As companies grow they inevitably become more complex. If complexity is not well managed, problems occur and profits decline. Studies indicate that 15 to 30% of all operating costs in large businesses are due to unnecessary complexity (1).
The causes of complexity are varied. Examples include: growth in products and services, taking on new customers, higher standards imposed by customers and so on.
Whatever the reasons, there is one cause of complexity that takes most business owners and managers by surprise – the effect of adding more staff. This is because increasing staff numbers by 25% roughly doubles the number of possible working relationships in the business. These extra relationships need managing and can be problematic, particularly where management systems are informal, such as in growing small to medium enterprises (SME’s).
Therefore to manage complexity, we need to manage how people work together in a way that is not dependent on the number of relationships between people. This is best achieved by taking a ‘process approach’ whereby people agree and document how they work together. Tools are then put in place to ensure agreed processes are clear, simple to perform, and easy to teach.
Without this approach, even small increases in staff tend to lead to serious operational problems. To avoid these problems, and their impact on profit, businesses need to implement formal management systems based on process thinking.
1 Wilson and Perumal. 2009 “Waging War on Complexity Costs”