Organizational complexity is taking a toll on business profits

Last July and August 2015, the Economist magazine conducted a survey of 331 executives. The survey focused  on the impacts of organizational complexity and the efforts companies have taken to reduce it.

Complexity in Large Organizations

orgcomplexLarge organizations are viewed as dynamic networks of interactions, and their relationships go well beyond aggregations of individual static entities. For instance, these organizations may operate in many countries and manage a vast number of people and brands.  But the perception of complexity can also stem from a lack of employee role clarity or poor processes.

Unwieldy complexity often results from business expansions or bureaucracies that unnecessarily complicate a company’s operating model, leading to sluggish growth, higher costs and poor returns.  The Economist survey found that over half (55%) of businesses suffer from organisational complexity which is perceived to take a toll on profits.   Most affected by complexity is general management, followed by employee relations and customer service.  Over one third of executives said that they are spending up to 25% of their time managing that complexity, and almost one in five is spending up to 50% of their workday dealing with complexity.

Two kinds of complexities

Experts believe that complexity in the organization comes from two sources:  The complexity arising from the outside World, its dynamic and unpredictability, and a company’s internal complexity caused by poor processes, confusing role definitions, or unclear accountabilities.  The most damaging kind of complexity come from within.  In a survey of 58 companies, Mocker and Jeanne Ross, Director and Principal Research Scientist at CISR, found that those companies that are able to create value from product complexity while maintaining simple processes were outperforming others.

According to Mocker, companies can then boost value and organizational effectiveness through a combination of tree sets of actions:

  • Break the separation between those dealing with product complexity and those dealing with process complexity,
  • Design processes and systems to cushion internal impacts of complexity by eliminating silos, and
  • Offer customers ways to deal with increased complexity by offering personalized choic es for instance.
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