Simple Doesn't Always Equal Smart

Mercer Management Consulting is posting a white paper on its website titled: "Unlocking Profitability in Complex Companies," which says that maufacturing companies should weed out customers that don't contribute enough to profit. Those customers are harder to identify in a complex company with lots of SKUs, brands, channels, and -- well -- customers.

That's true, but the problem is not the complexity -- although an inverse statistical correlation can probably be made between profitability and the number of SKUs or brands per customer. Statistical correlations, as we all know, do not prove causality. For example, Mercer cites its own 600-company study performed beween 1998 and 2003 that found that "fewer than half the companies with annual revenue growth rates of 5% or more also achieved increased operating margins." Mercer is not saying that revenue growth by itself causes lower margins.

There are a lot of companies that do fine with lots of complex relationships to manage and lots of SKUs. Look at Wal-Mart.

The real problem is lack of good IT. Mercer cites one of its customer's -- called "Milo" in the paper -- that can't allocate costs accurately against customers, and as a result is over-serving and over-investing in some places and under-serving and under-investing in others. Mercer says that getting a handle on this "was more difficult than anticipated because Milo lacked consistent information and systems across its many businesses and geographies."

Okay, so isn't that the real problem -- not the complexity? Although not in Milo's case apparently, but in others there could be legitimate reasons to be complex. Just getting simple for the sake of simplicity seems kind of -- well -- simple.