In today’s global, hyper-competitive and turbulent markets, the only constant is complexity. Complexity and the growth of complexity remains the primary challenge for CEOs all over the world as confirmed by numerous studies including IBM’s Global CEO Study and IDC Manufacturing Insights. In my Complex Enterprise White Paper, I proposed the concept of Dynamic Complexity Management (DCM). DCM is basically the dynamic orchestration of executing good complexity and eradicating bad complexity. To drive and thrive in today’s environment, enterprises must embrace good complexity, which provides winning customer solutions and resilient operations. They must also eradicate bad complexity that leads to inefficiency and lower profitability. Good complexity unifies and makes the value chain of a company run smoothly, while bad complexity pushes the value chain components apart. DCM thus enables flexible, fluid and flawless execution of complexity across the entire enterprise value chain.
DCM has profound implications for companies all over the world whether or not they consider themselves to be a complex enterprise. Typically, people associate complex enterprises with global manufacturing companies that focus on a tangible form of complexity such as manufacturing styles, product categories and global supply chains. Our research shows that intangible complexity in terms of planning, people, processes, etc. is in fact much harder to manage and execute against. Please refer to the Complex Enterprise White Paper for additional insights.
Complexity and simplicity are two sides of the same coin. Complexity is your company’s know-how and know-why honed over the years to build your competitive advantage, while simplicity on the other side is your innate ability to mask this complexity (behind the curtains) and deliver the most intuitive, compelling and delightful customer experiences. The key to sustained value creation thus is capitalizing on complexity while transforming this complexity into the most positive customer experiences.
Dynamic Complexity Management (DCM) is thus a combination of several strategic and proactive actions that are pertinent to:
- Understanding the complexity (especially the seven “Ps” of complexity)
- Differentiating good complexity versus bad complexity
- Linking complexity to customer value creation
- Executing complexity to perfection
- Capitalizing (or harnessing) the good complexity
- Eradicating (or destroying) the bad complexity
- Adding good complexity for flexibility and agility
- Hiding (or masking) the complexity (i.e., simplifying the customer experiences)
- Monitoring the complexity (especially good complexity turning bad over time)
- Predicting (or forecasting) the complexity
- Transforming complexity into competitive advantage
Let’s take a look at a few complex-enterprise companies with varied levels of mastery in DCM. I selected Priceline (PCLN), Apple (AAPL), Amazon (AMZN), Intuitive Surgical (ISRG), Boeing (BA), Nintendo (NTDOY), Research in Motion (RIM), and American Intl Group (AIG). I picked these companies because we can all relate to them in one way or another, and they also represent a good diversity of industry verticals. For each company, I assigned an overall DCM score on a scale of 1 to 5, with 1 being the worst performer in DCM and 5 being the best performer in DCM. I also wanted to see how each company’s DCM performance stacked up relative to its financial performance (please refer to the table below).
I was positively surprised to see such a strong correlation between DCM and financial performance. Five-year returns can be used as a direct proxy of a company’s DCM performance. Based on this, any company with five-year returns of 25% or higher are excelling in DCM. The companies with five-year returns of between 10% and 25% are doing good in DCM and those with single-digit or negative five-year returns have major work cut out for them. The fact that Nintendo and Research in Motion are low DCM performers should serve as a wake-up call for all companies. Five years ago both companies were flying high; but somewhere along the line, they lost their way due to bad complexity. Their market-capitalization numbers shown above clearly reflect this trend. DCM is not a one-time feat; it’s an ongoing quest for companies to strategically exploit complexity in an effort to over-deliver on customer experiences and value creation.
For more information on complexity, complex enterprises and dynamic complexity management, please refer to my white paper. Let me end this post by saying:
“If necessity is the mother of invention, then complexity is the mother of innovation.” – Sanjiv Karani