Win by Reducing Product Complexity?

Mark Gottfredson and Keith Aspinall wrote a great article in the latest issue of Harvard Business Review on balancing product complexity with customer satisfaction. Their point is that “pursuit of innovation can be taken too far” offering customers so many product options that the cost of production complexity outstrips the benefit of incremental sales. Getting the right “balance” between innovation and profitability is the objective of their analytical process.

They suggest that achieving this balance starts at the source, ‘the way your company views customers and their needs”. I would suggest it also is important to consider how your business is positioned relative to those customer needs and your competitors in the market you serve. For example:

1. The company positioned as the low price competitor can and should focus on every opportunity to reduce cost in order to maintain price leadership. If that means limiting product options (and manufacturing complexity) it is consistent with their market position.

2. The company that occupies the position of the market leader can and should reduce product line complexity by eliminating those product options outside those that meet the basic needs of its customers and understand they will leave open a market position to those higher priced competitors satisfying unique customer requirements with custom or semi-custom products

3. The company that is positioned as the performance competitor often caters to unique customer needs and offers greater complexity in its product offerings as the basis for its competitive success. It must to realize that it cannot compete on price as its costs are higher than most rivals.

Ford, with its Model T, positioned itself as the low price leader in the market and offering only one product. General Motors found it could offer more options (adding complexity) and compete with Ford to win the greatest market share. The first step in addressing the balance between product complexity and satisfying customer needs is to understand where you are positioned in the market battlefield. Reducing product complexity may work for the successful low price competitor or market leader but may not work for the performance competitor. Successful business strategy must be tailored to your market position, what works for K-Mart does not necessarily work for Nordstrom.