the speed and cost of complexity
By Linda Bambacus
Senior Consultant
It’s a warm, sunny
Sunday at the end of summer, with hardly a cloud in the sky and only
a slight breeze to disturb the tranquility. Thus all the harder to
believe that the earth is spinning on its axis at 1,000 miles per
hour and orbiting the sun at an incomprehensible 67,000 miles per
hour. There isn’t the slightest indication that anything is moving
except for the butterfly that just darted by.
With all this spinning and hurling,
why don’t we get dizzy or at least have some sense of motion? Isn’t
it reasonable to think we’d feel something?
But frequent fliers will agree that
after takeoff, once the plane’s speed becomes constant; there is
little sensation of movement. The constant rush of movement produces
the sensation of no movement at all. When something becomes constant
or omnipresent, we stop noticing it.
Perhaps that’s why the complexity
that afflicts most businesses is so insidious. It spreads at such an
astounding pace and seeps into so much of the day-to-day routine
that we don’t notice it. But it’s there and it’s costing your
business more than you think.
Complexity is like an iceberg with
only a fraction of its mass visible above the water and most of its
bulk hidden below the surface. What’s hidden below the surface is
what drives disproportionate cost in your organization. Costs
related to complex products and services that were devised by some
of your best and brightest employees. This makes it even harder for
executives to recognize the unintended but nonetheless negative
impact of complexity; they simply cannot believe that the work of
their smartest employees is hurting, not helping, the economic
health of their organization.
Like the movement of our planet or
the hidden mass of an iceberg below the surface of the sea,
complexity is not easy to see, and it didn’t get there in one giant
leap. It got there one decision, one idea, one “enhancement” at a
time—all
piled up, layer upon layer.
Need to energize your sales force
and give your revenue line a jolt? Just add one or two new,
innovative features to an existing product line; give it a new name;
introduce some updated marketing collateral; and you’re on your way
to reaping new profits. Not so fast...
Even small extensions in a product
or service have hidden dimensions. Supporting processes and
technology and administrative and marketing overhead are just some
of the hidden costs that come along with even a tweak to a product
or service. And if your staff is really innovative in terms of what
they can dream up, the associated process and infrastructure costs
go up exponentially.
Complexity that comes from meeting
real customer needs or demands, however, is a necessary cost of
doing business. Complexity that feeds the ego of star performers
without adding real value for the customer and the bottom line is
pernicious and needs to be rooted out. Being able to distinguish
between customer demand and complexity for complexity’s sake isn’t
always easy. One way to do this is to insist on rigorous
profitability analysis, not mere “business case” justification, for
new product and service initiatives.
Of course, this assumes that your
organization has the ability to measure product or service
profitability in the first place. This is often one of the most
important and least understood weapons in the war against
complexity.
How often are the business cases
used to justify a new product or service put to the analytical test
to determine the resulting impact on profitability? And even if
this analysis is performed, does it address the hidden costs of
complexity, or does it address only the 20% of costs that are
visible above the water line? In most cases, the answer is that the
analysis sees only the easily seen.
Undertaking rigorous profitability
analysis entails more than a cursory look at sales, revenue, and
standard operating costs. The costs associated with complexity got
there bit-by-bit over time, and it can take detective work to
uncover the layers that have built up. Doing this can be hard work,
but it’s worth the effort to understand how complexity is impacting
your organization’s performance, the rate at which it is using up
your capital, how it is degrading staff productivity, and whether it
is contributing to or detracting from your bottom line.
Because finding the costs of
complexity can be hard, it’s no wonder that traditional cost
reduction efforts often fall short of the mark in terms of producing
significant and sustainable changes in cost structure. One-time, ad
hoc attempts to ratchet down costs usually miss the expenses that,
if found and eradicated, would transform your company’s cost
structure. And even if you find those costs, it’s for naught unless
you commit to eliminating the non-value-added activity that produced
them in the first place.
Understanding the rate at which
complexity drives up costs—and
the corresponding extent to which gratuitous variety does nothing
for customer value—is
the key. The costs of complexity can be found dispersed throughout
your organization:
