Downturns reveal a company's weaknesses. An organisation that seemed nimble and focused during a period of expansion may be sluggish and ineffectual when demand drops. One cause for this is complexity, often a consequence of success. As companies grow, typically they add complexity. Its costs usually are hidden, so executives often don't grasp the magnitude of the problem—until a downturn hits.
Some level of complexity is necessary to sustain a competitive edge across a global organisation. For example, country or regional business units know better what local customers want, creating a need to define which decisions get taken locally or at headquarters. That kind of complexity in a global organisation can be vital to sustain sales through a recession.
A similar challenge arises when companies struggle to balance complexity and innovation. Adding new products, services, features and options creates complexity—but companies become leaders by offering customers new choices. The key is not to eliminate complexity, but to balance its benefits with its costs.
A useful way of finding the right balance is to begin from a base of zero. Imagine, for example, that your company produced only one product or service, with no variations, somewhat like Henry Ford's classic Model T. A manufacturer with only one product would still need a supply chain, a factory, a distribution network and a sales and marketing function, but it could greatly simplify its information technology systems, its distribution and sales efforts.
The point of the exercise is to determine your zero-complexity costs and then assess the costs of adding variety back in. For example, you might decide to offer customers only a small number of configurations that include the most popular features. Thus Honda's CRV comes in a mere eight configurations and thirteen interior and exterior colour combinations. This is fewer choices than most cars offer, yet the CRV is the bestselling vehicle in its class.
Similar kinds of analyses can diagnose two other forms of complexity. Organisational complexity takes hold when companies expand product lines or markets, adding management layers or creating matrix structures. Each refinement to the structure often made perfect sense at the time, but can lead to massive levels of complexity and duplicated costs.
Similarly, process complexity can arise when product and organisation complexity are left unaddressed, resulting in excess costs and inefficiency. We've found that many companies try to tackle process complexity without addressing the root causes of product and organisational complexity. This explains why many process reengineering or lean six sigma efforts fail.
Reducing process complexity should be a company's last, not first, step and it involves looking for the process improvements that add the most value and by eliminating unnecessary data collection.
All these complexity management efforts help a company to become lean and flexible enough to adjust to changing market conditions in a downturn—and accelerate quickly when economic turbulence subsides.
Alan Bird is UK Head of the Organisation Practice at Bain & Company, the consultancy. This column is adapted from the forthcoming book Winning in Turbulence (Harvard Business Press).