The “excessive” variety of the Offering is most of the times confusing for customers. Instead of conferring a competitive advantage, it is generally harmful. This overabundance also creates unwieldiness in the Supply Chain and Product Marketing, with its harmful consequences in terms of costs. The monitoring and control of the margin also suffer from this hypertrophy.
Impact on Profitability
In reality, the offering’s weaker products tend to prosper at the expense of other more competitive ones. These weigh on the overall profitability. The fault lies in the mutual interferences that arise inside the value chain. In particular, weaker products consume a disproportionate share of resources and available capacity, eating out those devoted to other products, and ultimately affecting their profitability. To support the broader Offering, business processes need more branches and a host of ad hoc sub-processes come on top. And to cope with this additional workload, management must add resources, even as volumes are stable or even running out of steam. Costs increase in a non-linear fashion, going so far as to completely cancel the margin of the additional products.
Impact on Steering
The “mechanics” of the company’s operations turns fuzzy for its management. The entanglement of hidden costs escapes the watch of the Management Control department and its capacity to measure or predict them correctly. They become volatile, escaping any rational explanation. The visibility on the overall result of the company is thence remarkedly weakened. But this widespread phenomenon, although ill understood, not only puts the traditional measurement and control tools at fault, but it also contributes significantly to keeping the company permanently out of its economic optimum.
It is then necessary to uncover the extent of the problem by resorting to adequate analytics based on the available data, without ever losing sight of its global or systemic nature. Suitable quantitative methods are needed to highlight the links between the evolution of revenues and the real costs of complexity in the functioning of the business.
Thanks to this in-depth work, one can have the means to tackle the resizing of the Offering and its redensification. As it is not only a matter of removing low-volume, low-margin products, this transformation must include the reorganization of the processes that the Offering depends on for products and services to be delivered to customers. It requires to actively involve their stakeholders. One does not go without the other, and it is precisely the combination of coherent measures on both fronts, Offering + Process, that provides substantial and lasting benefits. Once this process is well underway, an organizational simplification cycle can be activated to consolidate the gains.
Anyway, a de-complexification project properly designed and duly shared with teams, is most often welcomed with relief and enthusiasm by all the forces of the company. The project acceptance arises and ramps up with the first results, which do not take long to snowball.