How Growth Ambitions Lead to Complexity... and Perhaps Lower Revenues and Profits

The Wall Street Journal reported last week on McDonald's slumping sales.  The article was titled, "McDonald’s Menu Problem: It’s Supersized."  According to the Wall Street Journal, "McDonald’s doesn’t disclose historical data on its menu’s size, but Datassential, which tracks menu trends, says there were 85 items seven years ago, and McDonald’s says there are 121 today."   What are the negative consequences of this menu creep?  The article notes, "QSR Magazine, a trade publication that studies the drive-through performance of fast-food restaurants, reported last year that McDonald’s had clocked its slowest average speed of service in the study’s 15-year history: 189.49 seconds, more than twice the chain’s goal."   

The McDonald's story is not unique.  A firm has growth ambitions, and perhaps it is even worried about slowing growth.  What does it do?  Expand its product offerings.   However, the increase in product variety and selection adds considerable complexity to the business.  As a result, operational efficiency declines, and the company's fortunes actually worsen.  In some cases, it leads to excessive manufacturing and supply chain costs;  in other situations, it decreases customer service.   Consider what happened to Lego more than a decade ago.  A desire to increase growth led to an explosion in the number of different pieces that it produced and sold.  The added complexity became a huge burden for the company's operations.  It had significant negative consequences.  Many firms face this challenge.  Before they decide that new product offerings will be the answer to growth challenges, they have to think about the impact that additional complexity will have.  Are they prepared for that?  Can they cope with the strain that new products may create on operational processes?