The Right Variety

By Daniel Mahler
Partner and global coordinator for the Sustainability practice
June 2009

A “more is better” philosophy has driven many product decisions for years now. The prevailing notion has been that offering consumers more choices is the most reliable source of growth. Yet the resulting complexity can actually have the opposite effect when buyers become turned off by too many choices. In today’s economic environment, you don’t need to give your customers any more excuses not to buy.

The point is not that we need to have fewer products or less variety in order to cut exploding supply-chain costs. Rather, the point is how to develop and efficiently deliver the right variety to improve your products’ “shopability.” How can we look at complexity reduction as a way to stimulate sales first and as a cost-reduction effort second?

Bringing in Smart Complexity
In our recent work for a consumer packaged goods company, we tried a new approach we call “smart complexity,” to help the company increase its margins by 1 to 3 percent. Even more encouraging, the margin improvements were long-lasting, as increased sales set the foundation for improved and ongoing profitability.
Smart complexity is based on the idea that innovation in complexity management means going beyond solving basic problems or tweaking methodologies or accounting techniques. Instead, it can actually shift the way you view your business. Rather than the standard approach of “What do we cut?” we ask “How much do we need in the first place?”
Of course, a change in philosophy is not easy to implement, especially when more-is- better has been the accepted norm, the preferred business model and the basis for incentive structures for generations. But if it were easy, everybody would have done it already. Smart complexity is a new take on traditional complexity management.

Getting the Most from Your Portfolio

We use a four-pronged approach to get the most out of a product portfolio:

• One team, one goal. Operations tells you increased product variety means higher costs, and marketing says that giving customers more choices means more revenues. This is where the CEO steps in to ensure smart complexity initiatives are unified and integrated. Everyone needs to understand and embrace the nuanced relationship between complexity and growth.
• Less-is-more analysis. In many important markets, customers are happy with their current range of choices, or perhaps even wishing for simpler times. We use market research to determine the tipping point between enough variety and too many choices.
• Increase cost transparency. Traditional cost analyses examine supply-chain total delivered costs—the typical savings achieved by carrying fewer colors and parts, reducing shipping and inventory, and other measures. Smart complexity goes further, to include R&D, sales, marketing and accounting—those often untouchable “fixed costs.” If marketing needs to design artwork for 20 different toothpaste flavors, then it is clearly spending more—or doing shoddier work—than if there were five flavors.
• Be a constant gardener. It’s not enough to weed the complexity garden occasionally, you must prevent weeds from reaching the surface to begin with. More rigorous rules and procedures in the product-development process will mean less complexity later, and fewer or different incentives will prevent marketing from solely pushing new products. The combination of market research and cost transparency will create the “one team, one goal” necessary for making informed decisions.

Simple Is Better
Apple is smart about complexity. Think about the iPod. Now almost eight years old, the portable media player still comes in only a handful of models and colors, yet it remains extraordinarily popular. Apple designed a great product and has remained devoted to keeping it successful, rather than creating a whole slew of variations. Apple’s success in general stems from a commitment to simplicity and purity in the products and choices it offers.

Smart Is Better Yet
Complexity was often considered good because it drove sales. Amid an economic crisis, however, it’s tempting to see complexity as bad because it drives costs. But complexity is neither good nor bad—the question is whether it’s desirable. Desirable complexity drives consumer buying decisions. Undesirable complexity unduly complicates internal processes without making a whit of difference to the consumer.

Smart complexity distinguishes between the two.

Daniel Mahler, Ph.D., is a partner in A.T. Kearney and the firm’s global coordinator for sustainability.

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The views expressed in this paper are those of the author(s) and do not necessarily represent the views of A.T. Kearney or the Global Business Policy Council. The views are not meant to suggest specific inducement to make a particular investment or follow a particular strategy, but only as an expression of opinion.