One of the most difficult challenges facing modern distributed enterprises is how to manage the complexity of their value creation chains. Although there always has been difficulty when co-ordinating dispersed resources to make products, this has not been assisted by the environment that many modern business face.
“A complex system is a system (whole) comprising of numerous interacting entities (parts) each of which is behaving in its local context according to some rule(s) or force(s). In responding to their own particular local contexts, these individual parts can, despite acting in parallel without explicit inter-part coordination or communication, cause the system as a whole to display emergent patterns, orderly phenomena and properties, at the global or collective level” **
Complexity in enterprises emerges from the multiple demands of company portfolios; increased product ranges, customer demands, technology and organisational structures. Increases in the number of possible states through the value chain requires resources to manage, co-ordinate and orchestrate the possible combinations.
Changes in the operating environment are driven by many factors including market volatility, customer fragmentation, sector fragmentation, globalisation, company mergers, information and corporate silos. These lend extra dynamism, feedback, complexity and uncertainty to the operation of enterprise processes that heap difficulties on the already full plate of corporate managers.
However, the good news with complexity theory is that it is possible for the interdependent parts of the system to implement simple rule sets to enable self-organising system behaviour to emerge. Counter-intuitively in some sense, the fostering of interdependence leads to a greater ability to manage environmental turbulence, although this needs to be managed alongside active control of the external agents involved.
So what techniques can corporate managers use to manage this growing complexity?
Environmental Stable Strategies (ESS’s) as an emergent property of the systems can be empowered through the use of corporate strategy to guide the discovery and implementation of value creating processes.
“corporate strategy is the decision level that drives, paces and frames corporate wide evolution through the choice … of a particular equilibrium configuration of cognition-evolution pattern-architectural design.” **
Driving -Corporate strategy drives the development of innovation by linking actions and the expected outcomes of those actions in order to derive a picture of the competitive landscape as it relates to the organisation. It includes the approaches to experimentation, adoption and adaption, and the preferred learning styles. This empowers structured change belief within the organisation of the relative risks and trade-offs involved in exploratory behaviour.
Pacing is made through the exploration of ‘local search’, whereby only a single factor is considered for change, or ‘long jumps’ where many factors are changed at the same time. These strategies can be subject to recombination to blend the approaches to obtain the correct cultural fit for the organisation.
The balance between tightly coupled (bureaucratic) control, and the ‘Edge of Chaos’ typified by some R&D approaches should be guided by policies that reinforce the self-organising behaviour. The pre-determined ‘corporate DNA’ of implemented critical structures combined with the ‘Growth Seeking memes’ of local control and creativity * should be promoted through increased cross channel communication, leveraging the environmental diversity and direction setting from the central authority. This allows opportunities to be discovered, operationalised for the benefit of the organisation and exploited to maximise the benefits.
Framing involves the development of broad organisational arrangements that ease the emergence of the self-organized, loosely coupled processes as sources of corporate advantage.
Overall Corporate Strategy should accommodate and enable clear thinking around the drivers for future company behaviour. It allows problem areas to be paced and framed or ‘boxed’ in terms of the process and technologies that empower them, so allowing an architecture of value creation to emerge.
Seek transparency over the costs and values over the value chain. Using methods like Activity Based Costing (ABC) can add quantitative data to uncover the costs of complex business processes. The use of visual aids and Business Intelligence tools or spreadsheets will help to visualise and highlight the areas of cost concern.
In allocating costs to specific products or areas it is possible to get a view whether the complexity is good (necessary for the outcome), or if it is bad complexity (just complicates a potentially simple process).
Optimising the value chain and its’ processes yields reductions in complexity by defining target states for critical activities. Targets can include quantitative targets like cost, but can also include qualitative targets like time to market or customer delivery times. Focusing on the desired target state helps to frame the problem in a local subset of the total environment and in doing this can promote focused change and allow trade-offs between business functions.
The successful implementation of complexity in business processes is underpinned by implementing sustainable patterns of implementation. When new value chains are implemented the complexity of management (and the associated costs) are initially higher, but seeking to reduce these costs through sustainable advantage in IT tools, business incentives and process re-engineering can increase the bottom line over time. Driving improvements in business sustainability can be implemented by setting and tracking KPI’s and performance metrics for value chains.
Adopting a behavioural-evolutionary approach to change management in organisations can lead to the development of a corporate culture where the best elements of structured control and creative innovation are blended to produce value.
Marrying the corporate ‘DNA’ of critical structures of control and leveraging local knowledge behavioural ‘memes’ fosters innovative corporate behaviour that avoids the competency traps of repeated comfortable interactions whilst leveraging local knowledge and co-operation where it is available.
* Dawkins, R., 2016. The selfish gene. Oxford university press.
** Caldart, A.A. and Ricart, J.E., 2004. Corporate strategy revisited: a view from complexity theory. European Management Review, 1(1), pp.96-104.