Solving the Complexity Issue

Complexity is a natural phenomenon. We see it all around us in biology, physics, and social development and while we may associate complexity with difficulty and disorder, the truth is that all systems tend toward complexity and order.  This is a process however and in this process there can be huge challenges and suffering. Systems that self managing and adapt, will be stronger for it. Those that don’t… well, let’s just say, it won’t be good.

Organizations experience complexity all the time but rarely do much to manage it.  This is because complexity does not announce itself as an issue. It infiltrates organizations bit-by-bit, day-by-day and is often the byproduct of success which is not something we normally don’t want to examine too much.

A few years ago, I was developing a training program for a 40-year-old engineering company that had grown from a single, simple product to having dozens of product lines including large scale customized solutions. It was a very successful, innovative company, but it had a complexity issue.

To prepare the training, my colleague and I asked a few simple questions of the senior management team:

“How many employees do you have?” This question was met with rounded guesses that proved to be about 30% too few.

“How many divisions do you have?” This question spurred a counting exercise that, ultimately, was wrong.

“How many products lines do you produce?” This was never fully answered.

The concept that a successful company may not be fully aware of its employees, divisions or product lines seems ridiculous, but it happens more often that one might think. Products that were offered long ago and thought to be retired may be held out for one or two clients that still rely on them. They are long forgotten by management but still supported by the organization. Processes are added to support a particular function, product or service, and over time, becomes an assumed part of the business even if activities they support are no longer useful. Perhaps they are kept alive to support jobs or maintain budgets or simply because everyone assumes they are necessary.

There are many reasons why superfluous products, functions and processes may exist. Once, I was reviewing service processes for a company. One of their ancillary services was to fill out forms on behalf of their numerous clients, then submit them to a regulatory organization. The forms had to be filled out in every international market where the clients operated.

I noticed there was a step in the process during which the forms, once completed by the headquarters, were sent to the local office before being forwarded to the regulatory body. I asked, “Why aren’t they sent directly to the regulators?” The answer was that the local operators benefited from the process financially, so they should have something to do in the process to add value. “So, the forms are sent overseas to a local office so they can then mail them to the regulatory body and this is done to give them a good feeling that they earned their commission?” This was confirmed. It turned out that this extra step added an unnecessary layer of complexity, weeks of delay, and hundreds of dollars to the process.

It is not unusual for companies to find hundreds of such examples throughout their system if they look for them. Still, probably the most difficult impact of complexity for management to grasp is the unpredictability it creates and additional cost of trying to control it.

One marketing & sales outsourcer I worked with consistently heard complaints from their employees was that the company had no clear direction.  In fact, the company was growing revenues consistently, was a leader in its category, and was well respected by its clients; but its margins were getting thinner each year.  After a bit of investigation, the reason for these challenges became obvious.  This company had approximately 60 franchise offices and nearly 90 clients who it was marketing to with thousands of outlets. In an industry where personal relationships are the key to success, this is a lot of relationships to maintain. Doing a quick analysis, we estimated the potential for client/office/HDQ interactions at any given moment at approximately 4,000. This analysis assumed only one person from each office, and one person from HDQ could interact with the one person from each client. It did not account for interactions with suppliers, retailers or the end customers. Altogether, the number of potential interactions was more like 1.47475E+12 at any moment. At this level, the occurrence, result and impact of any specific  interaction is impossible to predict let alone manage. Instead, the leadership could only react to the interactions that were identified and escalated as issues, the “fire drills.” This was enough to keep them busy all of the time. They never knew how their day was going to go, they could not plan, and so they had no time to move the company forward.

Owners of smaller businesses may see complexity as a problem for the future. “I have too much to deal with keeping my company afloat.”  Yet none of the businesses discussed above are that large.  They range from around 400 –1500 employees, but their businesses have become just as complex as some Fortune 500 companies. How do you know if you just have a complex business or if complexity is a problem? Here are some of the clues I have experienced:

  • You have difficulty describing what your business “does” because of the permutations
  • Leadership works very hard but never seems to have time to set direction
  • Managers cannot set their agenda for a day without it being scrapped due to a “fire drill”
  • The culture of your business is to reward “super efforts” in your people to accomplish their jobs
  • Annual goals cannot be set for employees due to shifting sands and job descriptions are fluid
  • Margins are declining even though you are getting more business
  • You have volumes of documents explaining your company procedures, or (worse) none at all
  • When you attempt to solve one issue, your issues seem to multiply
  • Mapping interactions between stakeholders seems like a daunting task

If you relate to any of these challenges, or likely, several, you may be experiencing what we call complexity creep and it may be time to examine your approach to business. But how does complexity happen?  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…

Each of these factors alone can increase 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. In truth, as a company grows it is likely that all of these are going on simultaneously and the complexity is increasing exponentially.  Add technology to this equation. With the growth of information technology and Ai, we find both the tools for managing complexity and the reason it is accelerating.

While these opportunities may drive new revenues and opportunity, the resulting complexity increases risk. 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.

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.  This is because, in business, uncertainty is not the 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. Unfortunately, this reaction which is so common is rarely the correct answer.

“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.” -Francis Heylighen

As managers exert control to respond to the risks associated with complexity decision making slows, organizations stagnate, and innovation dies. The natural tendency is to try to account for all possibilities when making decisions but this is impossible when so many variables enter the equation. An organization will add gates and measures to processes but this just increases the issue. The organization locks its brakes and the competition zooms past.

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” because what we know as traditional management born under Taylorism, is not equipped for this age. It employs a reactive approach of reducing complexity into components like fixing an engine but does not account for the broader implications. 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. 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.  If we consider “management”  under this lens, that of complex adaptive systems thinking, the answer changes to a resounding “yes!” So much so that complexity will no longer be a source of anxiety and a burden, but a vision of the future organization that is adaptable, flexible, and highly profitable.

When it comes to discussing the Complexity Lens, I find it is wise to start with examples of practical applications because the concepts behind it are born out of natural science, mathematics and physics, and many managers struggle to see them as anything more than theoretical and not relevant in the “real world” of business. This is an understandable but unwarranted view.

My introduction to many of the key principles came during my first job out of graduate school. The position was with a technology infrastructure company. I was assigned to a division that provided an ancillary software product that’s purpose was to increase client loyalty. The reality was just the opposite. Thanks to this “strategic” product:

  • The CEO experienced calls from irate clients at 4am
  • The business was constantly in a firefighting mode
  • The company spent thousands (if not millions) servicing client issues
  • The divisional leadership changed annually
  • Employees wanted to transfer the minute they arrived
  • No one truly believed in the product despite the fact that it was pretty good

When I arrived, I was immediately unpopular. It was not personal but an example of how messed up the situation was. The group had requested a web developer to assist with product enhancements and received a useless MBA-type instead. When the newest VP was assigned to the division, I ranted that a full change management program was necessary. Things were clearly broken and there was no easy fix.  To my dismay, he agreed and put me in charge of the effort (oops).

I will not go into the details of the very painful process, but the essential problems we identified were:

  • The product was very complex: It was engineered to fit all the needs of all clients no matter their size or market. In most cases, it was overkill.
  • Top tier clients demanded custom solutions: Each customization added additional processes and created unending product variations.
  • The support processes were inflexible: They were the same no matter the situation and, therefore, inadequate in most cases.
  • The culture was stuck in firefighting mode: The most positive praise that a person received was that they exhibited “superhuman” effort to resolve client issues and went “beyond the call of duty.” People were frustrated and exhausted.

After a long effort, much debate, and many failures, we decided to distribute the effort into four groups based on client segment. Each group developed their own approach to meet the clients’ needs and their own work preferences:

  • Group A managed the top ten clients. It consisted of seven volunteers who were among the most capable, flexible-thought leaders in their functional areas. They called themselves a SWAT team because they were ready to leap into action, travel anywhere, and work in all conditions. Along the way, they customized solutions for clients which would then drive product development for the rest of the organization.
  • Group B, the largest, managed the majority of clients and the standard product “shrink wrapped” offering. Support remained at the HDQ and was staffed according to expected volumes and tooled to resolve issues remotely. New applications developed by the SWAT team were assimilated in the standard product when appropriate.
  • Group C intended to manage the Mom and Pop clients, but in the end, they decided to set up a referral desk that sent clients to an outside vendor who better met their needs. The group consisted of just four people who worked in shifts.
  • Group D, the central team, focused on administration, reporting results, getting groups A-C the tools they needed, and creating a knowledge bank of best practices for everyone’s reference.

The result was a transformed organization:

  • Late night calls to the CEO stopped almost immediately
  • 84% improvement in measureable customer satisfaction in year one
  • Attrition rate of employees slowed by half
  • A new mid-tier solution was developed from solutions created by Group A
  • The company purchased their top referral partner for Mom and Pop clients

I would like to say that these results were due to my deep knowledge of applied complexity theory, self-organization, and emergent behavior. The fact is, these solutions were born out of frustration. We had labored long and hard to make changes with little result. So, rather than continue in the same vein, we changed course and delegated the work to the four groups. We gave them their goals, a few parameters and some tools and set them on their way with our fingers crossed. We did not manage them.

They created their work environment and methods. Of course, this is not a perfect example because we were working without knowledge of the principles we were applying. Moreover, what we accomplished is akin to a controlled lab experiment. This division was able to adopt these changes because it was largely isolated from the rest of the company and in a desperate do-or-die situation. We could have tried anything and it would have been accepted. We did not manage them. They created their work environment.

As I have studied this topic more, read the books, listened to the speakers, I have run across may more organizations that have successfully applied the principles some of them for quite a long time. The examples include:

  • Favi
  • W.L. Gore
  • The US Army
  • Google
  • Facebook
  • Apple
  • Davita
  • Morningstar
  • Arizona State University
  • GE
  • Revco Drugstores 
  • General Motors 
  • John Deere 
  • Zappos 
  • Uber

And many more…

Still, to me, the most observable example validating these principles comes through the formation of “shadow systems” that appear in organizations every day. These are the informal groups and processes that form in organizations when the leadership is failing. Anyone who has worked for a dysfunctional company has seen this process in action. These shadow systems become the only way to get things done and achieve goals.

The discussion of practical, successful applications is an important one. Many people intuitively see how these principles work. Despite the growing number of proponents, however, there are many people who believe that when you “get religion” around complexity, you see its principles applied everywhere no matter the truth of it. This view is why it is necessary to continually report measurable results where the principles were intentionally and knowingly applied.

I will explore the specifics of how the systems are created and lead in further articles.