Simplify, standardize, automate. It's a common mantra. Simple is good for the bottom line, complex is bad. Right? Well, not quite...
Complexity has a potentially big upside, as research published this week in McKinsey Quarterly highlights. The McKinsey case study illustrates that when companies see complexity as a challenge to be managed, not simply as a problem to be eliminated, they can generate additional sources of profit and competitive advantage.
The trick is to know what kind of complexity a business has.
Institutional complexity stems from strategic choices about organizational and operating systems. It's a consequence of the number of nodes and interactions within an organization. It's about geographies, customer segments, business units, products, regulatory jurisdictions and manufacturing locations.
Individual complexity is defined by McKinsey as "how hard it is to get things done". It's the complexity that the vast majority of employees face - typically due to poor processes, confusing roles, or unclear accountability.
McKinsey's research suggests that most executives focus on institutional complexity. They tend to have a blind spot when it comes to individual complexity - even though it also directly affects the bottom line:
"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."
Reducing individual complexity delivers strategic value, it's not just a nice-to-have. If individual complexity is effectively managed, then the organization can scale to much higher levels of institutional complexity, with all the strategic advantages that can bring.
But McKinsey cautions against simply attempting to standardize all processes. That can often be costly, it can make roles more complex, and anyway uniform global processes may be a chimera in practice.
Instead, it suggests a focus what really matters in individual complexity: on clear accountability, control and coherence - and especially across the Business-IT divide:
"Companies suffer most from complexity when processes and their supporting IT systems don't communicate."
Which certainly fits with my experience, listening to clients. There are jaw-dropping hidden costs arising from confusion in roles and accountability across end-to-end processes. And similarly enormous costs of IT failure where IT and the business are not speaking the same language.
If BPM is defined correctly, then it's a C-Level issue. BPM is not about new ways to automate, it's a far broader canvas. Process excellence goes way beyond just standardising and automating. BPM is about the management, adoption and continual improvement of every process, whether automated or not. And it's about wrapping in compliance, risks and controls so that it becomes possible to manage the business in 3D.
Framed in this way, BPM is the key to reducing individual complexity - "making it easy to get things done" - whatever the level of institutional complexity.
Which is why savvy CIOs see BPM as the strategic issue that it really is.
Putting organizational complexity in its place - McKinsey Quarterly, May 2010
Cracking the complexity code - McKinsey Quarterly, May 2007
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