The nature of business is to seek opportunity for growth and expansion. This is a good thing and indicates success when it is at hand. Executives are encouraged to innovate, embrace new opportunities, and create change to take advantage of potential opportunities such as:
- Adding products or services
- Adding new clients
- Adding additional markets
- Growing through acquisitions
- Adding people, positions, and divisions to the company
- Creating flexible work environments
- Providing additional services or benefits to employees
And many others…
Of course, each of these factors can lead to greater complexity in an organization. Such issues are the proverbial “good problems to have,” but they bring additional challenges. New products and services create new business processes. New clients create new demands. New markets mean additional regulations, foreign exchange issues and administrative hassles. New work schemes mean new technology and supplier relationships. All of this requires additional management time and resources creating layers in an organization.
Some of the issues that an organization will experience due to complexity are rising costs that are hard to eradicate, unpredictability and uncertainty that is impossible to manage, and stagnant decision making.
While the opportunities may drive new revenues, the resulting complexity can be very dangerous to the bottom line. Complexity creates costs, many of them hidden, and these costs can be hard to eradicate. In their book, Waging the War on Complexity Costs, Stephen A. Wilson and Andrei Perumal state that typical companies can reduce costs by 15% to 30% in significant areas of their businesses by launching a program to reduce complexity. Companies that fail to recognize complexity issues can see their margins deteriorate to damaging.
In a complex organization any number of events, most undetectable, can occur at any time and can have an enormous impact on the organization over time. There is often no way to see these events coming or measure their impact, but the result can be, at the least, time-consuming and often all-consuming for management as they seek ways to gain control.
In business, uncertainty is not a desirable state. Investors want to know what is going to happen in their business and how it is going to affect their return. Employees want to feel secure in their jobs and executives want to know that they are going to be successful.
“Complex systems… have properties—emergent properties—that cannot be reduced to the mere properties of their parts. Moreover, the behavior of these systems has aspects that are intrinsically unpredictable and uncontrollable, and cannot be described in any complete manner.”
As managers struggle to deal with all the possible risks associated with unpredictability in a complex organization, decision making slows. The natural tendency is to try to account for most possibilities when making decisions but this becomes impossible when so many variables enter the equation. An organization will add processes and controls but this just increases the complexity issue. Finally, the organization proves unable to make the key decisions quickly and can lose competitiveness.
So we see the issue. Organizations grow successfully, adding complexity to their business. This complexity makes them unable to respond to the market and shrinks margins creating a compounding problem and a desperate situation.
Understanding this cycle, we raise the question…
Is it possible to manage complexity in a growing organization so as to create predictable outcomes, embrace opportunities, and maximize return?
The short answer is “no,” but under a different lens, the complexity lens, the answer changes to “yes!”
“Managing” complexity is not the answer. It implies a reactive approach of reducing complexity. But in business as in nature it is not the simple systems that survive and thrive but instead the complex systems that adapt to change aggressively. What we really want to create is an organization that changes with its environment, adapts to unforeseen events, and makes complexity itself a sustainable competitive advantage. For the purposes of future discussion, we will call this a Complex Adaptive Organization.
If we achieve our goal, complexity will no longer be a source of anxiety and a burden to the bottom line, but a vision of the future organization that is adaptable, flexible, and highly profitable.
In the discussions that follow we will examine how to create a complex adaptive organization by looking through the Complexity Lens and addressing a number of other key issues along the way.
- How to manage complexity into a competitive advantage
- How to deal with unpredictability in a complex organization
- How to maximize opportunities and innovation in complex environments
- How to identify the symptoms of complexity
- How to form dynamic teams or ensembles that adapt to change
- How to transform an organization by using a complexity lens