UPDATED: Reducing complexity – should finance directors be leading the way?

Since writing this article I have, finally, succeeded in obtaining a copy of the GSI 2010 report. It can be found here. It is certainly worth a read as, like so many reports on the subject (a range of Consultancy reports can be found here), it throws more light upon a subject that can only bring benefit from improved understanding.

HOWEVER, worryingly, the common denominator is not the definition or approach but the lack of an objective, quantitative, solution. Unsurprisingly, this is NOT something lacking in the Ontonix proposition.

That complexity is a source of risk has been established beyond any doubt. As is the fact that, conventional risk management does not possess the tools to distinguish cause from effect in complex business systems.  So, identifying sources and mapping non-linear interactions – that, otherwise remain “hidden” within the data – offers a unique insight to the “observer”, enabling the business owner to:

  • gain “crisis anticipation” iro endogenous events
  • reduce risk exposure at source
  • reduce uncertainty
  • improve operational effectiveness
  • improve profitability
  • build-in redundancy
  • maintain resilience

…and create a more sustainable enterprise – economy – world.

“In a complex system, learning how all the pieces—constant and variable—interact gives a depth of understanding that averts catastrophe. That is what we mean by humancentred design—understanding the interfaces among technology, people, communities, governments, and nature. This is what makes complexity manageable”

Of ALL the reports on the nature and cost of complexity upon a business I can say that this is, certainly, the most …recent!

Although I have yet to read the report (apparently Ontonix are viewed as competitors!) it does appear to contain some really useful information. From my own perspective, the potential scale, duration and impact upon our economy, would be adequate justification to adopt a more pragmatic approach!?

DENIAL: From the Accountants, CFO’s and risk professionals I have spoken to I got the impression that, to draw their attention to a recognised but unmanaged area of risk (one that they hadn’t really thought about or had tools to deal with) – no matter that it has the potential to destroy a business “from within” – was something that they would rather not acknowledge or think too much about!

Even when the insight is accompanied by a new means of extracting information from financial data for the purposes of reducing risk exposure, it seems to be perceived as some form of “threat” to their professionalism rather than a, potentially, cost effective means of managing both the impact of excessive complexity and a quantitative means of assessing the effectiveness of many other key business functions.

I sincerely hope that, with this article, our own efforts and those of others involved in tackling the issues affecting complex business systems the message is taken on board sooner rather than later.

For the first time the Global Simplicity Index (GSI) has identified the true cost of complexity. The GSI is based on factual published data on business performance and complexity drivers. This robust academic study has shown that the 200 biggest companies in the world are on average wasting 10.2% of their annual profits ($1.2bn) each year due to complexity. This adds up to a loss of $237bn collectively. It’s a shocking statistic and one that we anticipate ringing alarm bells from the boardroom; to the finance department; to the shop floor. However, complexity is not a new issue and whilst it has been widely acknowledged as one of the biggest barriers to business success, business leaders haven’t been doing enough about it, either because they have not taken it seriously or because they just do not know how to quantify complexity or to identify where it is hiding in their business.

But what exactly is business complexity and how does it erode profitability?

via Financial news, business, blogs, finance director jobs – Director of Finance Online.

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