Business processes and IT systems often don’t function smoothly; costs mount, cycle time increases, computers freeze up and decisions slow down. To fix such problems, companies typically rely on process redesign tools, such as reengineering or Lean Six Sigma. They might revamp their enterprise resource planning (ERP) systems or other IT modules.
Solutions like these are powerful. They can sometimes streamline processes and systems and unlock value. But they often fail to deliver the desired benefits, because complexity just pops up somewhere else. A global energy company, for example, spent close to $100 million on seemingly successful reengineering initiatives, yet general and administrative (G&A) costs continued to climb at a rate of 15% a year. One executive said, “If you add up all the savings we’re supposed to get from the reengineering, we should have negative G&A right now. Instead it keeps on going up.” The same company had installed a new ERP system in hopes that it would deliver better value and save money. Yet IT costs were shooting through the roof.
Why do conventional solutions to process and IT issues regularly come up short? The reason is that processes and IT are rarely the main problem. Nearly always, process and IT troubles reflect complexity elsewhere in the company—in strategy, in business and product portfolios, and in the organization itself. The complexity may show up first in process breakdown or system proliferation, but its root causes often lie elsewhere. That’s why the benefits of fixing processes or systems alone rarely live up to expectations. Functional units usually see themselves as service organizations, responsible for supporting the company’s other functions and operations. They can streamline themselves, but they rarely question the demands of their customers.
Some companies have developed a different approach. Rather than try to fix processes solely through functional excellence or fix IT solely through systems modernization, they work the interfaces or nodes where business units and functions intersect. They address not just the process or system itself but also the root causes of complexity in the overall framework. The payoff from this kind of cross-boundary approach is substantial. Not only do the companies solve their immediate problem—they lock in simplification throughout the organization. They may begin with processes and systems, but they wind up with a more focused company.