According to PwC's consulting arm, Strategy&, leading companies are struggling to master the increasing levels of complexity inherent in growth. In a recent report, Winning with Complexity: Operations capabilities that drive profitable growth, Strategy& consultants cite discerning evidence of declining operating margins among companies experiencing revenue growth. "While about 90% of 300 companies reviewed by Strategy& in four different industries posted revenue increases between 2007 and 2012, fewer than half saw operating margins expand," state authors of the report. Among companies surveyed, revenues increased by an average of 9%, while operating margins dropped by 0.4%, contrary to the assumption that growth leads to an increase in returns through economies of scale.

Demand for customization raises importance of managing complexity

"Cost of Goods Sold (COGS) is often one of the largest expense lines for companies with product supply chains" the report reads, "so profit growth largely depends on COGS performance." With demand pulling companies toward greater customization of their product offerings, the need for capabilities to manage the complexity that comes with growth becomes critical. Strategy& consultants offer the following five operational capabilities to drive profitable growth:

  1. Innovation and development excellence:

    Open source innovation, modular design and platforming, design to value, rapid prototyping and mass customization are just a few of the ways progressive businesses are reducing the costs of innovation and product development.

  2. Advantaged supply network:

    Proper location of factories and distribution centres help businesses meet customer lead-time requirements, while taking full advantage of scale and regional cost differences.

  3. Differentiated supply chains:

    Differentiated supply chains effectively segment products, production, assets and supply chain polices. This establishes a distinct path for each product from sourcing through production and delivery.

  4. Strategic supply management:

    Companies should forge strong relationships with a core group of suppliers, and manage this extended enterprise like their own.

  5. Enterprise-wide operations excellence:

    This enables manufacturing lines to reduce change over costs by developing the flexibility to manage complexity.

Strategy& explains that while requiring intense focus, investment in the right set of operational capabilities can help create a significant competitive advantage.

Read the full report: Winning with complexity: Operations capabilities that drive profitable growth

 

Sector/subsector: 

June 30, 2015

Feedback: Was this page useful?

Interested in doing business in Ontario?

Talk to a business consultant

Newsletter Sign Up


Form is for business purposes.

*All Fields Required




Sign up for our newsletter

Receive the latest news and updates from Invest in Ontario.


Sign up now

Back to top