Organic growth increases the number and types of customers, products and suppliers within an organization. This adds both revenue and cost to the operating model but does so in a way that is consistent with the operations of the business. This type of growth maybe complicated but it isn’t necessarily complex.
Complicated issues are defined as ‘the state or quality of being intricate or complicated.’ Complicated issues are intuitive, have patterns and follow a set of rules. They can be resolved by breaking down the problem and understanding the cause and effect and implementing a solution. You can solve complicated issues in a repeatable manner.
Complex issues, however, are defined as something ‘consisting of many different and connected parts and not easy to analyze or understand.’ Complex issues are more difficult to diagnose and may have no rational explanation. They don’t follow any set rules or laws and are unpredictable in terms of outcomes. Examples of complex issues would include managing employees, merging two companies, or adopting a diversity and inclusion program.
As an organization grows it may become more complicated but it shouldn’t become more complex.
If you are a chocolatier, you’re operating a pretty simple business. Chocolate typically has five basic ingredients; Even when you make different chocolate varieties and different packaging for seasons, size etc it may become complicated but it isn’t complex.
Growing your chocolate business by acquisition on the other hand can become fairly complex. Your target acquisition needs to be receptive to the idea, at a price and terms you both can agree on. You need to agree on the benefits of joining forces and be able to persuade shareholders, customers, employees, suppliers, and regulators that it is a good idea. The successful pursuit and integration of an acquisition is a complex issue. Think about trying to grow this business by acquiring Artisan chocolate makers, which these days is so often the case for the major chocolate manufacturers!
Let’s switch gears and look at the US airline industry. Southwest Airlines began services on June 18, 1971, with three Boeing 737 and has predominantly operated the Boeing 737 for 49 years. Their strategy of operating only one type of aircraft for 49 years helped reduce the impact of complexity of their business and helped keep their operating costs one of the lowest in the industry. Even after acquiring AirTran Airways, Southwest chose to lease Airtran’s fleet to Delta rather than create variation in their flight operations.
Compare them to American Airlines who operate 20+ aircraft from four different manufacturers and you begin to see the difference in complexity between the two business models. Activities such as hiring, training and re-certifying a pilot to operate an aircraft may be complicated but it isn’t onerous. Even assembling and distributing safety manuals isn’t difficult. However, the operation of a business model which involves so many different skills, pay scales, seniority, operational procedures, and aircraft and you begin to see how complicated becomes complex.
Leaders, like Herb Kelleher, Southwest Airlines founder, make choices grounded in simplicity. Other leaders, over time, make choices that impact the shift from complicated to complex. In moving from complex to complicated we are adding future costs to our organization; costs that are not necessarily variable and certainly difficult to manage.
CASE STUDY – COMPLICATED TO COMPLEX
A large fresh produce distributor managed their entire revenue cycle on Excel. Developed by an excel guru when the business was small, this sophisticated set of worksheets continued to track orders and sales even as the company grew exponentially over a five year period. While perhaps not the best option, it worked. For a while. With no significant change to the revenue management system the spreadsheet soon became difficult to open and even harder to navigate. Only one person, the original creator, fully understood the mechanics of the reporting tool. Complicated had become complex and the business created a single point of failure as financial reporting became increasingly dependent on a single employee. What would happen if he were to leave? How would someone new be able to learn the intricacies of the spreadsheet? How long would it take? In the meantime, how is management able to effectively rely on, or judge, the insights without any ability for review?
As organizations become increasingly complicated we need to watch our for shifts to complexity. These shifts often create risk, add future costs, and reduce reliability.
Complexity is also one the largest sources of disengagement in the workforce. Complex operational issues make it increasingly difficult for employees to be successful. Complexity leads to ambiguity, misinterpretation, and misunderstanding which in turn results in a ‘me vs we’ attitude. In addition, complexity leads to a culture of restraint and mediocrity which negatively impacts productivity, efficiency, and effectiveness.
Leaders should consider not only how they are building their organization but how to do so with a view to minimizing complexity. Often we respond to growth by simply layering on top of our existing procedures a new set of activities and responsibilities. We don’t look at the organization and ask what was necessary before that we no longer need today. Looking at the organization with a view to unravelling the complexity that was previously laid down will go a long way to help improve bottom line results as well as employee engagement and job satisfaction.