How Can a Company Manage Complexity?

Fortunately, there are some clear-cut and simple indicators of excess complexity. Think about how your company would answer these questions: Are the majority of the features or options on a given product valuable to your customers and used by them consistently? Do your new hires take longer to become productive than those of your competitors? Is your growth lagging behind the market; does your revenue seem to be going nowhere despite repeated product and price changes? If you answer "yes" to these questions and recognize some of the factors in exhibit 2, as characteristics of your company, then your organization likely suffers from overcomplexity.

Recognizing the causes of excessive complexity is as important as recognizing its symptoms. To some extent, complexity is the natural order of organizations. In our businesses (as in our homes), "things" seem generally to accumulate more quickly than they're discarded. Complexity in companies results from product launches, incremental product improvements, innovations, customizations, and organizational mergers and acquisitions. To be more specific, complexity is caused by immortal products, diffused segmentation, localized customization, rushing new products to market, contiguous and overlapping product or service portfolios, the zest for competitive parity and market share, and regulatory compliance. Virtues, if taken too far, can turn into vices. Customization and product introductions are good, but only at the right level -- and that level can be hard to ascertain and maintain consistently over time.

Managing complexity is an art form that requires gently balancing trade-offs across multiple dimensions. Over the past five years, the successful complexity management efforts that IBM has led for clients around the world have helped crystallize our thinking on how to manage complexity. We have summarized our recommendations into 10 cornerstones of complexity management. These activities need to become part of a company's standard way of doing business; they should be considered in strategic planning discussions, and the company's success or failure on these fronts should be part of the regular management reporting processes.

Measuring complexity and establishing appropriate metrics and baselines are often difficult and require specialized skills and dedicated resources. Companies must develop their complexity measures based on their areas of concern and desired results. For example, companies focusing on product complexity may routinely measure the product variations and possible combinations that they're selling, the number of variations in their list pricing, the discounting levers and promotional codes they use, and the frequency with which they offer discounts. In contrast, companies concerned about process complexity may measure the number of touch points and hand-offs in the process; different job titles for people who are involved in the process; variations of the same baseline process (e.g., credit checks conducted at different stages of the life cycle for different products for the same customer); customized terms and conditions in contracts; and variations in service-level agreements.

One way in which companies can intelligently stem complexity is by taking a customer's perspective on how product features are evaluated, procured, integrated, provisioned, and used. Companies may be able to reduce product and billing options by prepackaging components into standard high-volume and easy to buy "value packages." Not only may this make the customer purchase experience more pleasant, but it may reduce costs throughout the organizational ecosystem.

Another way in which companies can manage complexity is by making their IT infrastructure more agile. Using a service-oriented architecture (SOA) and its associated technology "components," companies can convert monolithic applications into collections of features that can be recombined and refashioned to support new business strategies and tactics as they arise (and disappear). An SOA approach to the company's IT needs can lower costs, lengthen the life span of systems, simplify the company's IT infrastructure, and spur innovation. Nevertheless, because it increases the number of individual technology components within the company, an SOA infrastructure has the potential to dramatically increase complexity, as well. The challenge for business intelligence and performance management software vendors will be to make sense of companies' changing needs and link them to drivers of total shareholder returns.

Where To Start?

IBM clients have achieved more than $1 billion in incremental growth after taking steps to monitor and manage internal complexity. These efforts have enormous transformational potential, so establishing and sustaining a complexity management program requires dedicated resources and the involvement of the organization's top management. A dedicated complexity manager can determine what areas of the company could benefit most from reductions in complexity, then set up the metrics for gauging progress toward that goal. Once the program is launched, he or she can oversee annual complexity planning and audits.

Some IBM clients have profited from incorporating complexity audits into their annual budgeting and planning cycle. For example, to assure complexity the highest visibility in its organization, one IBM client reported on select complexity metrics to its board of directors quarterly. Complexity measures can be a leading indicator of corporate performance, so they must be crafted carefully. These metrics should be designed to capture the value and cost trade-off associated with every additional variation in a company's products and services, customers, internal processes, and basic organizational structure. They may be similar to measures used by other quantitatively driven approaches to performance management, such as Six Sigma -- so they will be metrics such as product variations available vs. sold, or process variations across steps and iterations.

As IBM has learned both in our own experience and our work with clients, complexity is one of the major barriers to better operational and financial performance. By making a serious corporate commitment to manage complexity in a rigorous fashion, a company can reap substantial operational and financial benefits, ultimately boosting revenues, improving cycle times, and avoiding and reducing costs.

Sonny Saksena is a partner in the Strategy & Change Practice of IBM Global Business Services. You can reach him at sonny.saksena@us.ibm.com.

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