Innovation Versus Complexity Essay

6002 Words Feb 23rd, 2016 25 Pages
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To get at the roots of profitdestroying complexity, companies need to identify their innovation fulcrum, the point at which the level of product innovation maximizes both revenues and profits. Innovation Versus
Complexity
What Is Too Much of a Good Thing? by Mark Gottfredson and Keith Aspinall

Reprint R0511C

To get at the roots of profit-destroying complexity, companies need to identify their innovation fulcrum, the point at which the level of product innovation maximizes both revenues and profits.

Innovation Versus
Complexity
What Is Too Much of a Good Thing?

COPYRIGHT © 2005 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.

by Mark Gottfredson and Keith Aspinall

Walk
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Analysts estimate In-N-Out’s margins at 20%, again supersized for the industry.
So where’s your company’s innovation fulcrum? What’s the number of product or service offerings that would optimize both your revenues and your profits? If you’re like most managers, you’re probably scratching your head right now. You don’t have a clear idea of where that point lies. All you know—or at least strongly suspect—is that it’s considerably lower than where you are today.
The fact is, companies have strong incentives to be overly innovative in new-product development. Introducing distinctive offerings is often the easiest way to compete for shelf space, protect market share, or repel a rival’s attack. Moreover, the press abounds with dramatic stories of bold innovators that revive brands or product categories. Those tales grab

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Innovation Versus Complexity

managerial and investor attention, encouraging companies to focus even more insistently on product development. But the pursuit of innovation can be taken too far. As a company increases the pace of innovation, its profitability often begins to stagnate or even erode. The reason can be summed up in one word: complexity. The continual launch of new products and line extensions adds complexity throughout a company’s operations, and, as the costs of managing that complexity multiply, margins shrink. Managers aren’t blind to the

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