November 1, 2011
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The complexity of every business in the world is increasing daily, by leaps and bounds. Yet few of them even recognize that it is happening—even fewer have any continuing measures of complexity in place. Thus, they fail to reap the benefits of managing complexity and/or mitigating the risks they face as a result of not managing it.
When RIM’s Blackberry system stopped working, one of the likely contributing factors was its inherent complexity. Finally it got ”fixed” but its complexity remains a threat. When Amazon.com’s marvelous Web retailing machine offers millions of items for sale, but its earnings fall short of expectations, that is complexity at work.
When General Motors was taken apart and dramatically restructured in what was a Herculean effort to reduce complexity, the efforts paid handsome dividends in both profit and market position.
Wise men have written about management: "If you can't measure it, you can't manage it." And "What gets measured, gets managed." In most companies, there is no organized measure of complexity, no attention to its detrimental effects, and less awareness of the profit improvement potential of reducing complexity.
Companies spend a huge amount of time and effort on "risk management" without realizing that the greatest risk is a "loss of control." Public accounting companies ignore measuring complexity because they don’t know how to do it, and yet, they must realize at some level the enormous risks they are ignoring.
When complexity reaches critical levels, it not only damages profitability, it increases the risk of losing control. Loss of control is soon followed by chaos, whether in a company—or in a government—or in any kind of organization. Think about the effects a massive storm (or cloud of volcanic ash) has on the operations of airlines. The economic impact of such loss of control can barely be calculated—but it can be imagined.
Someday, executives, management and most of all, boards of directors will realize that to ignore complexity is to abdicate their responsibility to protect the assets of the corporation.
Boards should be the first to step forward and demand complexity metrics be installed and reported.
Ironically, most companies that have “tackled” complexity management, and actually made progress find that their profitability seems to “magically” improve. It’s not magic; it’s the elimination of the wastes and hidden costs of complexity. Profits grow, typically by at least one full point of net profit—a huge improvement—when corporate net profits are usually in the low single digit range. Simplifying any complex system also usually enhances the speed at which it operates, while reducing the cost as well.
Innovators worry that complexity management will constrain their creativity, but it doesn’t. Quite the opposite occurs. Getting rid of unnecessary and wasteful complexity, frequently caused by proliferation, allows them to focus more attention on true innovation. Innovation is rejuvenated.
When companies finally figure out whether to get rid of complexity or use it to build competitive advantage, it must still be managed constantly. Complexity is like weeds in a garden. Left untended they come back, and spread. So does complexity. No measurement means no management, so “weeding out complexity” is a one time event—a temporary measure at best. It gives a false sense of accomplishment, one that soon fades and is forgotten.
When complexity leads to systemic breakdowns—such as that endured by the power grid in the Eastern U.S., devastation occurs. When companies lose control, just a little bit, of their processes even the best of them suffer mightily. Look at Toyota’s huge recalls for what seemed to be relatively minor problems—that grew much larger. Toyota attempted to grow globally, more rapidly than ever before, and just a few small errors allowed complexity of unintended consequences to strike. If this iconic industry leader could stumble like this, could you? Could your company?
Learn more about what MUST be measured and managed—or endure the consequences for a long time to come. There are simple metrics that can be implemented very quickly and more sophisticated ones for larger, more demanding situations. This is the wake up call. Will you respond? How?
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Leanne HoaglandSmith 6 months ago
Complexity and simplicity are very much like Yin and Yang. Human beings make simple things complex and then turn around and make those complex things simple. This is a continuum of seeking balance. The challenge is two fold: keep an eye on the ball (goal) while staying ahead of the flow. Great insight and observations, John