Increased complexity requires courageous decision makers
According to BCG's Complexity Index, business requirements have increased by a factor of 6 and organizational complexity has increased 35-fold (35!) Over the past 50 years.
In terms of textbooks, complexity challenges are usually handled by breaking down the complexity into smaller components. This is to enable specialization and control over the individual constituent - a smart first step. In complexity theory this is usually called reductionism. The idea of reductionism is that if we can only understand each component, then we can understand the total complexity by summing all the components - this is, however, an equation that rarely merges.
The division into constituents usually takes place at the level where the correlations between the players are strongest. In operations, we then receive units such as Purchasing, Manufacturing, Product Development, Marketing etc. Each component of the business receives a manager, a budget and a responsibility. In order for the Product Development Unit or Purchasing to manage its complex operations, they do the same and break down the business into additional constituent smart. In this way, we build a strong structure to ensure that we have covered all areas and have specialists in the right places. We control the segmentation with report structures, hierarchies, decision forums, KPIs etc. We have now handled the complexity of the business. Or?
I feel that as complexity increases in our products and services, business segmentation also increases. This results in specialization but also creates distance within the business. This, in turn, drives administration, sluggishness and collaboration difficulties within the business. The great increase in complexity we see is not in the constituents per se but rather in how the constituents have to COOPERATE with each other in order to achieve efficiency. We separate our operations but I see time after time how we fail to coordinate the segments.
Most decision makers have not made clear what dependencies exist between the components of the business today and how a decision within a segment affects other areas of the business. As a decision maker in a complex business, it is impossible to know exactly HOW a decision will affect the organization. Most people in management positions have little knowledge of how their operations work in detail, nor is it their job. What is their task is to know WHERE their decision will affect the organization, even if the point of impact is beyond their direct responsibility. It is then up to the relevant parts of the organization to respond to HOW they will be affected by the decision and what consequences it will have. But first, the decision maker must be brave enough to ask the question.
Through increased insight into dependencies in their operations, decision makers can better understand where they can reduce unwanted complexity and where they can benefit from an increase in integrations and interactions.
The key to managing complexity does not lie in increased structure and tougher control. Rather, it lies in increased insight into the dependencies between the business units, coordination, allocation of powers and coercion for collaboration.
The complexity will only increase. Those who master the complexity will stand as winners.