The latest McKinsey Quarterly has an article titled Cracking the Complexity Code that discusses the differences between institutional and individual complexity, and the opportunities presented by mitigating the latter. The impact of simplicity has long been a favorite topic of mine, and one of my favorite quotes is from Lao Tzu, "excellence through simplicity."
Executives should distinguish between two types of complexity—institutional and individual. The former concerns the number and nature of interactions within a company, the latter the way individual employees and managers experience and deal with complexity.
Most organizations focus on institutional complexity.
As managers instinctively know, many things that increase the degree of institutional complexity—operating in more countries, serving more customers, offering more products and services—can also help to create new value. Nonetheless, managing individual complexity is important: the companies reporting that they didn’t have much of it also had the highest returns on capital employed and returns on invested capital.
As a constant foe of any form of complexity, I don’t exactly buy the secondary premise of the article, which is that the effective management of individual complexity allows for the effective increase of institutional complexity… supposedly a good thing.
The implication for businesses is clear: they can manage higher degrees of institutional complexity if they reduce the degree of individual complexity—either by distributing institutional complexity across larger numbers of employees or by focusing it in a few pivotal roles and mitigating it with strong capabilities in those positions. Institutional complexity can then be exploited to pursue more challenging (and value-creating) strategies and to increase the organization’s resilience: companies provide some insurance against changes in the world by learning to cope with the complexity involved in pursuing different opportunities simultaneously.
Ok complexity in my mind is still a waste, but whatever, but let’s return to the issue of individual complexity. So what creates that form of complexity and what can be done?
Organizational design. Effective organizational design at the individual level can minimize complexity, even in organizations that make complexity-creating organizational-design decisions at the institutional level. Low individual complexity, for example, characterizes organizations that have matrix structures and multiple reporting lines but also take steps at the individual level to eliminate redundant activities and to create clear accountability and targets. Deciding to centralize or decentralize decision making, at the institutional level, did not seem to matter so long as companies eliminated duplication and made accountability and targets clear at the individual level.
Matrix structures and multiple reporting lines are "less complex"? I don’t understand that. The rest of that paragraph is pretty much spot on, but I’ve lived through several matrix nightmares, and they definitely do not embody simplicity.
Misaligned processes. Our data show clearly that executives of companies with effective management processes (for instance, performance-management and capital-allocation systems), operating processes (management, sales, and R&D processes), and supporting IT systems report a low degree of individual complexity. Companies whose systems and processes are well integrated (for instance, those where strategy and HR processes are closely linked) had even less of it.
I can buy that, although I’m not convinced that IT solutions are necessarily advantageous. A clear stragic focus, preferably leveraged via policy deployment or hoshin kanri, can be very powerful and aligning.
Weak capabilities. The results show that the degree of individual complexity decreases as the degree of general-management skills increases and that the correlation is even stronger in organizations with strong ambidextrous capabilities.
I’m not exactly sure what an "ambidextrous" organization is, but it sounds pretty cool. However an increase in skills, at any level, is almost always a positive move toward simplification.
You may be focusing on reducing the complexity of your organization, but are you putting the same effort into improving how your individuals work?