Insight
Mastering Complexity
Master complexity by understanding and addressing non-value adding complexity to unlock business value.
In this article we share a complexity taxonomy, outlining lenses through which complexity emerges, to identify where complexity stems from. This enables leaders to decrease complexity without compromising competitiveness, thereby creating a more effective, efficient, and scalable platform.
Contributors: Tobias Skovgård Bang, Marc Lynderup Russell, and Mathias Overgård
Global factors and tendencies make companies anxious about the future. Covid-19, the Ukraine conflict, increasing US-China frictions, rising interest rates, high global inflation, and an accelerating climate crisis.
These lead to significant changes to companies which are experiencing increasing demand and supply uncertainty, lack of visibility, and price volatility.
For a long time, the trend has been on “tightening the chains”, yet consensus appears to have move towards increasing resilience and responsiveness. A key factor in succeeding with that, is understanding business model, operating model, and financial model complexity. Eliminating non-value adding complexity tends to increase responsiveness.
The recommendation is backed up by the last couple of years which have shown that you can be too early with adjustments of the organization (e.g., the initial consequence of COVID-19 was an increased demand for B2B e-commerce). Now, is a unique opportunity to prepare for future disruptions by infusing scalability and simplicity into your business, operating, and financial models.
Assessing complexity
When addressing complexity, it is critical to separate necessary complexity, i.e., the complexity derived from strategic decisions that helps differentiate a company, from the non-value adding complexity that emerges without a deliberate business rationale. The non-value adding complexity is typically driven by unconscious decisions and misalignments in the company setup. Figure 1 illustrates the difference between innate complexity, value adding complexity, and non-value adding complexity.
Figure 1: Complexity typology
Looking at the complexity taxonomy, the non-value adding complexity may appear in the business model, the operating model, or the financial model, as illustrated in Figure 2. We will not unfold all parts here, but two examples highlight the “Products” and “Processes” dimensions later in the article in Figure 4.
Figure 2: Complexity taxonomy
Executing
We apply a well-establish approach towards to build a baseline understanding of complexity before infusing simplicity into the organization. This five-step approach is described below:
- Set the ambition to focus on the right issue from the beginning by assessing the type of complexity to be addressed in the complexity typology and determining areas and elements in scope in the complexity taxonomy
- Categorize complexity and its root cause to understand the context and real problems before simplifying. This is done by conducting first-round interviews with business stakeholders, making analyses based on collected input, and thirdly by outlining identified issues
- Identify simplification opportunities to get the list of relevant simplification opportunities. This is done by establishing a list of hypotheses that can solve complexity issues and by reconfirming business hypotheses through second-round interviews
- Establish business cases to understand whether the simplification is worth pursuing by calculating the potential benefits of simplifying. The benefits don’t need to be a financial business case, but can also be the value of scalability or responsiveness
- Execute initiatives to reap the benefit of a simplified business by setting up projects with a clear mandate to operate and eventually by executing initiatives
Figure 3: Execution
Furthermore, as mentioned earlier in the article, Figure 4 showcases illustrative examples of approaches for 1) products in the business model; and 2) processes in the operating model in the complexity taxonomy.
Figure 4: Examples of approaches
Please, download the one-pager in the top of the site for more information.
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If this topic is on the radar in your organization or if you would like to know more, please reach out. We are always ready to discuss how you can simplify your business in the most optimal way.
