Complexity – Driving Up Costs & Hindering Growth

Executives recognise that complexity is hurting their businesses growth prospects and is driving up costs was the findings of an extensive Bain & Co study. Complexity is considered a critical issue for over 70% of the executives surveyed.

The biggest part of the challenge for service companies is identifying the real cost of complexity and then eliminating it for reduced costs and more strategy implementation flexibility.

For manufacturing complexity sits around in store rooms as unsold product and piles of re-worked scrap; for service industry enterprises, like banks; telecommunications and information technology providers, the problem is less obvious but just as big a driver for increasing costs.

The good news is that eliminating complexity can simultaneously lead to process change that allows your most profitable customers to receive superior service says Mark Gottredson and Andrew Schwedel of Bain & Co.

They recommend a process that identifies your most profitable customers followed by a process review to eliminate complexity so that you can focus on them delivering the superior service.

The steps in the process are:

1. Calculate what complexity is costing you, and this can be huge. In one insurance company a case manager could realistically only process 4 policy applications per day, half the process performance of its competitors for the most profitable customers. Within a year turn around times had been cut in half and the improved performance lead to significant premium growth.


2. Find out what your customers truly value. Product complexity can be an indicator that you do not know what your best customers truly value; Bain & Co suggest a process for listening to them. A supermarket chain found that their customers got annoyed that the shelves were often empty of the core products they went shopping for; so instead of increasing product range they reduced product range and increased shelf space for the items they did stock. Given 5% of the products in a supermarket can represent up to 95% of the sales this has proven to be sales growth driver.


3. Remain Vigilant. All enterprises operate in a changing environment, customers and competitors do not remain static so a process of continuous review and adjustment delivers results.

REFERENCES:

http://www.bain.com/bainweb/home.asp