Causal Factors

 So what causes excess complexity? Below are a few common culprits.

Causal Factor #1: 

It Got Me Here

We’ve all heard the saying, “What got you here won’t get you there.” Many companies struggle because legacy processes and systems are still the bedrock of operations while the company is trying to get to “there.” In the scenario above, the company experienced rapid growth during the pandemic and what had worked before was no longer sufficient. 

Before the growth, a few employees with deep institutional knowledge were able to manage a key process in their own unique ways. 

Now, the lack of standardization and simplicity limited the company’s ability to rely on new talent to assist with the increased volume. 

These new employees who, by default, lacked institutional knowledge, made frequent mistakes that seriously disrupted the normal flow of the business and had a meaningful impact on customer satisfaction as well as the bottom line. 

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Causal Factor #2: 

Lack of Post-Merger Integration 

M&A is a powerful tool for accelerating growth, expanding into new markets, and acquiring key capabilities. Sometimes, however, other priorities take precedent over fully integrating the acquired company. Everybody knows that it is not efficient to have different teams handling the same process. Everybody senses that sticking with multiple redundant legacy systems comes with a cost. So why doesn’t management pull the trigger and complete the integration? The answer is often psychological in nature – we all desire to avoid pain. 

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Causal Factor #3: 

Pain Avoidance 

Although management is aware that a process, system, or organization needs retooling, the inevitable “pain” associated with driving a transformation is a serious deterrent to tackling the project. The diagram below illustrates this principal.

What About My Company? 

So what about your company? How do you do you know if your organization is impacted by excess complexity? If your answer to any of the below questions is “yes” then take it as a sign that perhaps excess complexity has taken root within your company. 

• Does the same key data have to be entered more the once? 
• Are spreadsheets used for key processes?
  • Note – Excel is fine for analysis, but shouldn’t be an integral part of most key operational processes 
• Do people have multiple ways of doing the same job? 
• Are multiple technology platforms used for the same function? 
• Are customers unhappy? 
• Are key employees unhappy? 
• Does work stress me out? 
• Are my profit margins lower than industry norms? 

The Costs of Complexity 

The costs of unnecessary complexity are significant and can ultimately result in a company folding. More often, however, the costs include a mix of the following phenomenon: 

• Stuff Doesn’t Get Done – Key tasks aren’t completed and, when questioned, the employee who is responsible for the task responds, “I’m sorry, I just didn’t have time” 
• Customer Dissatisfaction – Customers are unhappy because tasks are taking too long and product or service delivery often includes mistakes 
• Lost Revenue – Customer dissatisfaction results in a lower Net Promoter Score and the customer may choose not to refer your business to a potential new client. The customer may also choose to leave your company altogether. In other instances, your company may struggle to collect payment for products or services already provided 
• Unnecessary Expense – The extra time required to serve the inefficient process requires extra headcount. The overly complex process or system may also drive negligence that results in costly repairs or fines 
• Employee Dissatisfaction – Satisfaction is higher when employees feel like they are set up for success and that their company is operating like a well-oiled machine. Relying on an inefficient process is demoralizing and drains energy 
• Inability to Scale – Overly complex processes and systems that require deep institutional knowledge impede a company’s ability to hire new talent to remove bottlenecks

How to Address Complexity 

The process for deciding whether to address drivers of excess complexity is similar to the process for deciding whether to devote resources to CAPEX, enter a new market, or develop a new product. In essence, it is important to weigh the costs vs the benefits. In the context of addressing excess complexity, the decision to address a specific area of excess complexity can usually be distilled down to two factors: (1) anticipated ROI and (2) ease of change (as illustrated in the below Transformation Matrix). 

High Anticipated ROI & Easy to Change (top right green quadrant): Drivers of excess complexity in this quadrant should be prioritized. 

• Case Study (represented by #1 in the Transformation Matrix): For a certain client, streamlining the A/R collections process was relatively easy and had a meaningful impact on the company’s financial profile. 

High Anticipated ROI & Difficult to Change (top left yellow quadrant): Drivers of excess complexity in this quadrant should be carefully considered and, with adequate planning/preparation, should often be addressed. 

• Case Study (represented by #2 in the Transformation Matrix): For a certain client, overhauling a convoluted management process by developing an automated management dashboard drove unprecedented visibility into employee performance. The dashboard also unlocked management capacity and generated a significant boost to profitability.

Low Anticipated ROI & Easy to Change (bottom right yellow quadrant): Drivers of excess complexity in this quadrant should be considered but not prioritized. 

• Case Study (represented by #3 in the Transformation Matrix): For a certain client, the prospect of switching CRMs to a less expensive CRM wasn’t worth the effort. 

Low Anticipated ROI & Difficult to Change (bottom left red quadrant): Drivers of excess complexity in this quadrant should not be the focus of transformation efforts. 

• Case Study (represented by #4 in the Transformation Matrix): For a certain client, the benefits of consolidating locations were far outweighed by the costs and implications associated with the move. 

The above scenarios might land in a different quadrant of the Transformation Matrix for your organization, as your company’s personnel, processes, and resources are unique to your firm. 

Parting Thoughts 

If you have identified excess complexity in your organization and determined that the ROI of addressing the complexity outweighs the difficulty of change, you will likely want to assign a specific person to oversee the change and provide weekly updates. Sometimes that person is internal, and sometimes that “person” is a consulting firm that specializes in driving transformational change. 

When hiring a consulting firm isn’t an option, larger organizations might find that it’s worth the investment to move someone with project management experience into a temporary role dedicated exclusively to driving the transformation project. Smaller organizations, however, will likely need to keep staff in current roles. In such instances, it is important to remember that leading change usually requires more time than anticipated. If possible, it is wise to find ways to reduce the change agent’s normal workload. 

At The Helm is a monthly newsletter produced by Compass Equity Solutions and its partners. At the Helm is meant to help business owners streamline operations and unlock the value of their firms. The newsletter features current case studies and lessons learned while working shoulder to shoulder with entrepreneurs and their management teams to improve operations and accelerate value creation. If you’d like to chat about your organization, feel free to contact Zach Zirkle (partner@compassequitysolutions.com).