PLATFORM

Managing Complexity

Back in 1997, four years after the passage of the NAFTA, the economists at the Bureau of Labor Statistics (BLS) in Washington put out their biennial projections of job growth over the next 10 years. With a touching note of optimism, they assumed that exports, adjusted for inflation, would double over the next decade—a boom that would have produced a sizable number of good-paying American jobs. But, like almost everyone else, the BLS economists missed an unexpected strategy shift at the handful of big companies that account for most of the exports. Instead of ramping up American operations to sell into global markets, giant US companies such as GE, IBM, and United Technologies took their operations overseas, expanding in Asia and Europe and becoming global enterprises with international workforces. The result: US export growth fell 50% short of the BLS economists’ prediction. The much prophesized job boom never happened, pulling the US into a long-drawn recession. Add to that the spice of subprime crisis, food crisis, the rise of giants from emerging markets and galloping oil prices, and you have an unwanted recipe.

Two months before its maiden overseas flight was to take-off, billionaire Vijay Mallya’s Kingfisher Airlines has decided to rethink its whole strategy of flying abroad. “Due to the increase in crude oil prices and no signs of stability in the market, we are re-evaluating all our plans for international operations, keeping in mind costs and route network”, Kingfisher Airlines Executive Vice-President, Hitesh Patel, said recently.

Finnish cell phone maker Nokia is pulling the plug on its manufacturing operations in Germany, shifting to cheaper countries as the wider technology sector copes with cut-throat price competition. There is outrage in Germany over Nokia’s plans to close its plant in Bochum and move production to Romania. That anger has now been joined by accusations that the firm is benefiting from EU money. German politicians are calling for the company to repay subsidies. Politicians from both sides of the political spectrum have condemned the decision, with critics pointing out that the plant never operated at a loss.

Likewise, there are innumerable instances when the expectations and initial intentions go wayward, and many of them are due to not assessing the complexities involved. Ashby’s law of requisite variety states that the internal complexity of an organization should match the complexity of the external environment. Large Global Organizations seem to have taken Ashby’s law to their heart and have instituted overly complex business processes as well as complex hierarchical and matrix organizational structures. The downside of adding layers of complexity to an organization is that it slows down the process of decision-making. Everyone in the organization wants to do the right thing and more resources are spent to systematize the analysis process that aids decision-making. These checks and balances create an organizational culture that penalizes ‘off-the-cuff risk-taking mentality’. Large organizations get muddled in ‘analysis paralyses’ and are not willing to take quick decisions. Hence organizations become slower as they become global.

Improving organizational efficiency and maximizing resource utilization become more challenging as organizations grow more complex. Providing rapid response to new business demands and optimizing customer and partner supply chain interaction require robust business integration. Merely synchronizing data across systems isn’t sufficient. This level of business integration requires managing the transactional integrity of processes that cross multiple applications and data stores.

- Dr. Nagendra V Chowdary