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Product Complexity: a Definition and Impacts on Operations Mark A View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by University of Dayton University of Dayton eCommons Department of Management Information Systems, MIS/OM/DS Faculty Publications Operations Management, and Decision Sciences 10-2007 Product Complexity: A Definition and Impacts on Operations Mark A. Jacobs University of Dayton, [email protected] Follow this and additional works at: https://ecommons.udayton.edu/mis_fac_pub Part of the Business Administration, Management, and Operations Commons, Databases and Information Systems Commons, Management Information Systems Commons, Management Sciences and Quantitative Methods Commons, Operations and Supply Chain Management Commons, and the Other Computer Sciences Commons eCommons Citation Jacobs, Mark A., "Product Complexity: A Definition and Impacts on Operations" (2007). MIS/OM/DS Faculty Publications. 94. https://ecommons.udayton.edu/mis_fac_pub/94 This Article is brought to you for free and open access by the Department of Management Information Systems, Operations Management, and Decision Sciences at eCommons. It has been accepted for inclusion in MIS/OM/DS Faculty Publications by an authorized administrator of eCommons. For more information, please contact [email protected], [email protected]. RESEARCH ISSUES ■ SHAWNEE VICKERY, Feature Editor, Eli Broad Graduate School of Management, Michigan State University Product Complexity: A Definition and Impacts on Operations by Mark Jacobs, The Eli Broad Graduate School of Management, Michigan State University s evidenced by recent articles in need to be explained (Ramdas, 2003). AThe Wall Street Journal (Lawton, However, this cannot happen until 2007) and Forbes (Patton, 2007), there complexity can be explained theoreti- is a growing emphasis on product de- cally. But, to build theory there must first sign resulting in products that are in- be a common understanding about the creasingly more differentiated and construct of interest (Wacker, 2004). aimed at more and more narrowly de- Only then can researchers operationa- fined market segments. The result is lize it and search for meaningful rela- product portfolios manifesting increas- tionships. In light of this, I develop a ing levels of complexity. While adding definition of complexity below. A sam- to the portfolio may enhance revenue, it pling of the operations management lit- appears to be at a high cost. erature is then presented within the In a recent survey, 57 percent of ex- context of the definition. Then, given the ecutives reported that the cost to man- definition, an example of how theory age customer orders, procure and can be applied is offered and proposi- inventory materials, and deliver prod- tions drawn therefrom. ucts to end users threatens to undermine operational efficiencies and to consume Definition profits (Hoole, 2006). Product complex- The study of product complexity has ity in business supply chains is the pri- been hampered by the lack of consen- mary driver of these costs (Bozarth, sus around a precise definition. My goal Warsing, Flynn, & Flynn, 2007). Case is to establish a basis for consensus be- Mark Jacobs research confirms that many companies ginning with a formal and robust defi- is a PhD candidate in are indeed struggling with product nition of the construct ‘complexity.’ To Michigan State Univer- complexity decisions (Closs, Jacobs, do so I investigated several different sity’s Supply Chain Man- Swink, & Webb, 2007), and marketing disciplines to gain a comprehensive agement Department initiatives appear to be a major culprit. majoring in operations understanding of how complexity has management with an em- Marketers constantly pushing for been conceptualized to date. These find- phasis on product develop- greater differentiation of their products ings are summarized in Table 1. For ment. His research interests added 1.7 new products for each prod- brevity, the elucidation of these findings involve advancing theory in managerially rel- uct retired (Hoole, 2006). Thus it ap- will be reserved to other publications evant ways in the areas of product complexity, pears that the challenges presented by organizational performance, and operations (Jacobs & Swink, 2007). strategy. His dissertation investigates theoreti- product complexity are pervasive and Inspection of Table 1 reveals har- cal relationships between product complexity and significant to organizations mony amongst the uses of the word demand and supply chain costs. Prior to begin- (ATKearney, 2004). complexity in the academic literature. ning an academic career, Mark consulted for Cap The difficulty for organizations These similarities include multiplicity, Gemini Ernst & Young, held positions at IBM arises because neither complexity nor and Cummins, and was chief operating officer at relatedness, and difficulty of compre- JL Analytical Services. Mark holds a BSIE from its impacts on performance are well hension. Therefore, I propose the fol- Cal Poly, SLO, and an MBA from the University of understood (Fisher & Ittner, 1999b). The lowing definition of complexity. Minnesota’s Carlson School of Management. mechanisms through which it affects [email protected] cost, quality, delivery, and flexibility Decision Line, October 2007 6 Table 1: Findings on how complexity has been conceptualized to date. Complexity is the state of possessing among its elements than the other. We and complementarity. Similarity in- a multiplicity of elements manifest- therefore define product complexity as cludes sharing characteristics such as ing relatedness. follows: part geometries or components, offering Complexity in a product is mani- Product complexity is a design state the same functionality, fulfilling the fested by both the multiplicity of, and resulting from the multiplicity of, and same strategic role in the portfolio as a relatedness among, elements contained relatedness among, product architec- prior product, or any other such indi- within the product portfolio or the prod- tural elements. cation of a like kind relationship. uct itself. Ceteris paribus, one product Multiplicity relates to an enumera- Interconnectedness relates to a connec- is considered more complex than another tion of items. However, as can be seen tion via an interface such as that identi- if it contains a greater multiplicity of in Figure 1, relatedness has three dimen- fied by Ulrich’s (1995) slot, bus, and elements or more inter-relationships sions; similarity, interconnectedness, sectional typology. The gist is that there Decision Line, October 2007 7 beneficial as long as the unit cost of the component being standardized was not too high relative to alternative suitable components (multiplicity complexity). Others (Krishnan, Singh, & Tirupati, 1999; Sanderson & Uzumeri, 1995) ar- ticulate how the use of a common plat- form can be advantageous to cost-effectively pursuing additional market segments. One interpretation of this work is that there can be increas- ing returns to decreasing complexity, but that the benefit is bounded by com- ponent costs. Therefore the benefit to the relational dimension of complexity may Figure 1: Three dimensions of Relatedness. be concave. A significant body of work has emerged on the topic of modularity— is a mechanical connection or the pass- tional markets to offset economic or po- modularity representing an increase in ing of signals between two elements. litical risks, as well as offer broader lines reledness complexity. Modularity en- The interconnectedness of elements in the hope of increasing the chance of ables scale economies (Pine, Victor, & also includes logical interconnected- at least one becoming a runaway suc- Boynton, 1993), inventory reductions ness. For example, a product that sup- cess. There are further forces such as (Fisher, Ramdas, & Ulrich, 1999a; plants another in the portfolio, the competitive positioning and responses Ramdas & Randall, 2004; Swink & proverbial new and improved product, that work to cause firms to offer more Closs, 2006; Tu, Vonderembse, Ragu- is connected to the old though the simi- products. Nathan, & Ragu-Nathan, 2004), engi- larity of position in the portfolio, func- The impacts of product complexity neering efficiencies (Collier, 1981), and tionality offered, market segment on firm operations are explored prima- improved coordination (Nobeoka & targeted, or other logical connection. rily in three separate research streams: Cusumano, 1997; Sanchez & Mahoney, Complementary relatedness is intended complexity management, measures, 1996; Schilling, 2000). However, the in the economic sense; an mp3 player and inventory. Inventory is the thread benefits are shown analytically to be a and digital music are complements. which ties the streams together as much function of the cost of the components of the management literature looks at being standardized (Fisher et al., 1999b; The Literature effectiveness in reducing inventory lev- Karmarkar & Kubat, 1987). Empirical As presented, product complexity rep- els or costs, and the measures are also research shows that the advantages of resents a multiplicity of related ele- focused on improving inventory posi- modularity can have a positive impact ments. Systems theory (Boulding, 1956; tions. However, even though elements on elements of competitive performance Simon, 1962) informs us that product related to portfolio complexity have (Jacobs, Droge, Vickery, & Calantone, complexity can be represented on sev- been studied since the 1970’s, there has 2006; Jacobs,
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