Product Complexity Management: A Cross-Functional Approach to True Product Profitability

In today’s volatile environment, companies are under pressure to deliver cheaper, better and more innovative products faster than ever.

However, the proliferation of products often leads to increased complexity, blurring true profitability and—unless dealt with—damaging shareholder value.

Companies need to understand and rigorously focus their efforts on combinations of products that generate true profitability while not limiting innovation.

Some of the megatrends that companies are facing include:

• Further globalization.
• The growing middle class in emerging markets.
• Customers that are becoming more and more demanding.

These megatrends put companies under pressure to deliver cheaper, better and more innovative products faster than ever. This has resulted in a proliferation of products, causing significant impact across a company’s value chain. The increased complexity is often neither transparent nor considered, thereby blurring true profitability of each product and subsequently reducing shareholder value.

Accenture has developed a six-step Product Complexity Management framework that helps companies take a holistic and cross-functional view of product complexity.

These steps are:

• Understand the true profitability of each product.
• Eliminate low-profit contributors.
• Improve the true profitability of each product.
• Focus sales efforts on products that genuinely contribute to profits.
• Develop truly profitable products.
• Sustain true product profitability.

The core of the Accenture Product Complexity Management framework is to improve the profitability of all products remaining after the rationalization of the existing product portfolio. Deeper analysis at a product and/or component level is applied to identify, evaluate and measure the product’s complexity and its potential for improvement.

Consequently, product complexity can be reduced and profitably increased through a combination of techniques related to modularization and standardization, product reengineering, supplier relationship and category management.

Achieving product profitability is by no means easy and efforts cannot stop here. The final two transformation activities are therefore focused on ensuring that the products remain profitable regardless of whether it is an existing product or newly developed.

The challenge arising from understanding today’s and also tomorrow’s complexity cannot be tackled with conventional product portfolio optimization techniques.

It is necessary to manage complexity through a cross-functional and holistic approach that requires an understanding of true product profitability and a review of the decision making and governance models across sales, research and development and sourcing and procurement.

Companies that have focused relentlessly on managing complexity by improving a product’s true profitability have seen savings of 10-15 percent purely on cost of goods sold.

Gustaf Sahlén leads Accenture Management Consulting’s Nordic Innovation and Product Development group. During his career, Sahlén has supported clients in Europe and the United States in a wide range of strategic and operational areas. He frequently leads projects in product cost management, R&D efficiency and organic growth through innovation.

Johan Sjöström Bayer is a senior manager within Accenture Management Consulting’s Products group specializing in strategy and operations. He has extensive experience in helping organizations implement turnaround and cost-efficiency programs in cost of goods sold; sales, general and administration; and working capital.

Mikael Hilding is a senior manager within Accenture Management Consulting, and leads the Sourcing & Procurement group in Sweden. He works with clients on global sourcing and supply and operations management with a special focus on the automotive and industrial equipment sectors.

Antal Kamps is a manager within Accenture Management Consulting’s Products group specializing in strategy and operations. He has led B2B clients through transformation programs focused on corporate cost reduction, sourcing and supply management of direct materials and operations management.

Robin Sparrefors is a consultant within Accenture Management Consulting’s Operations group, specializing in innovation and product development. Sparrefors has experience in developing R&D operating models, large-scale R&D transformations and designing market expansions.