55% of businesses say complexity is taking toll on profit

14 December 2015 Consultancy.uk 4 min. read
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For more than half (55%) of businesses, organisational complexity is taking a toll on profits, research by the Economist Intelligence Unit shows. Decision-making processes are the biggest source for this complexity, while poor management is cited as the biggest obstacle to reduce it. Focussing on collaboration is seen as the most effective tactic to reduce organisational complexity. According to the researchers, an organisation’s leadership must promote a culture of collaboration, while also providing the tools for effective change.

In its recently released report, titled ‘Taming organisational complexity – Start at the top’, the Economist Intelligence Unit (EIU) researches organisational complexity in an attempt to shed some light on the causes of and solutions to this complexity. For the research, the EIU surveyed 331 executives from companies with annual revenue greater than $500 million in a variety of industries.

Complexity of the company

Of the respondents, the majority of executives say their company is very or extremely complex; with ‘other’ executives experiencing the most complexity at 57%, compared to 54% for C-level executives. Around a quarter (24%) of C-level executives find it ‘easy to get things done’. For other executives, less than one in ten (9%) feels this way. Only 1% of respondents indicate that their organisational structure is not complex at all.

Complexity effects
According to EIU’s research, organisational complexity is a recurring challenge for management and impedes competitiveness. More than half (55%) of organisations say that complexity has negatively affected their profits in the past three years, 5% of which have seen their profits being affected significantly. Most affected by complexity is general management, stated by 29% of respondents, followed by employee relations (23%) and customer service (21%). In addition, 38% of executives say they are spending up to 25% of their time on managing that complexity, and almost one in five (17%) is spending up to 50% of their workday dealing with complexity.

Primary sources of complexity

The primary source for complexity is decision-making, cited by 12%, followed by organisational structure (9%). The organisation’s size, pace of innovation, amount of data to manage, not making managing complexity a priority, and culture for infrastructure share a third place, all cited by 8% of respondents.

The most common tactic to reduce complexity, as taken by the respondents in the past three years, is the promotion of a culture of collaboration (39%). A third (33%) has implemented new technology tools or infrastructure, while 30% has created a cross-functional role to facilitate collaboration, implemented new decision-making processes or improved their leadership skills. Although collaboration is seen as a key method to reduce organisational complexity, only 17% use ‘time managers spend collaborating with other managers’ as a metric, and 14% use ‘time employees spend outside their department’.

Steps to reduce complexity

Poor management is cited by 44% of respondents as the biggest obstacle to reduce complexity, followed by lack of buy-in across the organisation, culture slowed or prevented change and a too big amount of data to manage, all listed by 30%. Other obstacles include a lack of incentive to collaborate (22%), a lack of commitment to change (19%) and a too fast-growing organisation (7%).

Biggest obstacles to reduce complexity

The survey suggests that leadership decisions, effective change management and follow-through are key to reducing complexity. The researchers conclude that “the effort to reduce complexity must be driven from the top down, with executive management leading the charge by promoting a culture that favours collaboration and then providing the tools and technologies that enable it. Because no effort can be successful without the ability to measure its impact, it’s necessary to determine metrics that are appropriate for the organisation to gauge success. Finally, leaders need to ensure that reducing complexity remains a priority for everyone, with sound change management ensuring that initial efforts to reduce complexity take root and thrive.”