In this fast-paced, technologically advanced world, there’s no such thing as excessive innovation — right? In the May/June 2017 issue of Harvard Business Review, Martin Mocker and Jeanne W. Ross suggest that too much innovation creates too many product lines, systems and complexities. This combination leads to diminished revenues and higher expenses.

Mocker and Ross surveyed 255 senior executives and studied seven companies in depth. They discovered that, in most cases, when companies added product variety, they didn’t add profit. However, on average, companies that added product variety also added customer and employee difficulties.

“Welcome to the dark side of innovation,” Mocker and Ross write. “Every time customers have to enter the same data twice, have inconsistent experiences when interacting with different parts of the business, or are forced to contact multiple people to get something done, it hurts the company … The more potentially value-generating innovations you add to your company’s product portfolio, the more value-destroying complexity you are likely to embed in your business.”

The authors highlight Royal Philips, a Netherlands-based company that in 2000 had six business areas. With profits at all-time lows and complexity infiltrating its supply chain, sales and marketing, and everything else, Philips sought to reduce its employee and customer difficulties by creating globally standardized systems and processes in three areas: idea to market, market to order, and order to cash. Now, Philips works exclusively in the health-technology market. These changes enabled Philips to increase its earnings before interest, taxes and amortization margins by 10 percent and double its share price.

Likewise, LEGO, the iconic toy brick company, found itself facing extreme complexity in 2004 after it doubled its number of unique bricks to more than 12,000 within seven years. Beyond toys, LEGO also had expanded into clothing, computer games and theme parks. Product variety grew, and LEGO operations began to suffer with shortages in some countries and excess inventories in others. In 2005, LEGO sold its theme parks. Around that time, it also started standardizing its global supply chain and product-life-cycle-management processes. These changes have contributed to LEGO’s recent growth and profitability.

Mocker and Ross propose three solutions for company leaders who want to continue to innovate without adding customer and employee difficulties — what the researchers call “value-destroying complexity.”

• Focus on integration, not variety. New products should pair with other products so that they can be cross-sold and bundled. New products that are integrated also can enhance products or offer customers more information. “Although innovation through integration might seem like a narrow focus for companies, bringing products together may create more — and more valuable — opportunities than it eliminates,” Mocker and Ross write.
• Ensure that innovators and complexity employees work together. Instead of developing new products and then handing them over to Customer Relations, operations, human resources and information technology, companies need to create cross-functional teams from the beginning. This enables better visibility into end-to-end processes.
• Commit to directing innovation. The authors note that this commitment is evident in the mission statements of the companies they studied. For example, the mission of USAA, a financial services company, is to “facilitate the financial security of its members and employees.” LEGO seeks to “inspire and develop the builders of tomorrow.” Mocker and Ross write: “Although very broad, these mission statements are more than slogans. They establish the purpose of innovations and are essential to innovation and, over time, to the success of the business.”

Linking innovation and operations

The authors’ second piece of advice should stand out to supply chain leaders. Consider the definition of integrated enterprise from the APICS Dictionary, 15th edition: “A business or organization made up of individuals who have acquired the knowledge and skills to work with others to make the organization a greater success than the sum of each individual’s output. Integration includes increased communication and coordination between individuals and within and across teams, functions, processes, and organizations over time.”

Chances are you already know this is a best practice; however, it might be hard to assert yourself and your team in innovation and development processes. APICS is dedicated to elevating the knowledge and success of supply chain management professionals in every endeavor. One valuable resource is the APICS annual conference. APICS 2017, which will take place October 15–17 in San Antonio, will feature more than 65 educational sessions presented by business leaders, authors and innovators. Find out more at apics.org/conference.