How to Gauge the complexity of your business

To get at the roots of profit-destroying complexity, companies need to identify their innovation fulcrum, the point at which the level of product innovation maximizes both revenues and profits.

Complexity doesn’t appear on balance sheets or on quarterly reports, but its impact can be conspicuous. 
Below, we offer a simple set of diagnostic questions for retailers. If you answer “yes” to some of these questions, your business is likely overly complex.

– 𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐨𝐟𝐟𝐞𝐫𝐢𝐧𝐠𝐬: 
Do your fastest-turning SKUs sell more than twice as frequently as your slowest? Are your inventory turns more than 10% slower than your lowest-complexity competitor?

– 𝐒𝐚𝐥𝐞𝐬 𝐯𝐨𝐥𝐮𝐦𝐞: 
Do less than 20% of SKUs, build combinations, or product configurations make up more than 80% of your sales volume?

– 𝐌𝐨𝐝𝐮𝐥𝐚𝐫𝐢𝐭𝐲: 
Is your approach to customer segmentation aimed at “offerings for many to attract the many” rather than “delighting the few to attract the many”?

– 𝐖𝐡𝐞𝐫𝐞 𝐜𝐨𝐦𝐩𝐥𝐞𝐱𝐢𝐭𝐲 𝐬𝐡𝐨𝐰𝐬 𝐮𝐩: 
Do you find that you frequently have to discount to sell slow-moving inventory?

Please comment if you would also like to see how you can identify over complexity in a manufacturing or a services company.

The downsides of product complexity for manufacturers have been documented in many studies. 
But manufacturers don’t suffer alone. 

In fact, in retail, service and knowledge businesses, the continual introduction of new, information-rich offerings can have even more destructive consequences. 

It can leave virtually every employee struggling to make sense of a complex service portfolio, undermining both productivity and customer responsiveness.

One telecommunications company, for example, has used the power of information technology to slice and dice its service set into ever more finely differentiated options. 
The firm hoped it would boost revenues by more precisely fulfilling the needs of every imaginable buyer. 

But offering so many options has had the opposite effect. 

The company’s customer- service reps are now forced to sort through more than a thousand promotion codes while they’re talking to a potential customer. 
Most of the promotions offer distinct levels of discounts and product benefits. 

Making sense of them all is an overwhelming task. 

The result? 
Sales agents give slow and often inaccurate answers to inquiries-and customers grow frustrated and head toward a competitor.