Is your organisation too complex?

Posted on: October 24, 2012

I participated in a fascinating webinar today by AMBA (Association of MBAs) where Professor Simon Collinson (Dean of Birmingham Business School) presented the key findings from the book he co-authored with Melvin Jay called “From complexity to simplicity: Unleash your organisation’s potential”. There may be some interesting lessons for larger and fast growing professional service firms.

What is complexity?

He started by defining complexity across three dimensions:

  1. The number and variety of components in your business
  2. Interrelationships between these components
  3. Pace at which these relationships and the components change

Global Simplicity Index

They conducted research to quantify the impact of complexity on performance in 200 of the largest companies. From five years statistical information they identified 120 drivers of complexity which they summarised into nine complexity drivers and nine performance drivers.

He shared some insights including “the more international the organisation, the more complex” (a transnational index), product portfolio diversity index and a concentration index (how much revenue is derived from one or two products). He showed a graph of profit (EBITDA) against complexity to reveal a curve of good complexity where performance is enhanced, and after a tipping point, bad complexity where costs are increased and value destroyed. The research revealed that 10.2% ($1.2bn) of shareholder value was lost on average from complexity, which across the 200 companies came to $230 billion.

Simplicity matrix

Further use of the complexity-profit relationship generated four categories of organisations:

  • Simplifiers (e.g. Renault)
  • Performers (e.g. GSK)
  • Complicators (e.g. IBM)
  • Strugglers (e.g. Nokia)

Drivers of complexity

Further research with 600 middle managers using their six stage model revealed the biggest drivers of complexity were:

  1. The external environment
  2. Strategy
  3. People
  4. Organisation
  5. Process
  6. Product

And the top 10 drivers (of 106) of internal complexity were:

  1. Launching new products and services
  2. Strategic planning process
  3. Changes in core strategy
  4. Number of customers
  5. Management behaviour
  6. Levels of management and organisation
  7. Measuring and reporting
  8. Diversity of customer demand
  9. Internal communication behaviour
  10. Decision making process

He indicated that there were marked differences between sectors and within particular industries. There were some interesting statistics revealed:

  • 38% had six or more specialist IT systems
  • 16% had more than 13 specialist IT systems
  • 10% companies spent 16 weeks or longer on budget planning
  • 26% had more than 10 levels of management
  • 43% spent more than 10% of their time dealing with emails
  • 16% spent more than 30% of their time dealing with emails

He said that there was also a direct correlation between the time an organisation spent on emails and performance – and the characteristics of the weakest performers included: time spent on emails, levels of management and the decision process. He called this the “introversion effect” where organisations were so wrapped up in internal processes that they lost sight of external opportunities and threats.

He then talked through the stages (diagnosis, key simplicity profiles, simplicity 101, high impact projects and setting targets) of a project at a global finance company. There were some key learnings about managing major transactions, reducing IT infrastructure, reducing customer paperwork and simplifying global people management processes (and increasing quality human interaction). The results included 300 simplification projects, $175m in cost savings and an increase from 3.4 to 4.2 in employee engagement on “easy to get important things done”.

In the Q&A session he explained that Britain and the US are less complex than France and Germany and that the key people to involve in a simplification project were the CEO, the head of HR and the head of IT. He also said that they were now developing an index to measure simplification pre and post mergers and acquisitions.

 

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