Heard the one about the global food company that asked middle management HR employees to record how much time they devoted to generating real value for the business over a four-week period? The answer? Less than 45%. Or the food manufacturer that required 16 signatures to approve a new hire at a time when the business was trying to grow?
Complexity such as this pervades large organisations and businesses across the world - and the area of HR and people can take much of the blame. It’s easy to just shrug and blame the system. After all, the world is getting more complex, what with new technologies, interconnection of markets, regulation and economic interdependence.
But here’s something to make you think whether you should be doing something to cut complexity in your business. The amount the 200 biggest companies in the world (the Forbes 200 global index) waste each year due to failure to cope with increasing business complexity is £145bn.
This figure comes from a groundbreaking study by Warwick Business School for advisory firm the Simplicity Partnership, which helps companies identify and remove complexity. According to Simon Collinson, professor of international business at Warwick, these companies lose 10.2% of their profit each year due to complexity, equating to each of them throwing away £735m annually.
The problem with complexity is that some of it is good. As you diversify, you naturally add complexity that can help business performance. But you can over-complicate. Simplicity and Warwick have developed a complexity curve to demonstrate where the tipping point lies. They have created a Global Simplicity Index (GSI) of most complex organisations, which divides companies into performers, simplifiers, complicators and strugglers.
“The GSI shows that most big fmcg companies are losing significant profits due to their inability to manage high complexity levels,” says Simplicity founder Melvin Jay. Nestlé is ranked as the seventh most complex company of the 200 on the index.
Procter & Gamble is marginally on the right side of the tipping point in 61st. Meanwhile, GlaxoSmithKline - one of the best-performing pharmaceutical companies in the world - has one of the simplest models in the survey and is outperforming its rivals - it is 126th. One in 10 managers believes that nearly a third of productivity losses are due to complexity.
One in five has more than 16 levels of management in their companies. A quarter of managers spend a third of their time dealing with emails the list goes on. It’s not easy to implement the right changes, but the issue of complexity must not be ignored.