Drivers of Business Complexity & Simplicity

Drivers of Complexity

This is a brief but by no means exhaustive summary of some of the drivers for increasing complexity in a business. These include but are not limited to:

  • Increasing customer choice through product proliferation
  • Pressure for diversification of products & customers
  • Many engineers, accountants and technologists (who love to work in complexity)
  • People creating complexity to secure their jobs & positions
  • Processes that people have been modifying for years without regard for the impact these changes have on the output
  • Information departments / systems seeking or delivering ever increasing detail just because they can!
  • Complex planning systems (or no planning systems)
  • Increasing compliance requirements
  • Belief that rigour equates to volume (e.g. of reports) when it comes to analysing, justifying and planning.

The drivers for simplifying a business have in the past generally only been exploited when the business is under intense pressure to improve performance i.e. when it is in trouble, as often occurs during economic downturns. It is a shame these drivers only appear in times of trouble rather than growth, for if they were a focus during good times then more businesses would perform well. Read more of this post

Institutional Investment:: education committee “strive to minimise complexity”

“The delicate balance to strive for is the minimum level of complexity necessary to obtain the desired portfolio”

In other words, the new way to design portfolio is NOT to minimise portfolio covariance but complexity…admittedly this could have been written by Ontonix.

But I PROMISE it wasn’t!!!

I don’t mind admitting that, although I read plenty of “in depth” reports, this one lost me pretty early on. Hardly surprising since it was written for an institutional investor market: “…endowment funds, pension funds, foundations, insurance companies, and private family investors—the limited partners in hedge funds and in private equity funds”.

However, I understood as much as I (or anyone else) should need to appreciate that complexity IS a challenge that too few in the sector like to admit.

“It is better to have visible complexity that is controllable rather than the appearance of simplicity with uncontrollable complexity underneath”

Prof Andrew Lo