Raw materials are necessary to manufacture a product. In order to provide a service, information about the customer is required. And marketing and sales cannot take on any work without something to offer, either. There are many different factors dependent on each other. Most workflows in companies today are complicated at the very least.
Globalisation and digitisation complicate workflows further, but also bring new opportunities and challenges. Even small and medium-sized enterprises (SMEs) are internationally active these days: they are producing components for car manufacturers in China or expanding with branches in the USA. Profit is only one reason: they also capture markets and strengthen their competitive position. But the more departments, partners and customers there are involved, the greater the organisational effort required within the company. This makes it hard for those responsible in management to keep track of all relevant factors.
How does complexity occur in a company?
A system is considered complex if it contains factors that influence each other and are partly unknown. For many SMEs that are experiencing growth, new markets are the great unknown. At the same time, their own market is highly agile. Handling and managing digital data is also increasingly gaining importance. That is why most companies today, from major car manufacturers to small start-ups, work in complex systems.
The four different system models:
- Simple systems contain a small number of factors to manage. In this case, A leads directly to B. The system is predictable and stable.
- Complicated systems comprise several known factors that influence each other. The system is comprehensible and arranged logically.
- Complex systems contain factors that are still unknown. This makes the workflows difficult to plan. In addition, there are ever more possible ways to complete those workflows. However, this makes complex systems highly flexible.
- In chaotic systems most factors are unknown, highly dynamic or far too similar. The system does not display any clear pattern and is therefore not plannable and almost impossible to control.
Complexity in everyday work of SMEs
The market is vibrant. The structures within the company should be, too. Complexity management helps SMEs remain sustainable, agile and flexible. It covers five areas.
- Value chain: is dependent on suppliers, partner companies, logistics, marketing, sales, etc.
- External: includes the market, customers and competition.
- Internal: defines the company’s own organisation, management and production, applied technology and the entire value chain.
- Variant management: coordinates the product range. The more products and product variants there are on the market, the more complex are for example production, sales or marketing.
- Product: includes all production factors. The aim is to produce goods or provide services as profitably as possible.
Everything under control again: complexity management
Classic management models coordinate workflows through clear rules and specifications: they give employees security and ensure smooth interaction with partners and customers. These systems, which are often simple or complicated, focus on standardisation and controls.
As the dynamic in companies today is based on many more factors, such fixed management strategies no longer apply. Management requires a flexible system where not only one path leads to the destination.
Complexity management is an approach to coordinate processes and workflows in companies. The method connects known processes with each other in a new way and allows a change to complex systems in which uncertainties or probabilities such as upcoming complexity costs are included in planning. The aim of this approach is to reduce, control and prevent complex processes.
Gaining control over the costs of complexity
The more extensive the workflows in a complex system, the greater the effort involved and, therefore, also the costs. This is additional output due to unpredicted events or unplanned projects. An anticipatory calculation includes bigger additional expenses.
There are three kinds of complexity costs
- Direct: for example, production is more expensive than expected.
- Indirect: such as unplanned, but necessary, expansion of the existing range in order to meet customer desires.
- Product-proportional: for example, necessary developments of new offers in order to remain competitive.
Internal and external factors generate complexity costs. Potential internal factors include a large number of new employees or necessary product developments. External factors include expansion into other markets or changes in consumer behaviour of customers to which the company has to adjust.
Managing complexity, the team responsible attempts to compensate for accrued costs and include them in future calculations. At the same time, the team develops measures to reduce the additional effort as far as possible and to optimise the efficiency of workflows, without blundering into a complexity trap in the process.
The complexity trap
As soon as managers notice that the workflows are too complex, they tend to take a drastic approach: they reduce processes by cutting tasks and budgets in their projects or only locating problems at individual points. Instead of managing the complexity, they try to transfer their complex workflows into simpler systems. However, such measures only have an effect on individual departments, not the company as a whole.
These partial solutions can have additional consequences and make the long-term complexity costs even higher. Only a holistic strategy and comprehensive measures in the entire company improve workflows and sustainably control necessary complexity.
Example measures in complexity management
- Create transparent processes
- Share out responsibility
- Involve staff in new workflows at an early stage
- Establish modern IT tools and new process models
- improve efficiency of production
- Reduce and simplify product diversity
- Accelerate logistics
- Avoid long storage times
- Focus on service rather than covering all areas
More courage for complexity
The topic of complexity does not only have negative connotations. It can even be a good strategy for companies to consciously choose complex business models.
For example, some companies secure the chain of production against delays: if a partner cancels a delivery, another one fills the gap. That is why for certain components the automotive sector always relies on several suppliers.
Complex production models also protect technical innovations against piracy. Small components in particular are often targeted by counterfeiters. Nobody fakes a car, but they do so with spare parts. A team from four Frauenhofer Institutes has developed a fluorescent dye for such cases. It is only visible at a certain light wavelength. When it is applied to products, it protects them against forgery. Many companies are giving themselves a long-term competitive advantage with elaborate manufacturing processes such as this.
Handling big data is another example of a complex system. Every company collects digital data these days, but its processing cannot be simplified. More data means more information – about customers, competition, the market and workflows within a company. If you can make use of the knowledge, you are also ahead of the competition. Tools help you manage big data without IT barriers being created.
Intelligent and automated IT systems are required to get that information out of the data. Artificial intelligence, AI for short, brings order to the digital data and makes it possible to filter knowledge. It helps with searches, accelerates internal administrative processes and simplifies collaboration and communication within organisations.
Simplify complexity: agile teams and transparent management
Agility is another contemporary management solution to dealing with complex systems. The strategy originated in the IT sector. Experts in managing complexity have adapted it to other professional branches. Many companies already put their faith in embodying everyday flexibility. They use agile methods such as scrum or kanban: this means more responsibility for individual work and smaller teams that manage themselves and can work together independent of time and place thanks to collaboration platforms.
These new strategies and technical assistance change the management of employees: transparency and cooperation rather than a rigid chain of command. Dynamism rather than gridlock. Alternating roles rather than fixed processes. Fewer rules, more freedom. And ultimately, also simplified workflows and manageable data.
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