Innovation versus Complexity at HBR

In the November 2005 Harvard Business Review there is an article on Innovation versus Complexity by Keith Aspinall and Mark Gottfredson: Innovation Versus Complexity: What Is Too Much of a Good Thing?

Full text access must be payed, have a look at the abstract for a start:

What’s the number of product or service offerings that would optimize both your revenues and your profits? For most firms, it’s considerably lower than the number they offer today. The fact is, companies have strong incentives to be overly innovative in new product development. But continual launches of new products and line extensions add complexity throughout a company’s operations, and as the costs of managing that complexity multiply, margins shrink. To maximize profit potential, a company needs to identify its innovation fulcrum–the point at which an additional offering destroys more value than it creates. The usual antidotes to complexity miss their mark because they treat the problem on the factory floor rather than at its source: in the product line. Mark Gottfredson and Keith Aspinall of Bain & Co. present an approach that goes beyond the typical Six Sigma or lean-operations program to root out complexity hidden in the value chain. The first step is to ask, What would our company look like if it made and sold only a single product or service? For Starbucks, it might be a medium-size cup of coffee; for a bank, a simple checking account. Then determine the cost of producing that baseline offering. Next, add variety back into the business system, product by product, and carefully forecast the resulting impact on sales as well as the cost implications across the value chain. When the analysis shows the costs beginning to overwhelm the added revenues, you’ve found your innovation fulcrum. By deconstructing their companies to a zero-complexity baseline, managers can break through organizational resistance and deeply entrenched ways of thinking to find the right balance between innovation and complexity

Well, nothing new under the sun … zero-based budgeting is coming up all new again, this time with complexity as a metric (btw, mind the tricky ways of measuring complexity), the search for a perceived point of optimal complexity and more.

The goal is right and brave: balancing complexity and innovation. Still I hold that a better starting point is to to think about a company’s ability to handle complexity (i.e. what are fitting competencies, structures and strategies and how are they developed) especially in regard to the business models it follows.

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