted as it drives up costs. Complexity control focuses on driving out variation in products (especially components, ingredients, and formulas) and on maximum re-use to optimize scale
• Total cost of ownership (TCO)/long-term life-cycle management
  TCO, costs to serve, consumables, and servicing (parts) matter and make a big difference for complex medical diagnostic equipment, copiers (high end), and aircraft. Complexity that drives up TCO is extremely unwelcome and is countered by smart engineering, reuse of modules and parts to improve serviceability, and innovations to reduce consumption. Such efforts often benefit from product life cycle management applications
• Time to market/short-term life-cycle management
  In businesses where it is important to get innovations to the market quickly to boost brand equity or to tap into opportunities from trends and fads, it is important to control complexity to maximum flexibility and speed ramp-ups (spare capacity or access to spare capacity). At the ingredient or component level, in many cases, modular approaches are developed to support the innovation process itself. Contrary to the TCO / long-term life-cycle management regime, the time-to-market regime focuses on product and service portfolio management, killing off dying products in a timely fashion to make room for the new ones
• Make to order
  In make-to-order environments—such as high end PCs, yachts, and specialty chemicals—complexity control focuses on the ability to produce the products (or services). It requires deep understanding of how variety influences the production process and a carefully managed suite of components and ingredients to facilitate as much pre-assembly as possible, without incurring unacceptable stock levels
• Brand support
  Brand premium plays a very important role for companies such as Apple, and Bang & Olufsen. For them, variety is very strictly filtered based on how it can support building their brand equity. Therefore, variety is welcomed if it boosts brand equity and is absolutely fenced off if it doesn’t. Such variety is not only at the product or service level but is also very applicable when it comes to materials

Companies can use such complexity regimes as a starting point to define their own versions that are suitable for their particular situation. Although the complexity challenge for companies differs, especially those in different industries, complexity control regimes can be used across industries. It is the specific choice and mix of complexity control regimes that needs to be tailored.