Beware the Cost of Complexity

Early in my career in Hewlett-Packard manufacturing, we did a study that showed that the greater the configuration options we put on a single product the higher the cost to produce every other product in the same factory. Known as “Cost of Complexity” this has been found in many different industries with examples from software coding, to network support to food production. Not to mention in our own products, companies, and everyday lives.

The recent Fortune article “Inside the secret world of Trader Joe’s” describes that by reducing the number of SKUs from 50,000 items a typical grocery store has to about 4,000 items, Trader Joes sell twice as much per square foot than Whole Foods. Not only do they simplify the store and reduce the physical size required, they simplify the entire supply chain including elimination of distributors thus reducing costs and overhead. And as a result they sell much more of a particular item since they don’t have to stock multiple brands of each type: they have 10 different types of peanut butter instead of the 57 choices at my local Safeway which has multiple brands with similar types in many different sizes. This increased volume per specific item further increases their negotiation strength to reduce their costs.

Looking around at the variety of choices and the quantity of information in my life clearly shows a sea of information:

Television – Our AT&T U-verse digital cable system has up to 450 channels. However as non-television watchers we simply have the basic version with about twenty choices.

Music – In our home music collection we have 514 albums (the vast majority started as CDs) with a total of 7,046 tracks. Itunes helpfully reports that this 18.5 days of music.

Photos – At last check we have 71,794 digital photos consuming 190 GB in our digital “shoe box”. Don’t worry, I won’t make you look at them all! We’ve paired this down to the best 25,492 on our photo sharing web service.

Books – We have more books at home than I’ve bothered to count and many that I’ve never opened. As an avid reader, I do hope they are read by someone in the family. From a complexity perspective there were approximately 70,000 books in my high school library, 2 M volumes in the Claremont Colleges Library system, and 16 M books in the four main “research libraries” of the New York Public Library.

Internet – There are 145 M blogs (thanks for reading this one!), 213 M websites, greater than 500 M Facebook users, and wildly varying estimates on the order of 58 B web pages.

Everyone wants the freedom of choice but may not always be able to choose especially among so many overwhelming choices. There are widely varying levels of quality in these choices, this is why there are reviewers of movies, television, music, books, etc. And among the vastness of the Internet there are many different guides: search engines to locate, links to hopefully relevant or interesting material, and social networks such as Twitter, Facebook, and LinkedIn groups through which others can refer or promote.

Like these guides that help you pilot the sea of information, there are resources and methodologies to strengthen your products and grow your business. It is critical to simplify the product or problem definition to reduce overall complexity which has costs both known and unknown. Experience and a fresh set of eyes can always be helpful in reducing complexity along with providing methodologies and resources.

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