Complexity is not necessarily bad for business, say Julian Birkinshaw and Suzanne Heywood writing for McKinsey Quarterly. However, there are different types of complexity and the problem for many executives is that they're not always sure of the type that their organisation has.
The failure to differentiate between institutional complexity and the individual highlights a blind spot suffered by many executives which prevents them from managing complexity effectively and can lead to wasted effort and finances.
KNOW YOUR ENEMY
To help executives identify complexity and to make a judgement as to whether or not it has value, the authors provide a guide outlining four basic types:
- Imposed complexity includes laws, regulations and intervention by external organisations, etc (not typically manageable by companies).
- Inherent complexity is integral to the company and can only be cut out by losing business.
- Designed complexity results from the choices you make about where the business operates, what you sell and who you sell it to. It is possible to remove it but that might mean "simplifying valuable wrinkles" in the company's business model.
- Unnecessary complexity arises from an increasing gap between the organisation's needs and the processes supporting them. Once identified, it is easily managed.
CUT IT OR SHIFT IT
The aim should be to identify where institutional complexity is an issue, and where complexity is caused by factors such as a lack of role clarity or poor processes. Then, organisational effectiveness can be boosted by:
1. Cutting out any complexity that doesn't add value, and;
2. Channelling the necessary complexity to the employees who are most capable of handling it.
Birkinshaw and Heywood review the experience of an unnamed multinational consumer goods manufacturer who took this approach in several regions and functions and as a result halved the time they took to make decisions in critical processes – which in turn increased speed in bringing products to market and responding to changes in customers' needs.
The example manufacturer's executives were aware of their complexity problem. Rapid expansion in Australasia required attention and travel, which made managing across the company's two other regions – Europe and the U.S. – more difficult.
To assess the problem, the manufacturer conducted a survey asking employees about the clarity of roles and responsibilities across the company, whether processes were effectively linked, how predictable individual jobs were, how much they required coordination, and how difficult it was for individuals in the organisation to make decisions and get things done.
With the results of the survey, the manufacturer drew "heat maps" to help senior management ascertain where and why complexity was a problem for their employees.
Measures were then taken to resolve the complexity issues. For example:
- Functional boundaries were redrawn to clear up confusion that had built up between company HQ and the country office, so that marketing and other groups served either but not both. This simplified many employees' jobs and funnelled necessary interactions to the country managers.
- Small teams were created to focus on each geographic area. Job descriptions were standardised, and each member was given clear responsibilities for working with headquarters on forecasting, pricing and promotions. This removed unnecessary inputs to the processes and created a focus on local efforts where they were most valuable.
- The sign-off process was simplified by building it into the regular business-planning activities. This gave regularity and clarity to the decision-making process. While this added complexity for some of the staff, for most employees the overall level of complexity dropped significantly.
- A consistent talent review process was put in place across the company to tackle HR problems and focus on performance-management conversations and developmental discussions.
Putting Organisational Complexity In Its Place
Julian Birkinshaw and Suzanne Heywood