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  Complexity drivers
What causes "complexity inflation" within organizations ?

Crisis ? What Crisis ?

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In the physical world the second law of thermodynamics states that the entropy - i.e. the measure of disorder (roughly speaking) - of a closed system can only increase. At a microscopic level the elements or unit components of such a system are statistically driven to get more mixed up thereby reducing the overall structure and inherent order of the system.

In the business world the opposite evolution applies. Business processes and rules become always more complex. This holds true in both the private and in the public sector. To convince oneself of that trend it suffices to look at the evolution of social and fiscal legislation, at the tariff structure and sales conditions of most products and services like insurance, car renting, telephony, energy, flight travel, at the exploding sophistication of the IT and telecom systems required to keep pace with that ever growing complexity.

At first glance this complexification may appear as a natural consequence of the technological, business and social evolution. One can even argue that this indicates that human-made systems move toward ever greater order as opposed to the natural disorder trend shown by closed systems (i.e. systems left to themselves). First of all human organizations are no closed systems and their overpowering evolution toward increased complexity raises a few questions:

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Does this complexification increase their overall Pareto efficiency (assuming that the Pareto efficiency of an organization within its environment reflects its growth capability within that environment) ?

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Does this complexification ultimately improve customer benefits in proportion to the marginal price that it requires ?

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Can an organization ability to manage and automate its business processes outpace the complexification rate ?

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Is there an optimum or a limit to that trend toward more complexity ?

This all boils down to the impact of complexification on operational efficiency. As the practice and the theory show the actual benefits - measured in terms of the ratio "customer value/price" - of that ever growing complexity are highly questionable. So where does this trend come from ? Identifying its causes is indeed a prerequisite to addressing its damaging effects. Throughout its consulting engagements IT Cortex has identified the following factors as the main complexity drivers within organizations.

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Maximization of the mutual concessions made between suppliers and customers.

Both customers and suppliers love to bargain. For suppliers it is a way to hook customers, for customers it is an opportunity to maximize the benefits of their purchase. Every possible item, feature, option becomes potentially a bargaining opportunity : discount scheme, grouped offer, delivery conditions, packaging options, gifts, free supplementary services, payment conditions, warranties, penalties, etc. Sales forces are always brilliant at imagining mutual concessions to work out a deal. The difficulties begin when those specificities have to be coherently managed throughout the whole supply chain and its tributary processes for all customers and for all products and services. This inevitably creates a combinatorial explosion of situations flooding the business processes with a tide of operational details that have to be catered for.

This finicky approach to mutual concessions also applies to the public sector. Public authorities are always eager to please voters with fiscal or social gifts but they make the applicability clauses of their concessions so specific and restrictive that the cost of tracking, managing and controlling them largely compensate their possible benefits for the State. The end result of it, at macro-economic level, is that the whole system becomes less efficient. The multiple negative side-effects overwhelm the global effect initially searched for. The system superposes complexity layers to complexity layers making the intricacies so created less and less manageable.

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Job Protection or enhancement of one's importance

Professionals have a natural tendency to enhance their importance by making their job look more complex than what it actually needs to be. Alternatively they can needlessly complicate things to make sure that people will solicit their expertise for an increasing number of matters. This applies to all key functions within an organization. People just love to display their professionalism by coming up with exceptions particularly difficult to handle or special cases calling for a specific approach. Unfortunately handling those exceptions throughout the entire organization lead to operating inefficiencies that bear inevitably on costs, profitability and quality.

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Compromise between the organization's functions

This cause of complexification  results from the previous one. As every function pulls toward more intricate requirements and more complex ways of interacting with itself an overall working compromise settles in as the least common multiple of all the requirements. The various "parts" of the organization tend to loose sight of the global - "holistic" - picture that customers and prospects inevitably have. Instead of adopting a market driven viewpoint they work out a political compromise that suits all internal parties irrespectively of the fact that it is inevitably made to the detriment of the global efficiency.

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Attempt "to mold" and fine-tune market behavior

This rests on the erroneous hypothesis that minute changes in functional or price or delivery options can influence customers' behavior who will adjust themselves to the specific characteristics of the offering. This tactics is also widely used by the public sector through ever more intricate fiscal or social legislation. To a very large extent customers do not bother to understand an intricate option list or a lengthy tariff scheme. Who knows exactly how much each of his or her wireless calls is going to cost individually ? The best informed people on that topic will at best refrain from calling during peak hours or will cut down on calls if their periodic bill looks too high. Who believes that a given category of workers will be hired more frequently if their corresponding social security cost decreases according to a complex "discount" scheme that might even be but temporarily applicable ? The fact of the matter is that the possible positive effects that these intricate rules might have are more than compensated by the global inefficiency that they inevitably create. In the long run this complexification trend is always detrimental to the ultimate beneficiary of the product or service.

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Over-centralization and micro-management

This is the classical reductionist attempt to "reform" underperforming organizations : if an organization does not deliver the expected results then every "executant" should be prescribed in minute details what he or she ought to do. Business processes are broken up into micro-activities explicitly defined, assigned and clearly related to complementary activities. Some perceives this as asphyxiating but others view it as an heaven's gift. If it is not explicitly mentioned in the book, then they do not have to it. Since "the book" is never up-to-date and can not keep pace with an ever changing business environment there are inevitable loopholes and shortcomings causing growing business inefficiencies. When an organization attempts to orchestrate the energy of its people according to mechanical processes, instead of becoming more efficiently spent, that constructive energy withers away. If a rule is so rigid that it keeps people from doing their job, then they will either bypass it or do nothing depending on their temperament. Whatever happens in practice, the system works inefficiently. More rules can even be created to allow for ad hoc exceptions making the limits set by rules develop like the contour of a fractal.

The harsh reality is that rules exist to be circumvented if there is a the slightest incentive to do so. Whatever cynical this might sound the more complicated the rules are the easier it is to bypass them with impunity. Making intricate rules calls for sophisticated subterfuges to elude them. A system entangled in cumbersome intricacies becomes inept to detect subtle procedural contortions. Regulating a business adds another useless layer of complexity to already complex operations. Efficiency is achieved by bottom-up initiatives where the management play a catalyst role, not by top-down ultra-detailed command and control systems.

Strategic Simplification addresses - at their root - all these causes of operational inefficiencies in commercial and public organizations. Additional information on how we would address this in your specific case can be obtained by contacting us.

IT Cortex

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