Less Complex Companies Grow Nearly Twice as Fast as Competitors; According to New Bain & Company Analysis; Hyper-Innovators Can Miss out on up to 40 Percent in Additional Revenues

Business Wire,  August 28, 2006  

Tags: analysis, Bain

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NEW YORK -- New analysis from Bain & Company of 75 companies across 12 industries globally finds that the lowest complexity companies grew revenues 1.7 times faster than their peers on average. Bain also finds that complexity holds four-times the predictive power for revenue growth than company size.

Bain analyzed business-to-consumer and business-to-business industries, including: automobiles, fast food, cosmetics, mortgages, credit cards, computer hardware, steel and medical equipment.

"We found that cutting complexity often creates additional revenues, not just reduces costs," said Mark Gottfredson, head of Bain's global performance improvement practice and complexity management expert. "Overly complex companies, or hyper-innovators, miss out on up to 40% in additional revenues."

The findings from the study suggest that hyper-innovators may make it harder for people to find exactly what they want, or for sales people to match the right product with the right customer. Bain finds that excessive complexity makes it more difficult for companies to identify their top-sellers and keep them in-stock. There may be uncompetitive turnaround for custom services. High complexity also leads to more discounting as the wrong things are in the market or on the shelf.

Bain surveyed 180 executives in Spring 2006 on their attitudes toward complexity in their organizations and found that:

--Only twenty-eight percent of executives understand the root causes of complexity

--Nineteen percent know their true costs of complexity

--Only twenty-two percent believe that their product development process focuses on fulfilling specific unmet customer needs

--One-in-four believes that their organization has the capabilities to manage complexity effectively

"Complexity is often a company's largest hidden liability," added Gottfredson. "Companies need to attack complexity aggressively and consistently."

Bain points to Chrysler's California Velocity Program as a prime example how less is often more. Under this program, Chrysler first identified the 200 top-selling car configurations from an initial list of approximately 5,000. From there it used detailed market analysis to suggest to each dealer the four to six configurations that the analysis indicated would be the hottest sellers in each local area. Initially there was push back to this approach by the sales and marketing departments, who assumed that this reduced buyer choice, and would equate to a lack of dealer sales. But in fact, Chrysler's pilot test of its lower complexity approach resulted in sales 20% higher in California versus the average sales of the higher complexity control group. This was because most customers purchased vehicles directly off the lot, and by choosing the vehicles customers were most likely to want, less sales were lost to competitors.

The business consulting firm recommends that companies take a 'Model T' approach to managing complexity effectively and keeping the costs of complexity as low as possible:

--1) 'Zero-base' the cost of complexity - identify the cost of 'one product' and then quantify how processes, cost, and quality change as other products and complexity are layered back in. This allows the organization to understand the hidden and systemic costs complexity creates

--2) Add back only what customers need - build toward an optimum point of innovation by balancing the levels of innovation and complexity required to meet true customer demand. High levels of complexity are 'a priori' evidence of a lack of customer understanding. Companies that truly understand their customer needs tend to be much more focused

--3) Keep complexity out - put business practices in place that prevent the unnecessary proliferation of products and services and reassess the optimal point of innovation as customer needs and technologies evolve

"Innovation is not a bad thing, just sometimes too much of a good thing," concluded Gottfredson.

For more information about Bain & Company's complexity management analysis and approach, or to schedule an interview with Mark Gottfredson, please contact Cheryl Krauss at e-mail: cheryl.krauss@bain.com or 646-562-7863, or Frank Pinto at e-mail: frank.pinto@bain.com or 917-309-1065.

About Bain & Company, Inc.

Bain & Company, a leading global business consulting firm, serves clients on issues of strategy, operations, technology, organization and mergers and acquisitions. The firm was founded in 1973 on the principle that Bain consultants must measure their success by their clients' financial results. Bain clients have out performed the stock market 4 to1. With offices in all major cities, Bain has worked with over 2,700 major multinational, private equity and other corporations across every economic sector. For more information visit: www.bain.com.

About Bain's Complexity Management Analysis Methodology

Bain examined 75 companies in 12 industries: aerospace, automobiles, chemicals, computer hardware, cosmetics, credit cards, fast food, medical equipment, mortgages, mutual funds, steel and tires.