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Are you managing complexity?

Julian Birkinshaw

At the heart of organisational complexity is the battle between emergence and entropy. Julian Birkinshaw charts the best way forward.


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It is easy to label big companies as overly complex. But what does this mean in practice? What does complexity feel like to a front-line employee or a customer? Here is a personal anecdote that makes complexity a bit more real.

A few months back, my small consultancy business received a payment of £3,000 for some consulting work I had done for one of the top 20 companies in the UK, let’s call it Megafirm. I did the work 20 months earlier – it took then more than a year and a half for them to pay me.

As the delay in payment entered its second year, I started to ruminate on what had gone wrong, and I realised that this tiny problem was a microcosm of this bigger problem of complexity. Who, I asked myself, owned the problem? If I had been trying to get paid by a small company, the answer would have been obvious: I would have talked to the boss, he would have pulled out his chequebook, end of story.

But trying to get paid by a global company with 80,000 employees, it gradually became apparent that we owned the problem. My wife invested several days sending emails and calling people in India and Poland.

Megafirm had outsourced the problem to us.


Two faced complexity


Think about this point at a broader level, and the implications are scary. When companies become too complex to manage, they create costs for others. They impose a burden on the companies who have to deal with them. Suppliers get stuck trying to figure out how to get paid. Customers despair at the lack of joined-up thinking between the various divisions.

Regulators and government officials struggle to know who to talk to. And when companies lose control of their employees, as the banks did in the mid-2000s, taxpayers end up footing the bill. The complexity of our large companies is a curse. But we have to remember that complexity is also a good thing. Companies are complex by design because it allows them to
do difficult things. IBM has a multidimensional matrix structure so that it can provide coordinated services to its clients. Airbus has a complex process for managing the thousands of suppliers who contribute to manufacturing the A380.

In short, complexity is a double-edged sword. It is never easy separating out the complexity we value from the complexity we need to cut back on.


Inventing complexity


There are three processes under way that collectively determine the level of complexity experienced by people in the organisation:


  • There is a design process – the allocation of roles and responsibilities through some sort of top-down master plan.
  • There is an emergent process – a bottom-up form of spontaneous interaction between well-intentioned individuals, also known as self organising. This has become very popular in the field of management, in large part because it draws on insights from the world of nature. Under the right conditions, it seems, individual employees will come together to create effective coordinated action. The role of the leader is therefore to foster ‘emergent’ order among employees.

  • Finally, there is an entropic process – the gradual trending of an organisational system towards disorder. The disciples of self organising often note that companies are ‘open systems’ that exchange resources with the outside world, and this external source of energy is what helps to renew and refresh them. But the reality is that most companies are only semi-open. In fact, many large companies are actually pretty closed to outside influences. And if this is the case, the second law of thermodynamics comes into effect, namely that a closed system will gradually move towards a state of maximum disorder (i.e. entropy).


In short, as organisations grow larger they become insular and complacent. People focus more on avoiding mistakes and securing their own positions than worrying about what customers care about. Inefficiencies and duplications creep in. Employees become detached and disengaged. The organisation becomes aimless and inert. This is what I mean by entropy.


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The trouble is, all three processes are under way at the same time. While top executives are struggling to impose structure through their top-down designs, and while well-intentioned junior people are trying to create emergent order, there are also invisible but powerful forces pushing the other way. The result is that everyone is running very fast just to stand still. The executive’s job is managing complexity. So what can we do differently?

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More and more the leader’s job is to manage the social forces in the organisation. This can take very different forms.


1. Keeping entropy at bay. 


This is the equivalent of tidying your teenager’s room. It involves periodically taking out layers of management, getting rid of old bureaucratic processes that are no longer fit for purpose, or replacing the old IT system. It is thankless work, and doesn’t appear to add any value, but it is necessary.


2. Inspiring emergent action


This is the equivalent of giving a bunch of bored teenagers a bat and ball to play with. It is about providing employees with a clear and compelling reason to work together to achieve some sort of worthwhile objective. It isn’t easy to do, but when it works out the rewards are enormous.


3. Keeping the company open and transparent 


Recall that the more open a system is to external sources of energy, the easier it is to harness the forces of emergence rather than entropy. What this means in practice is that leaders have to continually look for ways of bringing new perspectives into their company, and exposing internally focused procedures to external scrutiny.

There are plenty of other ways of increasing openness: refreshing a management team with outside hires, transferring employees across divisional boundaries, making people explicitly accountable to external stakeholders, collaborating with suppliers and partners, and conducting experiments in ‘open innovation’. These are valuable things to do in their own right, but in addition they have the broader positive benefit that they help to keep the forces of entropy at bay.

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The bottom line is that managing complexity is a real art. It has to be tackled in a thoughtful and holistic way. Leaders need to think about both faces of complexity – the costs and the benefits. And they need to develop an understanding of the social dynamics through which it emerges.

Comments

2 Comments

By Roy_Barden on 19-12-2015 08.34

Thanks Julian. It is good to see the positive case for complexity to balance the more often cited operational concept that simple is good. I would add the importance of transparency and measurement to your thinking on entropy. Humans enjoy creating complexity and left to their own devices will tend to make simple things more complex, whether this adds benefit or not to the whole. Transparency and measurement helps moderate this through peer pressure and self awareness.

By Rakesh Kumar on 27-11-2015 10.45

Wonderful Facts. Unfortunately Many Organisations, irrespective of their sizes, experience these complexities which may largely be attributed to the delusions of their Leaders too, who believe that together with their Title comes the Crown of Authorities instead of Responsibilities.

About Julian Birkinshaw

Julian Birkinshaw is a Professor of Strategy and Entrepreneurship, Chair, Strategy and Entrepreneurship Faculty at London Business School. He is also an Academic Director of the Deloitte Institute of Innovation and Entrepreneurship


Julian teaches on the following programmes:

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