Simplification evidently has attractions and it is predicted that business executives around the globe are set to invest $4.2 billion in simplification initiatives by 2017.
But in the new, digitised world in which we operate, is it wise to strive for simplicity all of the time? Our new research deconstructs the myths of complexity and sets out a balanced approach to identify where complexity is adding and destroying value.
Our research consisted of face-to-face interviews with 40 CIOs, IT Directors and senior IT Managers from a wide variety of companies within the Dutch manufacturing sector. Almost all of the companies interviewed operate in an international market and 80% have a history of mergers and acquisitions. The participating companies generate total combined revenues of 95 billion euros and employ over 350,000 people.
The idea that all complexity can be eradicated is a naïve misunderstanding of how organisations function. In practice, it is entirely possible to achieve competitive advantage by managing complex tasks better than others.
From our research it is clear that many organisations cannot distinguish between complex activity that adds value and complex activity that erodes value – essentially good complexity versus bad.
Whilst the concept of quality cost is well-known, a sizeable 93% of interviewees do not know the negative financial impact of complexity.
Simplifying one part of your organisation in isolation from others may create additional complexity elsewhere. Changing the balance of interdependent business functions, IT systems and organisational structures will doubtless have ripple effects elsewhere and this requires a holistic, design-led approach.
Our interviews highlighted a commonly-held perception that the cause of complexity lies with IT. While a lot can be improved in the IT domain, complexity often stems from conflicting business demands. Our respondents even rated business complexity for each function higher than the supporting IT complexity. To deliver the best long-term results, business and IT need to make changes simultaneously and cement the buy-in of multiple stakeholders.
Whilst back office functions are often viewed as the low-hanging fruit when it comes to realising financial savings, our research indicates leaders should have the front office in their sights. Sixty per cent of those interviewed indicated that most complexity was found in the sales and marketing function as a consequence of a broad product portfolio targeting many customer segments.
To speak to one of our business design experts about the challenges of simplifying your business and IT architecture, please get in touch.