Tag: variation
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Variation is valuable
Advances in interconnection technologies are driving an increasingly demand-driven market. Customers are learning to expect to get what they want, when they want it, how they want it. And they tell you in each and every interaction they have with your company, or not. In a demand-driven world, increasing product variation and complexity in your business model is inevitable. Left untended, your business can become a tangled web of counterproductive business strategies with a dense portfolio of product families comprising thousands, even millions, of variants.
However, make no mistake, variation is valuable. To deny complexity or view the long tail of product variation as a management failure is to deny diversity of the world in which we make our living. Eliminate complexity in your product offer and you will find yourself competing with boatloads of product from China, India or any of a number of low-wage production markets.
The “keep it simple” principle is the root of good management. However, as Oliver Wendell Holmes, Jr. has observed, “I would not give a fig for the simplicity this side of complexity, but I would give my life for the simplicity on the other side of complexity,” it matters which form of simplicity you choose. The wrong simple answer is to try to focus on the 20% of product variants that make up 80% of your revenue, the head of the ubiquitous Pareto distribution, and find ways to minimize or eliminate the so-called unprofitable remaining 80% of product variants that lurk in the tail. Hello commodity, goodbye margins. The right simple answer is to deliver Intelligent Variation based on the voice of the customer shouting through the many interactions they have with you each and every day.
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When the tide goes out, it exposes products that were under water
The number of companies with complexity reduction initiatives has skyrocketed. Unlike five years ago, these are serious initiatives with management sponsorship and timelines.
A good friend of mine, who is a salesperson at a Caterpillar dealership, told me that when times are good he can sell any machine. When the times are bad, the bad stuff just sits around exposed.
Companies have proliferated their product offerings – there are almost infinite variations of everything that they offer. The rationale is that they will make one more sale because of that variation. But as product variations grow, the cost structure grows very fast as well, and the probability of finding that one customer who wants the new variation is quite slim. This results in excess inventory across the supply chain. And when the economic tide goes out, it exposes the cost of those product variations.
The companies with complexity reduction initiatives recognize that during good times and bad, managing product variants makes good business sense. Companies are now starting to implement metrics to measure product complexity because we all know that what gets measured gets managed! Product complexity metrics quickly expose underwater products.
The comment by my friend at Caterpillar reminded me of a trip I took to the Bay of Fundy. It is amazing how much is exposed when the tide really goes out, just like in this economy. The good news is that when the tide turns, the bad product lines it once covered will be significantly fewer, resulting in healthier and more competitive companies.
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