Complexity, one of the most used and ambiguous terms in business, is increasingly present in several layers of businesses today.
Due to its nature of being cognitively challenging to understand, complexity has a bad reputation in business. For instance, complexity in Supply Chain offers many challenges. However, complexity is not inherently bad as it can offer many benefits for businesses. Recently, Harvard Business Review wrote a striking piece about the strengths and costs of complexity in a business environment. Not the least, the paper offers methods for embracing complexity while eliminating costs and escalating benefits.
The many sides of complexity
Complexity comes in many colors and forms offering both strengths and costs. Harvard Business Review summarizes the most significant strengths and costs caused by complexity in a business context:
- Increased resilience – due to an enhanced ability to be responsive when faced with unforeseen opportunities and threats. Complexity also gives increased buffering capacity and more fallback options.
- A bigger diversity leads to increased adaptability. As it is easier to try out new ways of serving the customer by recombining existing elements in a new way. This will help companies sustain business performance.
- Better coordination – since smaller groups/entities have a high interconnectivity making them easier to steer and manage.
- Complexity often results to inimitability, since companies’ complex interrelationships among multiple elements are hard to copy.
- Managing a variety of elements in a complex company setup can lead to increased costs as efficiency is reduced.
- The understandability decreases, as it can be a struggle for a business leader to identify the root cause of certain problems.
- Unmanageability increase as it is harder to identify values and functions of every individual element and know when to intervene to manage performance – The organization becomes less like a machine and more like a complex natural system with a life of its own
- The former leads to increased unpredictability as spontaneous and unexpected events can emerge. With lacking insights, interventions based on gut feeling can have undesired effects.
- Leaders lose the grasp of how all elements are intertwined making it hard to predict what effects business decisions can have on the entire company
Solution for Taming Complexity in Supply Chain – Optimize Globally
As removing elements to reduce complexity is uncommon, leaders tend to move forward with new elements that add value on a more obvious and immediate level. Therefore, finding methods to retain the benefits of complexity and diminish the costs is of high priority. At Optilon we strongly believe in embracing the complexity and utilizing technology to gain competitive advantages – especially when handling high complexity in Supply Chain.
The evaluation of new processes, and structures should not only be based on how it will impact a certain group or entity of a company, but more importantly how they impact the company on a holistic level. This will help companies balance the trade-offs of a business decision. For instance, when evaluating future supply chain network models it is important to realize that the benefits of any single location may be concentrated in a smaller area, whereas the complexity costs may be distributed across the organization. By utilizing modern technology to create simplified overviews indulging the entire complexity in supply chain, companies can truly assess all potential costs and benefits following any operational, tactical or strategic supply chain decision.
Link to the HBR article
With a combination of front edge supply chain consulting and market superior supply chain applications, Optilon creates sustainable business value through supply chain optimization. By optimizing the flow of products throughout the entire supply chain we help companies increase revenue by reducing lost sales and expenditure of resources.. Learn more about Optilon here.