Complexity is arguably the biggest drain on businesses today. Insidiously, it uses more resources than necessary to achieve corporate goals. Processes are bogged down in bureaucracy and red tape. And it’s even siphoning billions in profits. But worse yet, it’s frustrating your customers – and disengaging your employees.
Why is this happening? How can businesses encourage business simplification?
To get some insight about the mandate for simplification, I had the pleasure of talking to Steve Sherretta, senior managing editor of Knowledge@Wharton. And who better? His team, in partnership with SAP, recently released the in-depth white paper “Business Simplification 2015: The Unmet Strategic Imperative” to understand the challenge of complexity and how business leaders view the role of simplification now and in the future.
The landscape of most businesses has been incredibly complex for years – even decades. Why is the mandate for greater business simplification getting so much attention now?
You are correct that leaders have been dealing with complexity for a long time. However, the demands of today’s high-paced, ever-changing markets has shifted business leaders’ acceptance and tolerance for complexity. Instead, this new environment is forcing leaders to rethink whether complexity – even if it is working well – is worth losing out on key opportunities for growth.
The business world is definitely experiencing this reality with the arrival of digital business. To meet the demands of this new era, businesses of all sizes must be simpler. For example, bricks-and-mortar stores that have been operating for generations now need to dive into the multichannel world. If they do not take this step, they risk lost market share – no matter how solid they are – to online competitors.
Once you throw in the whirlpool of international regulations, foreign currencies, and linguistic and cultural challenges, it’s very easy to get lost in the details and make things more complex than they have to be. On one hand, these businesses want to maintain the processes and systems that have worked forever. But at the same time, new processes and ideas must be adopted to pursue the digital marketplace.
It’s not as simple as slamming in new processes into business-as-usual operations. That approach only creates complexity and rigidity, which only leads to wastefulness, high costs, and lost profits. And no business can afford that.
How are business leaders responding to this need for greater simplification?
We learned that top management is well aware of the competitive value of simplifying. More than 50 percent of business leaders cite that business simplification carries significant importance today. Plus, 67 percent believe that it will become even more critical within the next three years. However, there’s a disconnect: Only 27 percent claim that daily activities, interactions, and decisions are strongly aligned with the concept.
There’s much work to be done, and leaders know it. They are currently starting the conversation within their own boardrooms to learn why complexity happens, how to simplify operations, and what should be done to effectively embed simplification into the business.
Once the executive team agrees on an action plan and integrates those strategies into their own daily work, they can gradually transform the business culture towards simplification. But this step takes time, patience, focus, and consistency.
Is there a limit to business simplification? Is it possible to be too simple?
While business simplification is clearly important to stay competitive, being overly lean can lose out to making sensible decisions. Leaders should never forsake the health of the business and the well-being of their employees in the name of simplification.
According to my colleague Daniel A. Levinthal, a Wharton management professor whose research interests include organizational learning and technological competition, “It may squash innovativeness. If [leaders] get too focused on [a] particular set of metrics, ultimately they’re going to get some dysfunctional byproducts of that.”
The important thing is to stay customer centric. As Denise Broady, chief operating officer of industry cloud at SAP, puts it, businesses “exist except to serve [their] customers. In the end, if you put the customer at the center, the simplification process makes it easy.”
Q&A With Steve Sherretta: Bringing Simplicity To A Complex World
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