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Understanding the Dynamics of Value-Driven Variety Management
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By Thomas Olavson and Chris Fry
Fall 2006
Reprint 48113
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Volume 48, Number 1, pages 63-69, 7 pages
Primary Topic: Corporate Strategy
Secondary Topic: Operations
SummaryAs 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 lineups. 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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