BCG Henderson Institute

In Conversation with Yves Morieux About Complexity

"The complexity of business has increased by a factor of more than 6 over the last six decades."

Is complexity increasing in business? How do you know?

The complexity of business has increased by a factor of more than 6 over the last six decades. We have created a complexity index and measured its evolution against a representative sample of companies: this complexity index is based on the number of performance requirements that companies need to satisfy in order to build competitive advantage and create value for its stakeholders.

What is driving it?

Performance requirements are more numerous, more volatile and increasingly contradictory — for instance low cost and high reliability, speed and reliability, innovation and efficiency, standardization and customization, global consistency and local responsiveness… The main drivers of this evolution are advances in technology that provide customers with more choices, combined with an increase in the number of relevant stakeholders: customers, shareholders, and employees as well as political, regulatory, and compliance authorities. Each of these groups has specific demands, and it is less and less of an option for a company to satisfy one at the expense of any other.

Is it entirely a bad thing?

No — the problems companies are facing are more demanding, but this is an opportunity to create more value, to further differentiate; it requires organizations to better use the intelligence of its people. The real issue is that organizations all too often respond to this new complexity by increasing their internal complicatedness: a proliferation of cumbersome structures, procedures, scorecards, systems, committees, controls, reports, meetings. This complicatedness chokes productivity and innovation, while disengaging people and making them suffer at work. Based on our measurement, complicatedness has increased by a factor of 35 over the same period; almost the square of the complexity increase — and this is not a coincidence, but a consequence of the exponential nature of the doom loops that plague organizations.

What can leaders do to combat what you call complicatedness?

First, leaders must resist two traps. Trap 1 is the hard approach: creating new functions and rules to address the new performance requirements as this only adds to organizational complicatedness. Trap 2 is the soft approach: given the growing disengagement in labyrinthine organizations, “people initiatives” and feel-good programs are then launched — but these only address symptoms without tackling the root causes and also add to complicatedness: more committees, more meetings, more scorecards. Instead, leaders must create ways of working that better use people’s intelligence, thanks to enhanced autonomy and cooperation. We call this approach “smart simplicity”, it is based on principles to help create an environment in which employees can work with one another to develop creative solutions to complex challenges.

Does technology help or hinder this?

Applying new technologies — digitized operations, robots, artificial intelligence, sensors, internet of things — without new ways of working is counterproductive. Technological innovations without organizational innovations only adds to complicatedness; this is a major driver of the productivity slowdown despite decades of advances in information, communication and telecommunication technologies. All too often we are using the same organizational solutions as 40 years ago — the only difference is that we are piling them up to face more complex challenges. Digitizing complicatedness can help in the short term, the pain goes unnoticed, but then beyond a threshold it explodes and triggers catastrophes, accidents, majors bugs and defects. Digital transformation is ultimately about organizational transformation. Technology is just one ingredient of the desired change that organizations aim for when they digitize. The desired change is about greater customer centricity, greater employee centricity and enhanced flexibility and productivity in their operations.

On a tangential note, what are you researching right now?

My current research addresses activities that can benefit from digital technologies and artificial intelligence (AI) in particular. We hear about many new organizational approaches, there are many buzzwords, but still a lot is left to be discovered in how to leverage digital technologies to better manage the new complexity of business, to improve productivity and increase people’s satisfaction at work.

Sources & Notes