Sunday, July 15, 2012

3P to Demystify Business Complexity: Perception, Parable, and Prescription

Simplicity does not precede complexity but follows it. Alan Perlis

From Wikipedia, the complex is a “complex” word with various perspectives.  In general usage: Complexity tends to be used to characterize something with many parts in intricate arrangement; In a business context, complexity management is the methodology to minimize value-destroying complexity and efficiently control value-adding complexity in a cross-functional approach.

1. Complexity Diagnosis:

(1) Complexity vs. Complicated:

The use of the term complex is often confused with the term complicated. In today's systems, this is the difference between myriad connecting "stovepipes" and effective "integrated" solutions. This means that complex is the opposite of independence, while complicated is the opposite of simple.

(2) Productive vs. Non-Productive Complexity:

Rising complexity has been fueled by broad trends such as technological innovation, globalization, and M&A, which are not likely to slow down any time soon, not all complexities are created equal and can be managed effectively:

  • Macro-systematic complexity:  includes laws, industry regulations, and interventions by non-governmental organizations. It is not typically manageable by companies. The goal should make it a value-added complexity.
  • Designed Complexity: results from choices about where the business operates, what it sells, to whom, and how. Companies can remove it, but this could mean simplifying valuable wrinkles in their business model.
  • Highly productive complexity:  such as employees interacting as they create value from intangible knowledge-based assets, invisible but powerful learning agile culture, and cross-silo business collaboration.
  • Value/Cost Ratio in Complexity: complexity that is translated into additional revenues, such as product/service enhancements that customers are willing to pay more for, or that result in greater customer satisfaction and loyalty—can hurt the bottom line if the value it delivers in increased revenues isn’t greater than its real costs via adding business complexity.
  • Unnecessary complexity arises from growing misalignment between the needs of the organization and the processes supporting it. There is the unproductive complexity of bureaucracy, silo walls between functions, and confusing matrix designs,  resistance to change, workforce constraints, slow decision-making, complex administrative processes, and competing incentives;

2. Complexity in Human Behavior: A Parable about Adding Feet to Snake

In ancient times, there’s man participating in an art contest, he decided to draw a snake, after finishing it, there’s still time left, so he added feet to the snake, it's more about adding complications than imagination, so he lost in the competition.

Insight: This story tells the people, the snake did not have feet, draw into the snake, put the snake feet, the result does not become a snake, neither a dragon. Superfluous, or use the metaphor of complications, to tell people to do anything to be seeking truth from facts, otherwise, not only one can not do a good job, but will mess up things. That also said nothing is more complex than human behavior.

3. Ten Prescriptive Solutions to Complexity Optimization:

Complexity is easily managed once being identified as productive complexity or non-productive complexity, the value-cost ratio in complexity, the goal is to master it and achieve a high-performance business result:

1)     Non-Linear, Holistic Business Thinking in Inter-dependent World: The whole becomes greater than the sum of the parts in today’s heterogeneous and inter-dependent world. The key issue is that you can’t really understand the whole system by simply looking at its individual parts. That’s the essence of a complex adaptive business management discipline, to make the business as a whole premium than the sum of pieces.

2)     Ambidextrous Capabilities: The ability is developed to tolerate ambiguity and proactively manage complexity. The capability focuses on how effective managers are at taking the initiative and working outside a narrow definition of their roles;

3)     Sophistication is the quality of refinement: It is displaying good taste, wisdom, and subtlety rather than crudeness, stupidity, and vulgarity when managing complex systems, human behavior, or data.

4)     Effective Organizational Design. Effective organizational design at the individual level can minimize complexity. Misaligned processes and systems are important drivers of individual complexity. The tactics companies can explore by focusing on the individual level via accommodating entrepreneurship in processes: defining accountability, removing duplication, sorting out and streamlining processes, and building skills and capabilities in the right places at the right time to drive exceptional growth and diversification.

5)     Make complexity transparent: Complex organizations don’t always behave in a linear way. Altering cultural, organizational, and operating systems can, therefore, have unintended consequences that may generate even more complexity. Make business processes more transparent is the first step in order for people to understand and optimize complexity.

6)     Apply the “80/20” rule. 20 percent of customers or products account for 80 percent of revenue. Optimize the whole, not the separate silos. Without a cross-functional, end-to-end perspective across the entire enterprise, managers tend to focus on their own functions or departments. This silo thinking is a source of process complexity

7)     Business Agility: about doing things better, faster and cheaper: strategic agility (planning, budgeting, forecasting, and reporting; trend identification; risk management) is fully underpinned and propelled by their operational agility (optimizing the supply chain; faster response to customers, enhancing sales processes and systems; achieving flexibility in the workforce; IT criticality). Maximum agility is achieved when these two factors come together, create cost/value matrix, and optimizing the product/service portfolio.

8)     Business Resilience: the organization has a set of capabilities to bounce back from economic turmoil or mistakes in business strategy or decision making, and promptly recover & catch up via cohesive actions and collaborative processes.

9)     Business Elasticity: organization can more easily scale up or down to adapt to the fast-changing business dynamic, it’s also a crucial capability to overcome complexity, be able to actively cope with positive or negative changes in markets and regulations.

10) Business Flexibility: Gaining business flexibility requires a company to establish the right balance between adaptability, agility, and stability in its operating model, cost structure, and processes. Companies are focusing on making both their back-office and front-office processes more agile to gain competitive advantage, and this often means challenging traditional organizational structures to fit new business realities, being flexible on how they approach different opportunities.

The art of simplicity is a puzzle of complexityDouglas Horton 


How interesting. I like how it was presented too. And very informative at that.
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Hi, Paul, thanks for your comment.

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