Do you have a criteria or approach for assessing/measuring the complexity of business functions? This question came to me from a consultant redesigning a business unit. The proposed new design increases the number of functions reporting into the current Director. He wondered if the size of the unit would be too much for him. The consultant suggested that the answer depends on the complexity of the functions reporting in to the Director and now needs to find a way to identify and test functional complexity.
McKinsey tells us that ‘Companies must get three things right to manage complexity for value: organizational design, coordinating processes and systems, and capability building.’
In a later article they point out that ‘When pressed, many leaders cite the institutional manifestations of complexity they personally experience: the number of countries the company operates in, for instance, or the number of brands or people they manage. By contrast, relatively few executives consider the forms of individual complexity that the vast majority of their employees face—for example poor processes, confusing role definitions, or unclear accountabilities.’
Accepting that distinction, the number of different functions that a single Director can manage depends on both factors. The institutional complexity relates to the operating environment. A Deloitte paper quotes the example of regulators, ‘whose job has always been to protect the public from danger, exploitation, or insufficient competition in reasonably stable markets, now face another danger: that their own application of old rules to new realities might suppress innovations of tremendous potential value to the public.’
The article lists four ‘new realities’:
- Change comes faster – the authors point out that ‘while innovation has always challenged regulatory authorities, its influence on society has historically spread more gradually, giving regulators more time to learn and adapt. Today, startups are more quickly reaching significant scale and impact, in some cases serving millions of customers and employing thousands of people’
- Innovators find back doors – think how Uber challenged the regulation of taxi firms, and Air BnB of the hotel industry.
- Ecosystems are full of unlike players – ‘once-clear industries dissolve into complex ecosystems full of unfamiliar entities and innovative offerings’.
- Innovations cross lines of jurisdiction – for example people interested in investing their pension in cryptocurrencies cross more than one regulatory framework.
The individual complexity that employees face is commonplace in most organisations. Julian Birkinshaw in his TEDx talk ‘The Cost of Complexity’ gives vivid examples of individual complexity at work: workarounds, things falling into ‘a bit of a black hole’ where no one can retrieve them, duplication of activity, and poor customer service. He talks about the costs of this form of complexity, advocating instead ‘organising based on adhocracy not bureaucracy’.
There is an example of this adhocracy over bureaucracy thinking applied to traffic flow. Hans Monderman’s ‘designs emphasized human interaction over mechanical traffic devices. By taking away conventional regulatory traffic controls, he proved that human interaction and caution would naturally yield a safer, more pleasant environment for motorists, pedestrians and cyclists.’
The information above is useful in indicating that the Director needs to know:
- The level of institutional complexity, and whether it is the same for each business unit
- The types of individual complexity employees and customers experience in the organisation (and the costs of this)
- The possible methods of addressing the two types of complexity to make the Director’s task manageable in the absence of being able to reallocate some of the management to another Director – for example, could the number of rules and policies be reduced?
Knowing the level of institutional complexity means keeping alert to the constantly changing external environment, perhaps introducing a horizon scanning function, keeping a close eye on competitors, looking for patterns in large data sets, and so on.
Knowing the level of individual complexity is usefully done by examining organisational processes. As David Garvin says, in an excellent article, ‘In the broadest sense, they [processes] can be defined as collections of tasks and activities that together — and only together — transform inputs into outputs. Within organizations, these inputs and outputs can be as varied as materials, information, and people.’ He tells us that ‘a process perspective gives the needed integration, because it emphasizes the ‘links among activities, showing that seemingly unrelated tasks — a telephone call, a brief hallway conversation, or an unscheduled meeting — are often part of a single, unfolding sequence’. Additionally, a process perspective can link the realities of work practice ‘explicitly to the firm’s overall functioning’.
He describes organisational processes in three categories: work processes (subdivided into operational and administrative), behavioural (he discusses decision-making, communication and organizational learning), and change. Processes operate at the institutional and individual level, emphasizing, ‘the links among activities, showing that seemingly unrelated tasks — a telephone call, a brief hallway conversation, or an unscheduled meeting — are often part of a single, unfolding sequence.’
Organisation designers take note of the point that there are ‘intimate connections among the different types of processes’ and it is futile to analyse them in isolation. As he says, ‘It is extraordinarily difficult – and, at times, impossible – to understand or alter a single process without first taking account of others on which it depends. Thus, in Garvin’s view, accountability must shift ‘to those with wide enough spans of control to oversee entire processes’.
Following the discussion of organisational processes, Garvin talks of managerial processes: direction setting, negotiation and selling, monitoring and control. He then presents a ‘Framework for Action’ that I haven’t yet used but intend to try. It looks to be a good starting point for making some judgements on whether the organisational and managerial processes are complex – in terms of work flow, behavioural interactions and degree of change – in the context of what is known about the institutional complexity.
How would you assess the degree of complexity in a business function and what is manageable for one Director? Let me know.
Image: Data complexity