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Growing more by doing less

16.01.2017

Companies which are confronted with rising costs often offer an inflated portfolio of products and services, many of which are neither profitable nor competitive. These organizations can be compared to a growing tree which develops an increasingly complex structure of twigs and branches. To make sure that the tree survives in the long term, it has to be pruned and reshaped regularly.

Volkwagen has launched a host of new car models to reach its ambitious growth goals. As a result, complexity costs have strongly increased. Now, Management is introducing a comprehensive cost-cutting program to bring these costs down again.

Especially in turnaround situations, companies often radically reduce the size of their portfolios: Money-losing products are eliminated and companies revert to their ´Core Competencies´ to become profitable and fit for the future again. In such a situation, they don´t shy away from killing ´holy cows´ which nobody dared to touch as long as the company fared reasonably well…

The underlying strategic success principle can be called ´conscious reduction´: Aldi initially limited its product range to 350 items to control costs and complexity. Later, new products were gradually added, but the rule of focus is still valid today.

WD 40, the highly successful global producer of rust removers applied the same principle. The company, founded in the US in the 1950s, exclusively marketed its WD 40 multipurpose product until 1995. Later, the company carefully introduced additional product lines.

Companies should regularly examine their portfolios and check each product´s profitability. Before launching new offers, they should ask themselves if these are really competitive, if existing products might be cannibalized and to what extent the new products could increase complexity and related costs.

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