And digitalisation is just one more piece to a puzzle with a constantly growing number of pieces. All of this in an attempt to keep up with customers’ increasing demands for adaptability, higher quality at lower costs and customised solutions.
So what are you to do if you are behind the CEO desk and you need to keep an overview of the many new pieces and are trying to put the puzzle back together? As a management consultant, I see more and more uncoordinated mandates, processes and plans in large companies, resulting in a lack of comprehensive overview. Another consequence of a complex organisational structure is an increased risk of internal conflicts and power struggles, which rarely benefit the customers. So if you are thinking that an excessive number of conflicts find their way to your office, it could be a sign of redundant complexity in your organisation.
Who maintains an overview?
But who is in fact responsible for ensuring that the various processes and departments work towards the same direction, i.e. that they support the group strategy, to avoid overlapping or conflicting processes, mandates and KPIs? At the end of the day, this task belongs with the CEO.
I would therefore claim that the modern CEO should have the guts and the insight to know when it becomes necessary to e.g. challenge the set-up of new products or services or requests for using new sales channels if these do not support the overall strategy. This requires in-depth insight into each element of the value chain to ensure that focus always remains on creating value for the customer. For each add-on, you have to eliminate another element if you do not want to end up with a company drowning in products and processes. A company in which profitability is devoured inside-out by bureaucracy and silos.
It is in other words the CEO’s job to ensure that each piece of the company puzzle creates value for the customer and thus also for the company. Otherwise, I promise you that your company will end up with too many products, too many processes, too many employees, too many sales channels, too many customer segments, too many conflicts.
Simplification helps create value for both customers and company
There is essentially nothing new in any of the above, and most CEOs will regard it as a matter of course to maintain an overview and focus on the strategic direction, costs, growth and management. Yet, you still find more and more companies with a runaway number of products, channels, processes, mandates, governance structures, etc.
And this is despite the strategic and financial benefits of ensuring that your organisation is as simple as possible. First of all, it is easier to maintain an overview of where in your company value is created, and where it is not. Second of all, it is far easier to adjust company activities and initiatives continuously relative to the overall strategic goals. And last but not least, the fewer functions, mandates and related processes, the fewer internal conflicts as there is less risk that everyone is not working towards the same goals or that areas of responsibilities overlap.
So where to begin if you are the CEO? Well, a good place to begin would be to ensure continuous simplification and thus optimisation of your business. It is far more difficult to eliminate complexity when it is established across the company in silos, which are likely to defend their individual authority with everything they got.
Start by asking who, what and where
As CEO, you can start by taking a fresh look at your company’s operating model, which should answer the questions of Who, What and Where with respect to execution of the strategy. You can then ask the following questions to assess where to begin where in the operating model you should begin in order to simplify your business:
- Is the organisational structure complex, or does it support the objective of thinking in terms of simplicity? Are there in other words many individuals who are to be involved in decisions and actions? Do you have an endless number of KPIs and mandates in your organisation? It is a good idea to go for small and flexible rather than heavy and complex if you want to avoid an organisation characterised by conflicts
- Do the processes support customer needs, and is everyone able to explain how they create value? It should be as clear as a bell how each process and function create value for the customers, and this is only feasible if your organisation has eliminated unnecessary complexity.
- What is the right balance between standardisation and flexibility for departments and divisions? How can you in other words achieve the balance between cost-efficient standardisation and flexibility in accommodating the changing requests and demands of the customers?
In my opinion, the best CEOs have the guts to take on complexity. The CEO should be close to the business and the processes underlying the company, and focus should be on ensuring that all employees, processes and products create value in the overall puzzle. The skilled CEO is thus aware that there can be quite a distance from the executive floor to the shop floor and will therefore ensure that the organisational structure supports value creation for the customers throughout the entire value chain.
So dear CEO, when is the last time you reviewed the complexity in your organisation?
Originally published in Børsen Ledelse.