An overwhelming number or variety of products can create operational difficulties for companies which consequently affects sales negatively. A recent article in Harvard Business Review looks at why businesses should focus more on product integration, as opposed to product proliferation.
Harvard Business Review surveyed 255 senior executives and seven companies to examine this issue. Researchers found that on average, product variety is not correlated with company profitability, but instead can cause greater customer and employee difficulties. Examples given included working with multiple account managers or receiving too many invoices. This suggests that more products can add more complexity to a business. In order to avoid this, the report suggests that product developers should work closely with customer-facing and operational employees to simplify and integrate product innovation.
One example of product proliferation was the LEGO Group’s expansion in 2004, which nearly brought the business to bankruptcy. The company had extended its products into areas such as theme parks, computer games, children’s clothing and multiple countries. As a result, customers and employees began to struggle with the lack of transparency in its supply chain and retailers became frustrated by common shortages in product. LEGO faced these issues with a major business transformation by selling off theme parks, standardising its global supply chain and overhauling its product life-cycle management process. These efforts paid off in profitability and growth, allowing LEGO to overcome its competitor Mattel to become the world’s largest toy company.
Product integration, unlike product variety, is linked to better performance and is less likely to create challenges for employees and consumers. There are many ways to integrate products, for example companies could look at cross-selling or bundling products and offering supporting services that help solve customer issues. Companies with a history of growing by introducing new products should look at operational difficulties and any changes should be made with an experimental and learning-focused approach.
It is evident that simplicity is key to product innovation and any companies looking to expand a product portfolio must also take into consideration how operations will be affected.