Magazine article New Zealand Management

Daniel Di Filippo: Managing Complexity: As CEOs Take Their Companies into the Global Market They Are Increasingly Involved in Activities That Add Layers of Complexity to Their Organisations. Daniel Di Filippo, PricewaterhouseCoopers' Global Leader of Performance Improvement, Explains How Well They Are Coping

Magazine article New Zealand Management

Daniel Di Filippo: Managing Complexity: As CEOs Take Their Companies into the Global Market They Are Increasingly Involved in Activities That Add Layers of Complexity to Their Organisations. Daniel Di Filippo, PricewaterhouseCoopers' Global Leader of Performance Improvement, Explains How Well They Are Coping

Article excerpt

First up any surprises from the latest PricewaterhouseCoopers Global Annual CEO survey?

This year's results both confirmed earlier suspicions and surprised us. Firstly, the CEOs confirmed what we suspected, that complexity is increasing. According to respondents, over the past three years the overall level of complexity in their organisations has increased, and this increase has been caused by a variety of factors. As a result, managing complexity has become a high priority among the CEOs we surveyed.

What exactly does managing complexity entail? To our survey participants, it means coping with complexity when it adds value and simplifying when it does not.

We were, however, surprised by the size of the "capability gap" we discovered between respondents' clear understanding of the challenges that complexity poses and their ability to manage complexity effectively.

We found this to be true across the board, regardless of geographies, economies (developed or emerging), size or status (public or private).

Is complexity increasing?

More than three quarters of the CEOs responded that the level of complexity in their organisations is higher than it was three years ago, and 27 percent believe it is much higher. Only a small number feel that it is the same (15 percent), somewhat lower (6 percent) or much lower (2 percent). And the overwhelming majority (73 percent) agree that complexity is not going away--that is, that increased complexity is an inevitable aspect of business today.

What's driving this?

As the CEOs note, the causes of increased complexity are many and varied. Some, such as commercial activities, can be managed and add value. Others, such as geopolitical forces, can only be influenced. Commercial activities include launching new products and services, extending operations to new territories, forming strategic alliances and outsourcing functions to third parties. And because these commercial activities are considered to add value, most CEOs are engaged in more than one. In fact, less than one percent of respondents are performing none of these activities, while 86 percent are engaged in three or more, and two thirds are engaged in five or more.

Nearly all CEOs acknowledge that commercial activities increase complexity, though to varying degrees. Topping the list of commercial activities that most increase the level of complexity are extending operations to new territories (65 percent), engaging in mergers and acquisitions (65 percent), and launching new products and/or services (58 percent). Outsourcing functions to third parties is perceived as causing the least increase in complexity (36 percent).

Do the drivers of this increasing complexity represent good or bad news for CEOs?

While acknowledging that commercial activities increase complexity, the CEOs largely maintain that the advantages of engaging in those activities strongly outweigh the disadvantages. This is especially so when it comes to launching new products and/or services (88 percent) and to extending operations to new territories (83 percent).

In fact, even the most-complexity-causing activities (doing mergers and acquisitions, extending operations to new territories, and launching new products and services) are perceived as having advantages that far outweigh disadvantages.

In addition to commercial activities, respondents view geopolitical forces as having increased the level of complexity to a medium or large extent over the past three years. Chief among them are national and international laws and regulations (62 percent), actions by competitors (62 percent) and changing customer requirements (61 percent).

Changing workforce attitudes and expectations and language and cultural differences are perceived as least likely to cause increased complexity (41 and 33 percent, respectively).

While 56 percent of the CEOs believe that the sources of complexity within their organisations are a balance of commercial activities and geopolitical forces, nearly three times as many CEOs (31 percent) believe that those sources are primarily due to geopolitical forces as believe that they are due mainly to commercial activities (12 percent). …

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