August 18, 2010

Managing in a complex world

Creating value from the challenges complexity presents is a major challenge confronting today’s companies.

The idea that the world is growing more complex may be a cliché, but it is also true. Over the past decade, many companies have seen the variety of products and services they offer grow exponentially, the number of countries they operate in expand dramatically, and the sophistication of the demands made by their customers increase continually.1 Rising complexity has been fueled by broad trends such as technological innovation, globalization, and M&A, which are not likely to slow down any time soon. As any executive facing a 24/7 storm of e-mails, meetings, and business trips will attest, the complexity of managing large organizations has risen, but the bandwidth of the human mind has not.

An overly simplistic answer to this problem would be to simplify. But two articles in this issue of The McKinsey Quarterly take a more sophisticated approach. In the cover piece, “Better strategy through organizational design,” Lowell L. Bryan and Claudia I. Joyce point out that not all kinds of complexity are created equal. On the one hand, there is the unproductive complexity of bureaucracy, silo walls between functions, and confusing matrix designs. But on the other, there is the highly productive complexity of employees interacting as they create value from intangible knowledge-based assets. Bryan and Joyce show how managers can use networks and internal market mechanisms to reduce unproductive complexity and simultaneously “mobilize minds” to increase the value that each knowledge worker creates.

Suzanne Heywood, Jessica Spungin, and David Turnbull note, in their article, “Cracking the complexity code,” that any company aiming to grow will inevitably become more complex as it launches new products, serves new markets, and attracts new customers. The trick is not to let organizational complexity make it harder for individuals to do their jobs. A survey of more than 1,000 managers helped the authors identify a set of principles for designing organizations and building capabilities to manage the inherent tension between growth and “individual complexity.”

Nothing is more complex, of course, than human behavior. In “Building the civilized workplace,” Stanford professor Robert Sutton cites research showing that nasty, demeaning, and dysfunctional people do more damage and are more common in business than one might think. Companies that tolerate them not only have more difficulty recruiting and retaining top talent but also are prone to damaged reputations, diminished investor confidence, and higher client churn. Innovation and creativity may suffer as well, along with cooperation, both within and outside the organization—no small matter in an increasingly networked world.

Finally, this issue of the Quarterly features an interview with a man who has spent a lifetime capturing the world’s complexity in the simplicity of numbers, and in doing so illuminating the most pressing issues of the day.Daniel Yankelovich, now 82, founded Yankelovich, Skelly and White, a pioneer in opinion research, in 1958, and has since founded three other companies, published 11 books, and served as a consultant to business and political leaders around the world. In this interview, he explores the current state of the contract between business and society—finding that the public’s mistrust of corporations is high and rising—and argues that companies must build what he calls “trust equity.”

The work of Sutton and Yankelovich reminds us that economies and organizations ultimately consist of human beings and will therefore always be complex, as well as a challenge to understand and manage. But mastering this challenge is the way companies create value. As Albert Einstein once said, “Everything should be made as simple as possible, but not simpler.”

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