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Management article
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Reference no. SMR48113
Published by: MIT Sloan School of Management
Published in: "MIT Sloan Management Review", 2006
Length: 9 pages

Abstract

As businesses add more and more products to their portfolios, they face diminishing returns on variety and more costs in bringing their products to market. As a result, managers must balance the costs and benefits of variety in determining their product line-ups. The authors worked with a wide range of businesses and discovered that a widespread approach whereby low-volume products are cut first, is often ineffective. As an alternative, the authors discuss five critical lessons for maximizing the value and effectiveness of variety management, and present a process for making value-driven variety management successful: (1) all products are not created equal. Both complexity costs and benefits may vary considerably for different types of product variants; (2) be exhaustive. The impact on any one cost area may be insignificant. It is the compound effect of impacts that creates the complexity monster; (3) take a return on investment view. A business case for adding variety should consider impacts of both one-time and recurring costs over the whole product life cycle and balance these against the incremental benefits over the product life cycle; (4) tailor the variety-management strategy to the type of complexity cost; and (5) reduce product complexity costs without reducing product complexity. The authors combine these lessons to propose a comprehensive value-driven variety-management process.

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Abstract

As businesses add more and more products to their portfolios, they face diminishing returns on variety and more costs in bringing their products to market. As a result, managers must balance the costs and benefits of variety in determining their product line-ups. The authors worked with a wide range of businesses and discovered that a widespread approach whereby low-volume products are cut first, is often ineffective. As an alternative, the authors discuss five critical lessons for maximizing the value and effectiveness of variety management, and present a process for making value-driven variety management successful: (1) all products are not created equal. Both complexity costs and benefits may vary considerably for different types of product variants; (2) be exhaustive. The impact on any one cost area may be insignificant. It is the compound effect of impacts that creates the complexity monster; (3) take a return on investment view. A business case for adding variety should consider impacts of both one-time and recurring costs over the whole product life cycle and balance these against the incremental benefits over the product life cycle; (4) tailor the variety-management strategy to the type of complexity cost; and (5) reduce product complexity costs without reducing product complexity. The authors combine these lessons to propose a comprehensive value-driven variety-management process.

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