Less Complicated Companies Achieve Above-Average Revenue Growth and Profit Margins
Corporations often respond to an increasingly complex business environment by adding new functions, layers, roles, rules, and processes, hampering productivity and hindering growth and profitability, according to a recent study conducted by The Boston Consulting Group (BCG). Reducing complicatedness, the results suggest, can significantly improve responsiveness and create competitive advantage over slower-moving rivals.
BCG’s Smart Simplicity team surveyed corporate leaders, managers, and employees at more than 1,000 companies about their company’s business practices in eight key dimensions previously identified as common sources of excessive complicatedness. Survey respondents can compare their company’s results with those of comparable companies by industry, size, and geographic location. This benchmarking tool can reveal a wealth of information that can help companies pursue their own simplification agenda.
The eight dimensions of complicatedness include leadership; strategy and transformation agenda; structure; activities and roles; processes, systems, and IT; decision making; performance management; and people and interactions.
“Companies in every industry are struggling to boost growth and profitability in an increasingly complex and competitive business environment,” said Reinhard Messenböck, senior partner and managing director at BCG and coauthor of the study. “Rather than blaming external factors for their troubles, successful company leaders examine their own organizations more closely.”
Complicatedness can affect any kind of company, the study shows. Size doesn’t matter. Complicatedness can affect even the smallest companies if their processes, systems, and cultures hamper efforts to respond effectively to changing market conditions and customer demands.
Complicatedness does, however, vary by industry. Technology, media, and telecom companies, for example, are generally less burdened by complicated structures and processes that might slow their ability to react to fast-changing markets. But health care and public-sector organizations that face high levels of external complexity tend to respond with excessive levels of complicatedness.
And the perception of complicatedness varies by role. Corporate leaders perceive far less complicatedness at their companies than lower-level employees do. This finding is critical, says Yves Morieux, senior partner and managing director at BCG and coauthor of the study: “Top leaders have a substantial impact on their company’s degree of complicatedness. Yet they often fail to see just how much excessively complicated activities, processes, and interactions reduce employee productivity. They see the disappointing outcomes, but the root causes are much less clear to them. They are not regularly in the trenches, so they rarely feel the painful effects of complicatedness. This can make efforts to simplify their company significantly more difficult.”
BCG recommends a four-step approach to implementing a lasting simplification solution: identify performance issues caused by complicatedness, diagnose the causes of complicatedness, develop interventions that address the causes of specific performance issues, and apply the specific interventions.
To read “How Complicated Is Your Company?” visit: www.bcg.com.