matthew Gwyther, MT Welcome, everyone, and thank you very much for coming. The idea is that over lunch we are going to discuss the issue of managing complexity in business. Mike Gibson from Pricewaterhouse-Coopers will kick off, as his organisation has done plenty of thinking on the subject and observed many of its clients tackling it.
Mike Gibson, PwC The source of our interest in complexity is simple: large numbers of our major clients are talking about how it increasingly affects their businesses. Essentially, what a lot of companies have started to say is: 'We know the world of business is complex, but a lot of the complexity we have is self-imposed. We have created things, we have inherited things, we have acquired things, and when we look at them they are far more complicated than they should be. The impact on cost and speed is clear.'
Complexity can manifest itself in four ways. Firstly, in legal structures, where complex structures put a huge burden on the organisation. Secondly, in the alignment of accountability to the business model. Often the model is not fully clear on who is in charge, who is accountable for what when it comes to execution. Thirdly, in complex decision-making. One typical large company with whom we work says: 'The only way we make decisions around here is if everybody gets involved.' This means decisions have disproportionate amounts of time attached to them, and, even then, this does not guarantee support.
Finally, complexity is most visible in systems and process variation, and reinvention of processes in multiple locations. This leads not only to diseconomies of scale in operations but also to lack of leverage in implementation. Through their efforts to become Sarbox-compliant, companies may have seen the true extent of this process variation. Some are now saying enough is enough and aggressively removing any complexity that does not add customer value.
Sir Martin Sorrell, WPP The first observation I would make is that, these days, complexity goes with the territory. Anybody who believes that life is going to become simpler in this day and age needs to have their head examined. In an increasingly networked world, the 21st century is not for tidy minds. I think - certainly in our business - trying to simplify complexity actually ends up in destroying value; that keeping complexity adds to the value.
Not that you make it complex for complexity's sake, but everyone around this table faces a more complex environment and is looking for more complex solutions from us in solving those issues. So trying to meld together the 95,000 people that WPP has in 106 countries is naturally going to become more complex.
What is happening to our clients? Well, geographically they are becoming more complex and technologically they are becoming more complex. Those are the two big changes, and we all look for nice black-and-white solutions, but if it was as simple as that it would be easy. We would not have to come into the office in the morning.
David Brennan, AstraZeneca I think in an organisation of 70,000 people such as Astra Zeneca, there is a level of complexity around decision-making that a lot of our people would identify as bureaucracy. The way to deal with it is to get the organisation to focus on value-creation: what are we here to do? What is the mission of the organisation? How do we create value for shareholders, for employees, for whatever we are in purpose to serve? That allows the organisation to be clear and understand which things are valuable.
Let us make sure that we are focused on those and that they are getting management attention.
If you were to put the gun to my head and ask, 'What does it take to serve your shareholders effectively?', I would say: research and development. We have to discover and develop drugs and figure out a way to get them to market effectively and appropriately. Everything else is just hanging on for dear life.
Lord Crisp, ex-NHS When I was head of the NHS we had 1.3 million employees, but it was associated employers rather than just one. For the public sector, a major issue is the interface with politics: in six years, I had three secretaries of state and 12 ministers, and so you have to keep renegotiating your role. This is one of the reasons why there is a debate in the NHS at the moment that has been instituted by the prime minister about whether the NHS should have a constitution.
But the biomedical world is extraordinarily complex and regulated with a myriad of partnerships and relationships: that is, maybe, how it needs to be. However, there is complexity and there is just making things too complicated. Maybe this is a public-sector thing, but we do build on what we already had without throwing away what we were already doing before. You see this in law-making, do you not? Everything just gets added on, so you end up with the most complex sets of regulations because nobody went back and drew them up as a clean and clear set.
Adam Crozier, Royal Mail At the Royal Mail, we have gone from having about 235,000 people to 185,000 over the last 30 years. But complexity is here to stay and in the end it is all about people. It used to be that organisations had people who were good at strategy and people who were good at getting things done - execution. The new area that has opened up is in the middle: how to execute. You have to move from having the idea to figuring out, before you start executing, how you're going to make it happen across multi-disciplines, where some of the complexities may be scale, some of them may be regulation, some of them may be government and some of them the products themselves.
Putting all that together and finding a way through to execute change is becoming a hugely important skill, and nearly every CEO I speak to is searching for people who have those skills to make that change happen.
As far as the Royal Mail is concerned, do I think we could have done what we have done if we had not been recreated as a standalone plc? No, not for a second. We needed that slight separation from government, because we have had to do a number of things that are deeply unpopular. Politicians ultimately have to be popular. But we do not have to be popular; we have to do the right thing for the business.
Val Gooding, Bupa On the subject of the public and private sectors, I was reminded of trying to do certain things together when we were trying to get private-sector providers to participate in the NHS - some of which has been very successful, by the way. In the early days, we'd turn up at a meeting with two people and the NHS would turn up with 17 on the other side of the table. All these people were highly intelligent, capable, well-intentioned, and wanted to do a good job and make a contribution. But it was totally ludicrous; you could not conclude a deal in that way.
There are many sources of complexity in business, but in my experience, it is not normally the fault of the market or the customer. In our business, because we do not have any shareholders, we are all very focused on the customer. The things that drive complexity in our business are not customers saying to us 'Could you do it differently?' and requesting some arcane, niche-like product or service or something. Customers want simple things and I have a lot of sympathy with David Brennan's way of putting it: the CEO must be able to articulate what the business is doing in very simple terms and they must do that for everybody. We ought to do that for our boards, for all our stakeholders and so on. The CEO who is making it sound complex is doing the business a disservice.
Forgive me, PwC, but one of the other sources of complexity, I'm sorry to say, is professional advisers. I remember many years ago, when I was running the marketing department at BA, being shown an immensely complex presentation from somebody like Capgemini about customer loyalty schemes. I read the presentation and thought: This is amazingly complex; how can it be so complicated? Basically, it was not complicated, it was just customers earning Air Miles and then burning them, earning and redeeming. There was nothing complicated about it, but from the consultant's point of view (I'm sure this never happens in your own organisation) there was a lot bigger fee to be earned for making it complex.
Sorrell, WPP I think if you were writing the Havard Business Review article about complexity, you'd note that the most complex model would be the multi-branded company that has grown by acquisition, and the simplest model would be the uni-branded company that has grown organically. If I take our industry or like industries, it's not an accident that McKinsey and Goldman Sachs are the best companies in their industries, because - with all due respect to other professional consulting companies - it's an easier model to run. It is a longer-term, slower-growth model, because you recruit, you train, you adapt people, you change their behaviour; you epitomise the values that David was talking about in terms of what you are trying to do.
Then there are industries where there are diseconomies of scale, such as our own. With the exception of media buying, where we clearly get efficiencies of scale and economies of scale, by and large, the bigger an organisation becomes in our own industry the tougher it gets. In our industry, I would justify our structure as being complex because of the diseconomies of scale in a creative business. Employees think the bigger you get the worse it gets, and clients think, rightly or wrongly, the bigger you get the worse it gets.
Paul Coby, British Airways If you become big and the model changes under you and you have allowed yourself to become too complex, you let the others in. In my view, that's essentially what happened to British Airways in the late 1990s. It is important to distinguish between good complexity and bad complexity and we had both sorts. We had optimised every small part of our business model, so we did have, effectively, nine frequent-flyer programmes for each market. We had literally thousands of different fares, because we had five classes, we had all sorts of extraordinary rules. When you multiplied it up, there were literally millions of fare combinations that you had to keep registering and you had to sell. For instance, we had a special fare for dogs in boxes going to Budapest and we had a special fare for World Cup referees - which was great every four years and not much in between. We'd optimised the heck out of all the small bits because that was what the model was; you were giving the customer incrementally what they wanted.
Then the world changed. Ryanair and easyJet came in with very simple models, and they nearly killed us. The reason we came back was we said that we had to distinguish between good complexity and bad complexity. Good complexity is a lounge product, a transfer product and frequent flyer. Bad complexity is an exec club that nobody can understand, let alone relate to, and extremely complex fares that are designed to get people to pay as much money as possible when they can look on the web and buy cheap fares. We had this concept of snapback, so we said: Where do we want to get to? Work out what a simple airline looks like and then add back in the bits of complexity that people would pay for.
Jane McKenzie, Henley College Basically, complexity comes from the number of connections that you have in a system, whether that is connections between companies or your mergers and acquisitions, connections between cultures, connections between people. These create standoffs that can cause problems, because you are also dealing with connections in terms of relationships and the relationships between people. Everybody has different values and priorities, so you end up needing to look at the dilemmas that make a difference in the business and home in on them.
Regarding your good complexity/bad complexity, sometimes the good complexity is about giving lots of points of access to your customer, or creating speed, because you have lots of connections. However, sometimes that creates differences of opinion and it also creates this enormous number of problems.
Crozier, Royal Mail One of the things I stole from the time I worked in advertising is the need to arrive quickly at the heart of the problem. Before we start any meeting I say to the person running it: 'You have 30 seconds to tell me what it is you are going to tell me.' If it is interesting, we will have the meeting; if it sounds like gobbledegook, we will not. If you say: 'What I am trying to do is find a way to save £3m by moving our tax thing', right, I'm interested, tell me. If it is some cockamamie scheme, you think, frankly, I'm not very interested.
We all put a ton of effort into creating a clear strategy that the business believes is going to get us from A to Z in a reasonable way. But, obviously, you have to make changes as you go. However, people want to go off-piste and do all sorts of other things that you barely have enough time and funds to do. You don't need the 300 other projects that they personally would like to do.
Sorrell, WPP Yes, but then you get into the classic discussion where the person says: 'I want to be entrepreneurial' and by entrepreneurial they mean 'autonomous' - which means: 'I am not going to do what you tell me; I will do what I want to do.' Off-piste is exactly right. That is the bane of most of our clients. In fact, consultants are making a fortune at the moment and misleading some of our clients, in terms of being over-simple and reducing too much complexity, for the reason you just mentioned: concentrate on the billion-dollar brands and have no local variations or the 'long tail'. Unilever is a good example of that: a few years ago, it had 'Path to Growth', and you cut out the tail and you lose a lot of body. Hence, there are some really difficult trade-offs in the desire for simplicity.
There is another thing going on that I think is really powerful, and that is private-equity and non-listed structures, which are more attractive because what we are talking about is reducing complexity - which means more system, more rules, more straitjackets, less off-piste and more on-piste.
Gwyther, MT I'd like to bring Miranda Kennett in here and try to personalise the discussion a bit and talk about what it is like to be at the top of this huge, complex pyramid - which is where a number of you are.
Miranda Kennett, First Class Coach Those who ride this wave are flexible and resilient. Val (Gooding) was talking about experience, and experience is terribly important. But if you habitually use your past experience to try to solve today's problems, you are looking in a rear-view mirror. It is quite possible that what you did back then was perfect for back then but is not right for right now.
We have had IQ and EQ, and one of the other 'Qs' that is around at the moment is LQ, Learning Quotient. This is to do with the idea that not only have you had the experience, but what did you take from it? And many of the people who are the most successful leaders have, at some time or other, encountered adversity and maybe they have failed, but they have learnt from it. Failure can make people even more stuck in doing a limited number of behaviours, but the people who continue to thrive in this complex world are people who have that resilience - which is partly born from their learning from what went before.
Ian Powell, PwC I think a lot of this really does come from the top. If you have a very complex organisation that you are trying to control, your messages from the top need to be absolutely crystal-clear. I guess all of you at some point, when you first get to any leadership position, think you have to be terribly clever and come up with a fantastic strategy; it happened to me. Then you realise about two weeks into it that you have to articulate that strategy about two million times over the next five years so that everybody understands it, and that it is simplicity that really matters.
It strikes me that one of the advantages of complexity is that you have so many different and diverse views, and from PwC's perspective, we certainly have that challenge. But if you can harness that knowledge-sharing, it is a massive step forward. So if there was one area of complexity that I'd solve from PwC's perspective, it would be how we capture that knowledge and quickly disseminate it around the organisation.
Gwyther, MT But isn't the idea of a single CEO at the top of a vast complex organisation, albeit surrounded by a board, increasingly anachronistic? Because you are expecting that individual to have the better overview and a deeper knowledge of the whole thing.
Sorrell, WPP I completely disagree. Individuals make businesses and individuals drive a business's simplicity of view and the implementing of it. Of course you have to have coaches, mentors, good teams, and you have to have people around you, but the key difference is the individual. I am not just talking about at the top of an organisation; I am talking about at a country level, a city level, a regional level, a brand or a functional level. It is all about people. If something is going wrong inside our organisation, it is very simple.
Crozier, Royal Mail One of the things I have learned - through mistakes as much as anything - is that it is not about good people and bad people, although, obviously, you want as many good people as you can. It is also about getting the right people at the right time for the organisation and accepting that different people are good at different things. We got one business wrong where we put someone in to run it and he was absolutely fantastic, had all the right experience, perfect; but he had been used to managing incremental change and, with massive turnaround, he was like a rabbit in the headlights. He could not cope with it, because it was not his skillset.
Gooding, Bupa Sometimes, there are some very simple things behind this. Most people come to work to do a good job, particularly in the kinds of businesses we have all been working in - which are fantastically interesting and motivating businesses and intellectually appealing and so on. People come to work and they try to make a difference. I think one thing that often happens - and it certainly happened in British Airways for decades - is just that there are too many people in the management layers, even at the very topmost layers. They all want to do something really good, so some of your examples were to do with people who had come to work desperate to make a difference and do a good job and give the football referees their special rate or whatever. I am not kidding. BA was absolutely hamstrung by those sorts of people and when they ran out of those things to do the next thing they did was fight each other.
Sorrell, WPP If the CEOs of the clients that we deal with knew what we see on a day-by-day basis of the internecine rivalries at the geographical and functional level, it is terrifying. It is in our own organisation. I often say if we spent 10% of the time that we spend on corporate infighting focused on our clients or on the competition, we would be about 50% more profitable.
For a full transcript of this round-table conversation, PLEASE CLICK HERE
David Brennan, CEO, AstraZeneca
Adam Crozier, CEO, Royal Mail
Val Gooding, CEO, Bupa
Lord Crisp, former CEO, NHS
Sir Martin Sorrell, CEO, WPP
Mike Gibson, partner, PwC
Miranda Kennett, First Class Coach
Paul Coby, CIO, British Airways
Ian Powell, head of advisory, PwC
Professor Jane McKenzie, Henley Management College