The modern business environment is often described as complex, uncertain and unpredictable and the impact of this is experienced across business on an almost daily basis.
While many board directors and executives claim to have an intuitive understanding of this new more challenging business landscape, few can effectively define it let alone successfully steer their organisations through it.
What is business complexity?
Organisations can be thought of as a system with many parts. These systems are, in turn, also part of a broader system, often termed the industry or sector. Like any system, organisations can vary from simple, to complicated, to complex and will behave differently depending on the level of complexity they are subjected to.
The level of complexity of a system (or organisation) is driven by three broad factors:
- The number of parts comprising the system – the more parts it has the more complicated or complex it becomes.
- The number of connections between the parts – the more interconnected the system is the more complex it becomes.
- The level of consistency and predictability of the interactions between the parts – the less predictable the interactions the more complex the system is. This is perhaps the most important factor causing complexity.
To understand the difference between complicated and complex organisations, consider the difference between a car and traffic. A car is a complicated system; it has many parts that must all interact to make it work. However, they interact in a largely predictable manner and with enough knowledge it is possible to predict how the car will move.
Now consider that car being driven in traffic. The driver must respond to other cars on the road – changing lanes, slowing down to maintain a distance from the car ahead or even taking a different route to avoid congestion. It is now in a complex system and its path is less predictable.
In an organisational context, factors such as the number of divisions, geographical locations, management structures, processes, number and diversity of stakeholders and product range can all create different levels of complexity.
Complexity can also arise externally from the industry (and beyond) through factors such as competition, regulation, influence of technology, change and disruption.
Why is business complexity a problem?
The more complex the business and the industry, the more unpredictable future outcomes become.
Opportunities are harder to spot and issues more difficult to resolve. Also many of the traditional ‘siloed’ and rigid approaches to organisational management, planning and transformation no longer work.
Complexity and uncertainty can result in organisations and managers failing to adequately address issues or identify and take advantage of opportunities. This will lead to loss of competitive advantage, poorer performance and erosion of value.
Take for example the recent emergence of disruptive technologies and organisations like Uber, Skype, Netflix, etc. Their entry into the market was made possible because the more traditional players were ill equipped to identify and adapt to their emergence.
How can organisations adapt to meet the needs of the modern world?
To adapt to meet the challenges of a more complex, unpredictable business world requires organisations to:
- Evaluate their business environment and potential sources of complexity;
- Transform their organisations to evolve and better suit their changing environment.
Evaluation includes identifying the sources of complexity – both within the organisation as well as in the wider broader market and eco-system – then determining the overall level of complexity facing an organisation.
Once done, classify the complexity being experienced. For example, some complexity results from processes that have been progressively developed over many years. Often these can be simplified, reducing the overall complexity of the organisation. On the other hand, complexity may be the result of changes in the sector or marketplace.
Remember, not all complexity is the same. Some can be avoided or mitigated, whilst other forms of complexity are imposed or intrinsic to the nature of the organisation and adaptation is required.
While classifying and mitigating complexity will go part way to ensuring an organisation is better suited to our modern business environments, to truly succeed, further transformation is likely to be required.
Using a business transformational methodology such as the 6C Framework, Boards and CEOs can:
- Get a snapshot of how well placed their organisations are to meet the challenges of our modern business environment.
- Secure an understanding of which areas of their businesses require the greatest attention and where transformation is essential.