By Max Clarke
New research from the Economist Intelligence Unit confirms that the financial crisis has significantly exacerbated business complexity.
A worldwide survey conducted for an Economist Intelligence Unit study released today shows that for 86% of firms increasing complexity in their operating environment or organisational structure has become a bigger challenge over the past three years.
In the survey for the report titled The Complexity Challenge: how businesses are bearing up, only 22% senior executives think that their organisations are well prepared to confront complexity in the future. More than one in four (26%) of them describe their firms as "complex and chaotic". The most prominent reason for spiralling complexity, highlighted by 38% of respondents, is the greater expectations of customers. Complexity stemming from globalisation or technology feature much lower down in the list of causes.
The report also explains the wide range of measures that companies are adopting to tackle complexity, from cutting down management layers to simplifying product portfolios and processes. "It is clear from the research that complexity has become a constraint and a risk for firms," says Abhik Sen, editor of the report. "Our study shows that some of the most successful companies today are the ones that are tackling this challenge head on by simplifying their organisations or business practices."
The single biggest cause of complexity is greater expectation on the part of customers. Increasing customer demands for more choice in the quality and range of products and services are providing the biggest impetus to complexity. The second most cited cause of complexity in the survey is regulation.
Complexity is exposing firms to new and more dangerous risks. Complexity has significantly increased the risk exposure of nearly one in five firms. The majority of survey respondents say complexity is affecting the ability of their firms to change business processes and is hindering the introduction of new products and services.
Businesses are focusing on technological solutions to tackle complexity. Simplifying information technology systems seems to be the most popular way to tackle complexity in business, along with efforts to simplify or consolidate product and service portfolios. As a source of complexity, though, technology comes in only at seventh place in the survey.
A majority of firms have an organisational structure that is adding to complexity. Nearly three in five survey respondents say that the organisational structure of their firms is exacerbating complexity. Almost half (47%) say it is difficult to work out who is responsible for what at their companies and 39% say that, as a result of the lack of transparency, there is considerable duplication of effort.