| 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 using panel data regression by analyzing longitudinal product portfolio and cost data provided by a designer and manufacturer of data processing equipment.;The results reveal that measures of multiplicity are more effective at predicting cost than measures of similarity. Additionally, models measuring changes in cost or volume rather than absolute levels are superior. On average, complexity variables used to measure changes in cost or volume explain 10% of variance and the full models explain over 50%.;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's 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. |
