Making Complexity a Strategic Decision

Whether it’s new technology, new regulations, or new customer demands, companies often view complexity as something that is done to them. Accordingly, many executives think of complexity as an intrusion that requires a reaction.

However, companies mastering complexity to their advantage are much more proactive. They make complexity a strategic decision with the goal of adding value for customers and the company itself.

We’re starting to see this more, as even the simplest of companies are making the choice to increase complexity (i.e., variety and links) in their product portfolio. Capital One is a good example. It started out providing a single service: credit cards. Now it provides credit cards, investing, auto loans, and more. Amazon has a similar story. It began as an online bookstore and is now the “Everything Store” with “earth’s biggest selection.”

Companies that want to add value from complexity in their product portfolio have five options:

Choice

They can follow Amazon’s lead and increase product alternatives. When you shop at Amazon and type in “iPhone armband,” you’ll get hundreds of options. By offering such variety, Amazon ensures that customers get exactly what they want.

Full Service

The convenience of offering full service—or one-stop shopping—is another model. ING Direct Spain has chosen this route, as it began with a single savings product and now offers payment accounts, credit cards, investment funds, pension plans, brokerage services, mortgages, personal loans, life insurance, and savings accounts. It essentially provides one-stop financial shopping for its customers. Amazon provides one-stop shopping too, as customers can buy anything from printer ink to clothing to toys to books on the site, from Amazon or its marketplace partners. And if Amazon doesn’t sell it, the site provides links to external retailers.

Local Adaptation

Instead of offering globally standardized products, Royal Philips adapts products to suit the needs of local markets. Addressing the differing facial hair needs of various ethnicities, a shaver sold in the U.S. will look and feel different from a shaver sold in China.

Customization

Another option involves customizing your products and services to the individual needs of customers. Think about the many ways you can customize your car. (A prior CISR blog reported on BMW’s six-day custom car initiative.)

Integrated Solutions

The final option involves combining products and services in an integrated way to solve a customer’s problem. USAA does this by integrating different products and services involved in buying a car. It makes the process of selecting a car, negotiating a price, obtaining a car loan, and buying auto insurance seamless.

Some companies focus on a single model (e.g., ING Direct Spain neither offers a lot of choices for funds nor customizes/integrates products yet); others choose to follow multiple paths to increase complexity (e.g., Amazon offers choice and full-service, but refrains from customization and integrated solutions). In each case, growing a certain kind of product complexity was a strategic choice with the goal of adding value.

What kind of product complexity adds the most value for your organization?

Martin Mocker is a research affiliate at the MIT Sloan Center for Information Systems Research (CISR) and a professor at ESB Business School, Reutlingen University in Germany. You can read a related research briefing, “Finding Your Complexity Sweet Spot,” with free registration on the MIT CISR website.