We all know that the business environment is getting more and more complex. Ever more demanding customers. Expensive new digital technologies. Widespread markets with different rules and regulations. Multifaceted sales channels. Hyperextended supply chains.
Smart executives understand that external complexity should be seen not as a problem but as an opportunity, and that by streamlining their organisations, operations and decision-making, they can gain a real competitive edge over slower-moving rivals.
Unfortunately, that’s not how most companies respond. Instead, they just keep adding cumbersome structures, burdensome rules, and inefficient processes in hopes of meeting complexity head-on. In fact it has the opposite effect. The resulting high levels of complicatedness end up slowing reaction time and making us even less productive. The inevitable outcome? Growth slows and margins fall.
As part of the effort to get a better sense of just how big the problem of ‘complicatedness’ is and how it affects performance, a team at BCG recently surveyed corporate leaders, managers and employees at more than 1,000 companies, asking them about their financial performance and their perceptions of just how complicated their organisations were.
We asked respondents to rate their companies’ degree of complicatedness in eight dimensions that we had previously identified as the most common sources: leadership; strategy and transformation agenda; structure; activities and roles; processes, systems and IT; decision making; performance management; and people and interactions. The results of the study were striking.
Where complicatedness hurts
We found that, in general, less complicated companies achieve above average revenue growth and profit margins — they are more innovative, more efficient, and quicker to bring new products and services to market. But the devil, of course, is in the details.
It turns out — perhaps unsurprisingly — that companies facing particularly complex business environments tend to be relatively more complicated. Healthcare companies and public sector organisations, for example, score higher in most complicatedness metrics than technology, media and telecom companies.
But interestingly company size wasn’t a factor: complicatedness can affect even the smallest organisations if their processes, systems and cultures hamper efforts to respond effectively to changing market conditions and customer demands.
The most important finding, we think, was that perceptions of complicatedness varied by job position. Complicatedness scores from employees with no managerial responsibilities were 70 percent higher than those from members of the board of directors.
This is particularly concerning. After all, company leaders and senior managers play a major role in determining how complicated their companies are. But if they don’t have an accurate view of the degree of complicatedness at their companies, then the effort to increase simplicity becomes that much more difficult.
How complicated is your company?
Too many companies have struggled with the negative effects of complicatedness for far too long. Our experience has shown us that if you make the effort to understand how it harms your performance and productivity, you will gain a distinct competitive advantage in the struggle to manage complexity.
In working with company leaders to reduce complicatedness, we have identified a four-step approach to simplification.
Firstly, they need to recognise just how complicated their company is, and where specifically complicatedness most affects performance.
Secondly, companies should diagnose the causes of complicatedness, understanding the root cause of it through employee interviews.
Thirdly, interventions should be developed that address the underlying causes of performance issues through carefully targeted changes that promote desired behaviors and produce a clear and measurable impact.
Finally specific interventions should be applied to prioritise solutions, create an implementation road map, drive the change process, and monitor improvement.
Rooting out complicatedness is possible but only with a structured and focused simplification effort. Executives can assess their companies’ level of complicatedness in BCG’s benchmarking survey, where they will be able to assess their levels not only in absolute terms but also in relation to similar organisations.
The full article can be found here for further detail.
Reinhard Messenböck, Yves Morieux, Jaap Backx, and Donat Wunderlich are consultants at The Boston Consulting Group.
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