Product Complexity: Theoretical Relationships to Demand and Supply Chain Costs



Researchers have suggested that product portfolio complexity effects firm performance but that the effects are not well understood.  This study enhances the understanding by clearly defining the construct, developing a typology, applying the theoretical framework of Theory of Performance Frontiers, developing measures or complexity factors descriptive of the construct, and testing several hypotheses informed by the definition and theoretical perspective.

 From a thorough grounding in the literature, product portfolio complexity is defined to be the state of possessing a multiplicity of, and relatedness among, products within the portfolio.  Complexity is found to possess two dimensions: multiplicity and relatedness.  Relatedness contains three subdimensions: similarity, interconnectedness, and complementarity.   Several measures of multiplicity and similarity are created and are informed by the definition and theoretical perspective.  Hypotheses which relate these measures to various costs and sales volume are tested by analyzing longitudinal product portfolio and cost data provided by a designer and manufacturer of data processing equipment using panel data regression. Thus this research fills a portion of the gap in understanding that exists about the relationship between product portfolio complexity and firm performance by providing a theoretically grounded understanding of complexity‚Äôs relationship to cost and sales volume.  Further, a typology of complexity is developed, two of its dimensions operationalized, and the Theory of Performance Frontiers extended to intangible assets.  Beyond the academic contribution of the research is the benefit offered to the business community.  Specifically, this research provides an approach to quantifying the most profitable configuration of a portfolio.  Thus the research both advances theory and offers benefit to the practitioner community. 
Contact information:
Prof.dr. S.L. van de Velde