Complexity: “Cholesterol for business”
Monday, 8 November, 2010 1 Comment
I have used this analogy before but it is certainly worth repeating as the similarities are apparent and potential impact “alarming”…
Business systems suffer from their own version of cholesterol…it’s called…COMPLEXITY. If you don’t test for it you don’t know if it is doing damage to the vital inter-connections upon which your system is dependent!
By the time the outward signs show themselves irreparable damage is done. Sufficiently fit and able to carry out the day-to-day tasks that sustain you but “found wanting” and unable to perform when put under stress e.g. confronted with a physical challenge, fighting a disease, adapting to a change of circumstance. We don’t know what the future holds but we can say that it is more uncertain now than at any time in (at least) a generation!
We are learning more lessons from nature than at any time in our history since “The Origin of Species”.
A business is a system, like the human body. It is reliant upon its component parts and its ecosystem (marketplace, supply chain, etc.) communicating, working efficiently and interdependently to enable it to perform and sustain itself and its stakeholders.
Unlike our bodies a business does have the ability to renew its structure and to thrive again BUT SURVIVAL IS NOT GUARANTEED! A business needs to have sufficient “reserves” and the means to re-generate.
A business that was once fit enough to survive in a familiar environment – like a stable, buoyant, economy – is, not necessarily adequately equipped to do so when the environment changes – a turbulent and unpredictable economy – where, what sustains it is in shorter supply or harder to come by. The business matures (ages) and can lose some of the skills or agility that were once its mainstays.
Like the human body a business needs complexity – “natural” complexity is what facilitates system functions – but it too has a threshold. In proximity to “critical complexity” the system becomes unstable, unpredictable and difficult to manage. If you think about it you will recognise that scenario. It can manifest itself as a form of paralysis – too many issues or deadlines and the inability to know which issue needs tackled first – blind panic, or that desire to get as far away as possible!
The onset of “complexity paralysis”:
Financial figures merely confirm what you already “sense” about business performance
Annual or half yearly accounts are no longer enough. Quarterly or weekly may be required
Sell more – but it’s a competitive marketplace where margin moreso than turnover is necessary
Spend less – but if you don’t know where the weaknesses exist you may damage the business
Sooner or later the financial performance of the business comes in for “external scrutiny”
A business cannot function beyond the point of “critical complexity” without losing functionality. The system fails. Sometimes, as in the case of the collapse of Lehman Brothers, spectacularly: You may recall much talk around the“man-made” complexity of the products and greed that brought about their demise.
The operational effectiveness, robustness [resilience] or overall health of a business cannot be measured from independent KPI’s or by sampling financial data [in accordance with international accounting standards].
What is the yardstick for success?: figures from the previous month or year; benchmarking against competitors
The business is an interdependent system and needs to be viewed as such.
If business units are underperforming it is preferable to know in advance and address issues rather than see it manifest in accounts
Complexity, like cholesterol, is in itself a major source of risk.
If you can’t identify it, you can’t measure and manage it…remember it can be terminal!
The business operates within a its own ecosystem – contagion is a risk.
You want to know that the businesses with whom you deal are “healthy” – unlikely to “infect” your business – and to demonstrate your own health
Cholesterol and Complexity are very real threats. We know about and are able to measure both as a result of scientific advancements. So IF you are concerned about falling performance of your business – find out the current level of complexity and, from the data that it generates, about strengths and weaknesses – or want to know that it can be managed at a safe distance from its point of “critical complexity” in a tough trading climate PLEASE DON’T waste time and money on a, so called, business health check that doesn’t test for complexity. This is the equivalent of abandoning medical science in preference for a Homeopathic remedy!
What a sick system needs is an objective, 100% quantitative, analysis and a course of treatment based upon the scientific findings…not an overpriced placebo.
I would urge you to ask your Accountant, Risk or Quality Manager (whether in-house or outsourced), Insurance broker or any external Consultants what they are doing to ensure your business is, currently and remains, free from excessive complexity. WHEN they admit that they cannot provide what you need ask them to get in touch with me or do so directly. It will be my pleasure to help.
Managing complexity can be a positive thing too as you will discover if you take the time to read the following “related articles”.