Organizational Complexity

Organizations are dealing with increasing levels of complexity. From dysfunctional management to burdensome regulations – people and organizations want to understand the impacts of complexity. The current theme of the financial sector is “too big to fail” – the complexity theme associated with some of our larger financial institutions could be “too big to manage.”

Fundamentally there are four basic types of organizational complexity. The first is the dysfunctional. Examples include the duplication of activities due to mergers or reorganizations, and ambiguous or conflicting duties. This type of complexity is simply bad. The second is designed. Complexity for the sake of competitive advantage. The supply-chain and mass-customization of Dell is an example. Complexity becomes part of the business plan. The third is inherent. The difficulty of getting the work done – like open heart surgery. The actual surgery requires time and high levels of skill, but is not complex. The logistics, planning, and insurance forms/processing – that is the complex part of the process. The fourth is imposed. Largely beyond the control of the company – events shaped by industry regulations, non-governmental organizations, and trade unions.

There are three basic strategies for dealing with complexity. The first is reduction. An example of reduction is to simplify the organizational structure to make accountability clear. Review job descriptions and job classification categories might be another. Outsourcing of non-strategic activities could also be considered.

The second is channeling complexity. Some people and groups deal better with complexity than others. You may want to direct certain activities and processes to certain people and groups. Strengthening the central planning function is an example. The central team can create templates to help the different operating units with their planning efforts and assist in preparing other materials for planning and budgeting discussions.

The third is absorbing complexity. Accept it and make it part of the business plan. Absorbing is broader and deeper than channeling – giving a much more widespread group of managers the skills and attitudes they need to work with complexity. What are needed are ambidextrous people that have the ability to keep the business ticking on a daily basis while looking for ways to expand it and improve it.