How Leaders Can Cope With Complexity

CFO Innovation Asia

April 10, 2014

When trying to cope with the challenge of complexity, leaders often make a fundamental mistake: they neglect to find out what their people actually do. Instead, they rely on more-abstract management notions that hurt performance by making organizations more complicated, clumsy, and unresponsive, according to a new book by experts at the Boston Consulting Group (BCG).

In Six Simple Rules: How to Manage Complexity Without Getting Complicated, published this month by Harvard Business Review Press, BCG senior partners Yves Morieux and Peter Tollman make the case for a new approach—“smart simplicity”—which consists of a set of principles and tools designed to make people more autonomous, cooperative, and able to solve problems so that organizations can become increasingly agile, competitive, and responsive.

The first step in applying smart simplicity is to find out what employees actually do; the next step is to change conditions so that employees do what the organization needs.

“The secret of performance is to find out what your people are doing and make it rational for them to work together to solve your problems,” Morieux says.

“The best way to increase performance is to look at how people behave and why people are behaving that way,” adds Tollman.

According to the authors, smart simplicity is urgently needed because business is becoming ever more complex. Complexity, they explain, stems from increasing and often conflicting customer demands and regulatory requirements, as well as intensifying global competition. BCG research shows that in 1955, businesses typically committed to between four and seven performance imperatives. Today, they commit to between 25 and 40—a sixfold increase.

But complexity isn’t the problem, Morieux and Tollman argue; the problem is what businesses do in response. “Managers leap instinctively into so-called best practices and other abstractions,” Morieux says. “They create new layers and procedures—for example, trying to improve reliability by creating a “reliability department.” The organization becomes more complicated and cumbersome—and less able to respond.” Data from the BCG Institute for Organization shows that the number of procedures has gone up 6.7% since 1955—35 times higher, compared with the sixfold increase in external complexity.

“What a manager grappling with a reliability problem should do is find out why employees are behaving in a way that makes products unreliable—hiding problems or not sharing resources—or focusing too much on other, conflicting goals such as cost or time to market,” Morieux says.

The key to smart simplicity, the authors say, is for managers to apply the Six Simple Rules in order to promote greater autonomy and cooperation:

  • Find out what’s really happening in the organization. “Learn how and why your people cooperate, find resources, and solve problems—or how and why they fail to do so,” Tollman says.
  • Identify the people who make cooperation happen. “Real cooperation is hard,” Morieux says. “People need to come together, understand each other’s needs, and produce a piece of work that’s more than the sum of the parts. Sometimes that increases tensions. But the people who are resented might be the glue that holds cooperation together. You must give them the power, incentives, and authority to succeed.”
  • Give more people more power. If more people have power to make decisions in the organization, that means they can solve problems on their own.
  • Take away resources to make people dependent on each other. “Having fewer resources means people have no choice but to rely on each other, which helps to foster cooperation,” Morieux says. “If you take away all the televisions but one in a household, people are forced to do the difficult, cooperative work of deciding what to watch.”
  • Help your people “live with the consequences.” The book cites the example of a vehicle manufacturer whose products were famously hard to repair. The company assigned its engineers to future positions in the repair departments. Once they knew they would have to confront the repair problem themselves, they quickly found solutions to make vehicles easier to fix. This allowed the company to extend the warranty period of its products, which had become a new competitive requirement.
  • Don’t punish failure; instead, punish people who fail to cooperate. “If people are afraid to fail, they will hide problems from you and their peers,” Morieux explains. “Managers should reward people who surface problems—and punish those who don’t come together to help solve them.”

“The problem is not business complexity,” Morieux says. “The problem is how organizations respond. They forget the basic fact that performance is what it is because people do what they do.”

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