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Keep it simple

 
Date: 24-Oct-06   World Business
 
Companies that limit their product lines to the most profitable ones and thereby keep their operations as simple as possible reap greater increases in revenue as well as higher cost savings.

An investigation of 74 firms in 12 sectors revealed that companies with the lowest complexity in their operations and product lines grew 1.7 times faster than their average competitors.

Companies can reduce their operational complexity by identifying the basic version of their core product, as Henry Ford did with his famous Model T.

A European plastics company simplified its operations by reducing the number of items it produced from 400 to 110, which made up 80% of its revenue. I

It also reduced the number of customers it served from 45 to 12. The company produced new items only if they could be made in high volumes at the right price. Companies should find their 'innovation fulcrum', the right balance between product variety and operational complexity.

Finding your innovation fulcrum
Mark Gottfredson and Luca Caruso
Business Strategy Review, Autumn 2006

 
 
 

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