As I participated, one theme seemed omnipresent — that while events are unfolding in the world at an accelerating pace, increasingly complex institutions are less and less able to deal with them.
I heard it in the opening remarks of WEF founder Klaus Schwab who talked about a growing phenomenon of "burn-out" among world leaders with finite energy and time to put against seemingly bottomless complexity. An example was a discussion session of tired-looking European finance ministers, defensive and elusive about the speed of acting on the Euro crisis.
I heard it in a session led by Professor Michael Porter and Dean Nitin Nohria of the Harvard Business Schoolwho were sharing a research project on declining American Competitiveness. The presentation to 50 people was followed by a discussion of antidotes to the dangerous trends they showed. The problem seemed not so much identifying what needed to be done as the lack of a plan for making the changes quickly enough.
I also heard it in an amazing dinner session led by Daniel Goleman (father of the concept of "Emotional Intelligence") that probed the attributes that great leaders in the future would need to be successful in complex organizations. Three attributes stood out: 1) authenticity and sharp clarity of purpose, 2) empathy (EQ) and the ability to relate to people at the "front line" levels, and 3) self-awareness and humility to constantly question and adapt.
Government is the most visible crucible for this clash of speed versus complexity, yet businesses are not far behind. Today, only 9% of businesses in the world have achieved even a modest level of sustained, profitable growth over the past decade on average (5.5%, earning cost of capital) and that is declining — even though virtually all the businesses aspire to something like this or more. Yet, when we ask executives — as we did recently at Bain & Company to 377 across the world — they say that they do not face inadequate opportunities. Rather, their biggest barrier by far (about 85% of the time) relates to the internal complexity of their organizations and the management of their energy against that.
We just completed a multi-year study of the root causes of enduring success. We found an increasing premium to simplicity in the world of today — not just simplicity of organization, but more fundamentally to an essential simplicity at the heart of strategy itself. In every industry, we discovered companies that were enjoying an inherent advantage in dealing with the increasing tension of faster moving markets and increased internal complexity due to this ability to keep things simpler and more transparent than their rivals.
Today, complexity has become the silent killer of profitable growth in business, and sometimes of CEO careers.
We defined the three design principles of the companies who seemed best at creating enduring competitive advantage in a three year study at Bain & Company (Reported in the new book my colleague James Allen and I have just written: "Repeatability"). We called them "Great Repeatable Model" companies and found that they seemed to be able to maintain a simplicity at their core (think of companies like IKEA, Nike, or Vanguard for instance — very large in size, but with a clarity of strategy and purpose that jumps out at you) and turn it into a growing competitive advantage in the world of today — each of which has its own parallel in the three attributes of great leaders of the future. (That is a topic for a future blog.)
However, my question and message for today, after marinating for a week in the issues of Davos:
Is it time to raise the pursuit of simplification to a higher level of importance in most companies?
Letting go takes courage and is not a natural act for most humans, or management teams. But, given the trends of speed and complexity, maybe ask yourself: is this the year for more companies to take the chance of "zero basing" what they do? Will the ability to keep it simple (think of the fact that Apple has only about 60 products still!) be a mantra for competitive durability in the world of the future?
Chris Zook is co-head of the Global Strategy Practice at Bain & Company. He is co-author, with James Allen, of the upcoming book: Repeatability: Build Enduring Businesses for a World of Constant Change (HBR Press, March 2012).