Early last year we noticed an increasing number of businesses starting to talk about simplifying their businesses in a fundamental way. Sometimes this was driven by a fear of new entrants with different business models, customer offerings and cost structures. And sometimes it was led by the complexity created from trying to manage the customer experience across online and offline channels, or an increasing personalisation of services. But in all cases, they were recognising the need to go beyond techniques they’d tried previously, such as lean, delayering or tactical changes to IT systems.
Managing complexity can be how businesses create value for their customers. Amazon’s algorithms, for instance, suggest buying recommendations based on what others’, who are similar to you, have bought. But some complexity is value destroying for organisations, mainly caused by a legacy of outmoded ways of working and organic change.
Complexity is a product of the number of parts and the links between them. The more parts and linkages , the more complex the organisation will behave. The ‘rate of change’ in the environment is the other element that drives complexity. Some industries have normalised complex ways of operating, often perceiving them to be a barrier to entry. But time and again we see new entrants find a simpler way to attract, engage and service customers – in music, DVDs, retail, airlines and hotels, to name but a few. Complexity can suddenly be exposed as a huge structural cost and barrier to change.
We’ve found there are three areas to consider when simplifying:
When we talk to clients about simplicity, they quickly relate to the problems of unnecessary complexity and to the intuitive promise of simplification. Our recent European survey on the topic found eight in 10 executives saw simplification as a driver of competitive advantage over the next five years. We see many organisations tackling simplification at the level of organisation clutter, within existing organisation structures and power bases. But leading organisations are treating simplification as a CxO level agenda and setting up long-term initiatives with cross-cutting governance and sponsorship, so they can look holistically at how to best meet customer needs, and how to future proof themselves.