All companies must grow in one way or another. As this happens, their day-to-day operations become more complex. Small-business owners may find themselves pressured to improve their processes, expand their product lines or enter new markets. Complexity in business is also fueled by the ever-changing customer behavior, markets and technologies, among other factors.
Business complexity increases with the number of people involved and the variety of products or services offered. Small-business owners need to recognize sources of complexity, break down the pieces and find ways to simplify their operations.
What Is Complexity in Business?
The success of your business depends on internal and external factors, from administration and management to market volatility and globalization. How these interrelationships arise and how they impact your company's bottom line defines organizational complexity. The business environment is more complex than ever before, with overlapping approval processes, layers of management and fragmented customer demands.
Small businesses have a simple organizational structure. However, as they begin to create new products or enter new markets, they inevitably become more complex. The number of employees and internal departments increases, which often makes communication more difficult. Their information systems become more sophisticated and business processes take longer to complete.
The external complex environments affect a company's organizational structure, too. For example, if your products are subject to a pressing regulatory environment, you may need to constantly revise, modify and improve your work processes. That could mean hiring more people, setting up new divisions or filling new holes in your supply chain. The level of complexity depends on the number of interconnections and how they affect your organization.
Types of Business Complexity
Complexity in business can be classified into three main categories: structural, emergent and sociopolitical. A company is structurally complex when it has a large number of organizational structures, such as subsidiaries and divisions, as well as multiple shareholders, suppliers and other elements.
Emergent complexity, on the other hand, results from chaotic interactions between different systems, processes or individuals. Some companies try to reduce this kind of complexity, while others embrace emergence. Sociopolitical complexity arises from social and political factors that may interfere with business processes. As a business owner, you have little or no control over it.
Generally, a complex business is driven by the number of interrelationships and the level of interdependence between them. It may arise from markets and products, new technology, production processes, management or the business ecosystem. For example, a company offering services that use rapidly developing or sophisticated technologies is more complex than one selling essential goods. Structural complexity in particular increases with the number of products or services offered, the number of locations, the variety of work being performed and the number of people involved, among other factors.
How to Reduce Complexity
Sometimes, complex organizations may become too complex for their own good. A high degree of complexity can hinder innovation, drain your resources and make it difficult to reach your goals. As a leader, it's in your power to identify the sources of complexity and limit vertical expansion, diversification and other factors if needed. Seek ways to simplify your products, information systems and processes while eliminating redundancies.
For example, look at how many people in your organization need to review and approve small purchases. Get rid of time wasters and low-value activities that slow down your business. Determine what really matters and reassess your priority list every few months as new factors come into play.
Switch to simple metrics, simple processes and simple strategies, especially if you run a small business. Apple, for example, offers a small selection of products, yet it's one of the most popular brands worldwide. Focus on the end customers and try to find ways to improve their experience. Set up a process to automate repetitive tasks and streamline your operations.
- Forbes: The One Big Reason Every Business Needs to Embrace Complexity
- Harvard Business Review: To Reduce Complexity in Your Company, Start With Pen and Paper
- North American Business Press: Understanding the Impact of Business Complexity on Executive Management: Characteristics and Firm Performance
- IGI Global: What Is Structural Complexity
- American Express: 5 Cost-Efficient Ways to Help Reduce Complexity in Business
- Emergence: Complexity and Organization: The Complexity Dilemma