Manufacturing businesses have over the years become more complex on the back of growing international competition from increasingly sophisticated competitors, as well as the multivariate expectations of consumers. Complexity is making companies inefficient, lacking in agility, challenging to manage, difficult to scale and hard to do business with. In response, many business executives are looking to simplify their operations, providing those that manage to strike the simplicity trade-off with an opportunity to take a competitive edge.
In a recent report from PA Consulting Group, titled ‘Simply Better’, the management consultancy explores the state of complexity in the Dutch manufacturing industry*, finding that not all complexity is bad or needs to change and not all complexities can be treated the same. Yet complexity remains, and when not managed well, complexity costs money and clients.
The researchers highlight a number of disruptive trends influencing the rise of complexity in the wider operations of a business, including among others the need to compete, customers are demanding more uniqueness in products, customers expecting simple ‘plug-in and play’ approach when using their technology device and cloud based computing. Companies also have to deal with fragmented IT landscapes and obsolete supply chains in many areas.
Due to globalisation and increased competition manufacturing companies are forced to reassess their priorities. They are required to perform well on multiple value disciplines of Treacy and Wiersema’s model for market leaders: product leadership, operational excellence or customer intimacy. As a result of the additional demands for more capabilities, resources, procedures and IT systems, the complexity across the organisation increases.
More complexity essentially means more costs. And while it is all about striking the right balance between additional value added of complexity and costs of complexity, too much complexity can be costly. Business executives remain concerned about the pileup of complexity – recent research from an analyst firm finds that many business want to simplify, with executives around the globe set to invest $4.2 billion in simplification initiatives by 2017, up from $1.8 billion in 2014. However a majority of the respondents (93%) did not have a clear idea about the costs of the complexity and the associated risk to their products, markets and customers.
IT and application complexity
Care must however be taken, that the baby isn’t thrown out with the bathwater, as not all complexity is bad or that the complexity of the solution is inherently the issue. Especially in areas like IT for instance, convoluted projects are a consequence of complex – and sometimes contradictory – business demands rather than the other way around. The authors find that in general, the more complex the business function, the more complex the related IT application will be. “So while IT complexity is often regarded as an IT issue, it is just as much a business issue. If business processes and IT could be designed and implemented in parallel, company-wide complexity could be reduced”, states Hans Houmes, Manufacturing sector lead at PA in the Netherlands. Yet only 20% of the survey participants indicated that their company tackles complexity in an integrated manner.
A further factor the reports highlights is that complexity is by no means limited to large companies. While larger companies become more complex, the level of ‘bad complexity’ is most prevalent in small companies, which was found to be true for both bad complexity – and bad application complexity.
According to the consulting firm, companies that aim at striking the right simplicity trade-off should consider three broad steps:
Step 1: identify the areas of bad complexity. Complexity is not just about the sheer volume of products, suppliers and locations but about the interdependence in relationships between different parts of the business. By implementing a Business Design Framework, businesses will be able to assess the different kinds of complexity across their organisations – and with the framework in place, deal with bad complexity.
Step 2: generate ideas on the most attractive simplicity initiatives. This again takes the Business Design Framework, and asks critical questions regarding the complexity of different parts of the framework, seeking to bring as much simplicity to different functional areas in line with business needs. Questions might be: How can we simplify our product portfolio and service catalogue for our customers? How can we simplify our business processes and our organisation?
Creating simplicity comes from the combination of eradicating, transferring and managing complexity. For each of the areas of bad complexity, the most appropriate approach must be defined, says Houmes.
Step 3: delivering lasting change. Houmes notes that dealing with complexity is an ongoing exercise, with continued discipline required along the way. Theory needs to be transformed into practices that are understood by those implementing simplification. Organisations also need to identify what capabilities attract their customers, or are key to ensuring they operate in the most profitable way. “Recognising and treasuring these differentiators is key to defining the company’s good and bad complexities”, comments Houmes.
Managing the underlying human factor is critical, with concrete process needed to guide the understanding of staff. Management too needs to be on-board with the changes, with the PA study finding that 72% of the respondents indicated that governance and leadership are the most critical factors in making complexity reduction initiatives successful, with a long-term approach required to transform staff. They have turned complexity reduction into a disciplined approach, in which initiatives and achievements are communicated on a regular basis. “By creating a lasting culture in which both good complexity, and a drive toward keeping down bad complexity are fostered, companies have a great opportunity to take a competitive edge,” concludes Houmes.
* The research consisted of face-to-face interviews with 40 CIOs, IT Directors and senior IT Managers.