Thursday, November 28, 2013

Increasing Complexity: A Business Challenge or Opportunity

The world is getting a more and more complex place to manage and do business. After the recession, number of factors like regulations and changing dynamics of global economics, for instance, have further increased the complexity in global business. According to Ron Ashkenas and Lisa Bodell (HBR Blog), agreeing on the fact that complexity is a problem is one thing, but doing something about complexity is quite another. For businesses and their managers, the increasing complexity is not just a problem but in fact, it is radically affecting and changing the rules of global business. The increasing complexity adds new costs and risks and challenges the profitability. However, adapting to this change by understanding and confronting this complexity managers can create exciting new opportunities for their businesses.

In 2010, KPMG did a massive survey to measure the causes and impacts of complexity on different businesses globally. According to the survey, the increasing complexity is a global challenge and is faced by all industries and sectors. However, the experience of complexity differs globally. On one hand, mature economies like America and Europe are facing the after effects of the recession, and on the other hand, emerging markets in Asia-Pacific are struggling to maintain stellar growth they were used to in last decade. Secondly, the information management is intriguingly a cause as well as solution of the increasing complexity.

One of the most important challenges of complexity is that it is not static. With time the causes for increasing complexity change. Initially, the onset of recession was a big reason, it was followed by added regulations, technology is rapidly evolving making it even more difficult to understand and adapt to increasing complexity, and finally corporations struggle to find right people to manage this complexity and create opportunities. Most organizations deal with complexity by trying to improve information management, reorganizing the business or changing approach to talent management. These strategies are however not highly successful. There is a need to institutionalize the study of complexity to identify most effective techniques for dealing with complexity and then implementing those strategies. More successful teams will be more agile and will strive to understand and respond to the changing market demand. Organizations can either embrace complexity and use it to spur innovation and change or they can tackle the challenges of complexity by keeping the business processes simple and straight-forward. Which strategy will be more effective will depend on the industry, sector, geography, and most importantly strengths and capabilities of the organization itself.

In its report, KPMG proposes the idea of stepping back from the operational side of the business and to think more strategically about the nature of the organization. A clear view of the purpose of the organization is critical for coherent thinking and decision-making. It is even more difficult for large and more diverse organizations. In such cases, it is important to identify critical bottlenecks that keeps the organization from creating opportunities in face of complexity (Sull and Eisenhardt, HBR September 2012). According to the KPMG report, organizations should always look for signals that show where operations can be improved.

It is not the nature of complexity company faced that will determine its success, it is the ability of the company to analyze the situation, identify the critical bottlenecks, find the most effective solution and implement the solution. Complexity is going to increase in future with increasingly sophisticated global trade. It will be critical to understand the opportunities presented by this change and turn these challenges into engines of growth. In the end, survival of the fittest is indeed true.

References:
  • KPMG Report: Confronting Complexity (2011)
  • Seven Strategies for Simplifying your organization, Ron Ashkenas. HBR Blogs
  • Simple Rules for a Complex World, Donald Sull and Kathleen Eisenhardt. HBR September 2012


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