Complexity Management = Business Profitability and Survival

The negative consequences of high complexity for corporations and organizations are profound and multifaceted, impacting efficiency, agility, and ultimately, their bottom line and long-term viability. High complexity acts as a silent tax on every aspect of an organization, draining resources, slowing momentum, stifling innovation, and ultimately threatening its survival in a fast-paced market. High complexity induces fragility which is compounded by the rapidly growing uncertainty in the global economy and shifting geopolitcal arena. Recognizing and actively managing complexity is a critical responsibility of leadership. Complexity management should be integrated into every key business process.

High complexity isn’t just about having many products or employees; it refers to an interconnected dynamic web of processes, large supply chains, structures, systems, and products that become difficult to understand, manage, and control.

Here is a breakdown of the key negative consequences, categorized for clarity:

1. Operational & Efficiency Impacts

Increased Costs: Complexity is a major cost driver. It requires more managers, coordinators, administrative staff, and IT systems to manage the interdependencies. “Coordination costs” skyrocket.

Slower Decision-Making: The need to consult multiple stakeholders, navigate approval chains, and assess cross-functional impacts grinds decision-making to a halt. This is often called bureaucratic paralysis.

Decreased Productivity: Employees spend more time navigating internal processes (e.g., filling out forms, attending alignment meetings, seeking approvals) than doing value-added work. This leads to a loss of focus on the core mission.

Quality Issues and Errors: With more moving parts, process steps, and handoffs, the potential for miscommunication, errors, and quality failures increases dramatically. Root cause analysis becomes exceedingly difficult.

2. Strategic & Competitive Impacts

Loss of Strategic Focus: The organization becomes inwardly focused, spending its energy on managing internal complexity rather than responding to market shifts, competitors, and customer needs.

Reduced Agility and Innovation: A complex organization is a slow, rigid organization. It cannot pivot quickly to seize new opportunities or address threats. Innovation is stifled because new ideas get bogged down in committees and risk-averse processes. R&D activity is inexistent.

Inability to Execute: Even if a good strategy is formulated, the complex web of internal dependencies makes flawless execution nearly impossible. Different parts of the organization pull in different directions.

3. Financial & Risk Management Impacts

Poor Visibility and Unclear P&L: It becomes difficult to understand which products, services, or customers are truly profitable. Costs are often misallocated, leading to misguided strategic decisions.

Increased Operational Risk: Complex systems and processes are more fragile and prone to failure. A small error in one part of the system can cascade into a major failure (e.g., a supply chain disruption, a financial trading error, a IT security breach).

Higher Cybersecurity Risk: A larger and more complex IT infrastructure with numerous interconnected systems creates a larger “attack surface” for cyber threats. More complexity means more failure modes.

4. Human & Cultural Impacts

Low Employee Morale and Engagement: Complexity creates frustration, ambiguity, and a sense of powerlessness. Employees cannot see the impact of their work and feel like a small cog in a machine they don’t understand. This leads to disengagement and higher turnover.

Toxic Politics and Silos: As clarity diminishes, political gamesmanship flourishes. Departments become fortified silos, focusing on their own goals and budgets rather than the organization’s overall objective. Internal competition replaces collaboration.

“The Boiling Frog” Syndrome: Complexity often increases gradually. Like a frog in slowly heating water, employees and leadership may not recognize the creeping dysfunction until it’s too late and performance has critically deteriorated.

5. Customer & Market Impacts

Poor Customer Experience: Internally complex organizations are almost always externally complex for customers. This manifests as confusing product options, complicated contracts, slow response times, and being passed between multiple departments to solve a simple problem.

Erosion of Brand Reputation: Slowness, errors, and poor customer service directly damage the brand’s reputation and customer loyalty.

The Vicious Cycle of Complexity

Often, these consequences create a self-reinforcing vicious cycle:

1. A problem arises.

2. The organization’s response is to add a new process, rule, or reporting layer to prevent it from happening again.

3. This new layer adds complexity, slowing things down and reducing clarity.

4. The slowdown and lack of clarity cause new problems or mask existing ones.

5. Leadership responds by adding more processes and controls.

6. The cycle repeats, leading to an ever-more complex and sluggish organization.

How to Fight Complexity

In a super-fast economy, punctuated by crises, geopolitical events, where instability is the new normal, old techniques like Balanced Scorecards, Lean Six Sigma or simply automation, don’t work. The state of the global economy and of certain major sectors of the industry is proof for everyone to see.

In order to fight complexity, it is necessary to first have a means of measuring it. This step is crucial – it must be quantitative and scientific, numbers not sensations, science not subjective weights. When a metric is available, comes monitoring. This can be done on a daily, weekly or monthly basis, but is must be a continuing process. Only then will one be able to appreciate complexity not just in terms of its magnitude, but, most importantly, to observe its dynamics. The final piece comes in the form of Complexity Profiling. meaning the breakdown of complexity into its components, identifying its drivers.

Once the complexity drivers are known it is possible to monitor and intervene upon them to drive complexity down, or at least know where it comes from. What is a good level of complexity for a given organisation? This question can only be answered empirically. An optimal values doesn’t exist. Complexity management is a lifestyle, not a tool.

The technology and tools to do all this exist since 2005. It is Quantitative Complexity Management. If you can’t measure it you can’t manage it. Talking about complexity won’t help. Serious science starts when you begin to measures.

Ontonix is principal co-author of World’s first standard on Business Complexity Assessment, the UNI 11613.