For every up-and-coming business executive wondering what their boss does all day, there is an executive already in that chair who has realized how much more complex their decisions have become. Indeed, as your responsibilities broaden from a specific function or department to an entire firm, you must consider a much wider range of opportunities, challenges, and business outcomes in your day-to-day decision-making.
While the globalization of many regional businesses has generated opportunity in terms of expanding the marketable universe, it has also brought about numerous business challenges. The expansion of business geography in particular, introduces a multitude of complexities stemming from the need for decentralized decision-making, overlapping regulatory compliance and challenges with respect to achieving economies of scale that become mission critical in terms of achieving an organization’s strategic objectives. Increasingly, many business schools and corporate boards alike are coming to see the ability to manage and thrive in a complex operating environment as a key skill set for many C-level executives.
It is important to understand that business geography alone does not fully determine the complexity of an organization. Complexity results from the collective decision-making of management in response to a multitude of business challenges that are faced on a daily basis. The more this decision-making is conducted de-centrally, or with an approach that fails to appreciate the impact that a decision will cause in other areas of the business, the more layers of complexity are added. What personal experience has shown me is that the failure to address business complexity breeds more of the same, as additional layers are added to accommodate for previous decisions.
Numerous studies indicate that the costs of managing complexities can run as high as 15% to 20% of total business costs in global organizations. This clearly shows that greater efficiencies will produce significant financial results.
In real terms, complexity drives fixed costs through bureaucracy and increased headcount. It can also delay decision-making and distract decision-makers from their strategic areas of focus. Perhaps most damagingly, the inability to recognize and execute on business opportunities can mean all the difference between becoming a dominant market player, relegation to a firm with only regional strength, or an ultimate organizational failure due to the inability to scale.
In my experience, a somewhat dogmatic approach to the following has helped to simplify our business:
Build to scale
An organization that fails to achieve an optimal scale of production or service is almost invariably met with a trip to the lawyer’s office, either to negotiate the terms of their surrender and sale to a competitor, or to begin the process of allowing others to pick through their once promising product lines like discount shoppers rummaging through a bargain bin.
At each stage of your business development, you must ask yourself if you were to build it from scratch, irrespective of your current situation, how would you do it? Before you make a decision to accommodate a one-off process exemption for a star performer, or product feature for a valued client, you have to evaluate whether you are willing to offer that prerequisite to your entire team or whether you can sell that product feature to additional clients. If the answer in either case is no, you must be disciplined enough to stop yourself. One-off exemptions are incredibly prone to slippery slopes and each accommodation you make prevents you from scaling your business to an optimal level, as that decision will have to be revisited and adjusted at each stage moving forward. It can be incredibly easy to accommodate every stakeholder need while building your business, but this unfocused approach will act as an anchor when you attempt to drive efficiencies later on.
Demand that leaders think cross-functionally, not your star performers
Leaders of complex businesses often make the mistake of tearing down silos, forcing everyone in their organization to think in terms of the broader business. What often starts as a well-intentioned effort can result in a tremendous mistake over time. Silos are where your subject matter experts reside – where they hone their skills and develop the expertise that optimizes your products and solve tomorrow’s problems. Rather than diluting the value of these individuals by distracting them from their focus, leverage their deep knowledge to provide you with the data points and context that will inform your business decisions.
Leaders that provide organizational context to subject matter experts ensure that downstream business decisions remain congruent to organizational objectives while also allowing these key individuals to focus on what they do best in their core competencies.
Focus on your customers
By focusing not only on the customers you have, but the customers you want, your decisions will be aligned with your most important stakeholder group. What is key however, is to focus on plurality, not just a single customer. Identifying products that can deliver tailored solutions to customer groups allows you to achieve scale without diluting the value you add, thereby maximizing revenues and reducing costs simultaneously – the holy grail of business management.
Aligning your organization with a customer focus simplifies decision-making and organizational complexity. Viewed with this lens, organizational structures and groups that don’t deliver value to the end user or better allow you to reach that customer, become surprisingly easy to eliminate.
Business complexity is unavoidable. Managing that complexity, however, can make all the difference between winning and losing.
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