Putting organizational complexity in its place

Here is a brief excerpt from an article written by Julian Birkinshaw and Suzanne Heywood for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

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Not all complexity is bad for business—but executives don’t always know what kind their company has. They should understand what creates complexity for most employees, remove what doesn’t add value, and channel the rest to employees who can handle it effectively.

Despite widespread agreement that organizational complexity creates big problems by making it hard to get things done, few executives have a realistic understanding of how complexity actually affects their own companies. When pressed, many leaders cite the institutional manifestations of complexity they personally experience: the number of countries the company operates in, for instance, or the number of brands or people they manage. By contrast, relatively few executives consider the forms of individual complexity that the vast majority of their employees face—for example poor processes, confusing role definitions, or unclear accountabilities (see sidebar, “Institutional vs. individual complexity”).

Authors Julian Birkinshaw and Suzanne Heywood discuss what kind of complexity is most harmful to companies’ performance, why senior executives are often oblivious to it, and how it can be addressed.

This is not a trivial difference in perception. Our experience suggests that such a disconnect highlights a blind spot many executives have when it comes to managing complexity effectively. A focus on institutional complexity at the expense of the individual kind can lead to wasted effort or even organizational damage. What’s more, failing to tackle complexity as most people experience it can, as we’ve shown before, be financially costly.1

Once senior executives recognize that employees typically see complexity very differently than they do, they can begin to take straightforward steps to pinpoint where in their organizations complexity hinders productivity and why. The goal? To identify where institutional complexity is an issue, where complexity caused by factors such as a lack of role clarity or poor processes is a problem, and what’s responsible for the complexity in each area. Companies can then boost organizational effectiveness through a combination of two things: removing complexity that doesn’t add value and channeling what’s left to employees who can either handle it naturally or be trained to cope with it.

In this article, we review the experience of a multinational consumer goods manufacturer that applied this approach in several regions and functions and consequently halved the time it needed to make decisions in critical processes. This, in turn, helped it bring products to market faster in response to changing customer needs. Such payoffs aren’t unusual. Our work with companies in the banking, mining, retail, and other sectors suggests that managing complexity more effectively helps remove unnecessary costs and organizational friction and can even lead to new sources of profit and competitive advantage by boosting a company’s resilience and its ability to adapt quickly.

Executives at the manufacturer knew they had a problem with complexity. Rapid growth in the company’s Australasia region was requiring significant management attention and travel time and, consequently, was making it difficult for the senior team to manage effectively there and across the company’s two other regions (Europe and the United States).

For most employees, however, such institutional complexity didn’t matter. They struggled instead with forms of individual complexity—for example, processes that had initially been effective but over time had become increasingly bureaucratic. Many employees, for instance, were frustrated both with how long it took for decisions to filter through to the front line and the amount of work required to implement them (new-product development, for example, took more than a year and required numerous consultations across the company). Duplicated roles (the regions replicated activities performed by the corporate center) and unclear role definitions, which left several groups accountable for sales forecasting and other key activities, only exacerbated the problems. The result was too much time spent on managing internal processes and not enough on understanding customers’ needs.

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Here is a direct link to the complete article.

Julian Birkinshaw is a professor at the London Business School; Suzanne Heywood is a principal in McKinsey’s London office.


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