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Introduction
All sectors in the economy are continually growing; from hospitals to businesses (Wolff, Starfield and Anderson 2002). This is because the customer needs are changing and technology and business structures are also evolving steadily. This means that there is always a new part of a business aimed at expanding customer bases and differentiation of products and services so as to remain competitive in very many dynamic markets.
The basic results of all these changes are complexities that beg for even more changes to the human resources factors and others capital considerations.
Overall, the whole organizational structure becomes very complex and this means that messes will occur. This affects all levels of management from senior to junior staff and also affects the short and long term goals and activities of the organization aimed at reaching these goals (Ackoff 1974a).
There are many methods that companies have attempted to manage the complexities from changing systems, processes and people (PCSD 1996). The main reason for attempting to manage these changes is to remain competitive in the market, to remain ahead in innovation and to maintain and increase profitability.
However, the factors that lead to the presence of complexities are variant which means that the industry is the major dictator of what complex situations individual players face.
Though there are many complex situations that occur in the everyday running of organizations, solutions abound and if properly researched and implemented, could lead to the elimination of said complexities (Truslow 1944).
Discussion
According to the Economist, there was a major crisis in Citibank where the bank was loosing a lot of money on the mortgage market (2011). During a meeting in 2007, the CEO, Chuck Prince came to learn that the bank did trade in mortgages as it assets in this sectors were valued at US$43bn.
The problem was that the bank did not do its own independent reviews on the ratings that were set on the market and had relied on very weak models for their financial wellbeing. When Mr. Prince however learnt of the trading in assets for the first time, he was reassured that everything was well and there had been no cause for worry even though there was a reported increase in defaults on mortgages (Bowen 2010).
After a few weeks, the losses experienced by the bank ran into billions of dollars and the CEO was inevitably sacked (Schön 1983). In contrast, the treasurer of Intel, Ravi Jacob in his first month of working reviewed the way that the company did its trading (Schön 1995).
The first thing he did was look at risk management and realized that much like the situation at Citibank (Maturana and Varela 1987), the traders were so focused on moving more stock that they did not have time to review credit ratings. The problem was that traders did not have as much interest in credit lines as they did on making new deals. They relied on brokers to do that job as did those in Citibank (Rosch 1992).
Jacob reveals that if one does not fully understand the dynamism of ratings, then one is bound to fail because the broker will eventually mislead you and that will lead to huge losses or getting stuck on a lot of paperwork. “All the traders now call in to a credit review meeting once a month,” he says.
“We track financial and industrial companies that are not doing well. We look at individual companies, industry sectors and macroeconomic factors and put some intelligence into it. I constantly tell our people, ‘You can’t just point to the credit rating. I want you to do a credit analysis, make a recommendation”.
The above case studies show that complexity is comprised of the decisions that are made daily by executives and line management (Plsek 2001). The determinants of the decisions taken are deeply rooted in the external and internal environments of the respective organizations (Maturana 1988).
For Citibank, the CEO was not even aware that there were assets that were being traded in the mortgage markets. Even after finding out later, he allowed his trading manager to convince him that everything was well even when the signs clearly pointed to the contrary. This led to losses to the company and to him as he was sacked.
The same scenario played itself out at Intel but the reaction by the line manager concerned was different (O’Brien 1990). He chose to challenge the status quo and had a review of the systems to find out where errors were occurring.
The revision of credit ratings by his own traders rather than the reliance on brokers was the difference between him and the trading manager at Citibank (Pert 1997). We are not aware of whether the CEO was aware of the changes taking place but his position was helped by having an able treasurer. Also, Intel continually reviewed the position of other companies that they were trading with in order to determine whether they were in healthy positions or were going to pull it down.
Complexity is a major contributor to the increased costs that companies face. In the course of research, it has been proven that complexity does indeed decrease sales volumes and inevitably increase the burden of companies.
Further research reveals that complexity issues alone increase the fixed costs of running a company by 20%. Depending on the industry that an organization operates in, there is a wide range of issues commonly known as messes that can occur.
This is the reason why some large companies continue to loose out on markets when compared to smaller ones. The disadvantage that the big companies have is that they have larger systems of operations and also might have a wide range of products that they offer unlike their smaller counterparts who may have a few products that are differentiated and specialized to fit a certain market (Horgan 1996).
There is a lot that can go wrong in companies that have a decentralized managerial system. This means that there are multiple managers that are involved in decision making with even a larger number of line staff who are additionally contributors to increased complexity.
The problem with a large company is that managers at every level tend to throw the challenges that they face at their seniors. This happens all so often that when a manager receives an “impossible” task, he does his best to try and pass the burden to a more superior one who may he may think is better equipped to handle it.
The manager that the decision is passed to may also find it hard to make and leaves it to the highest levels of the organization to deal with it. The trail of unmade decisions grows longer and thus when the final decision is made, there is always a loss of time which, on most occasions may also reflect a loss in revenues. Managers alone cannot be responsible for decision making.
Therefore, a company that adapts to changes challenges even the lowest levels of management to contribute in solving problems and making efforts in an attempt to bettering the decision making process. Operational and strategic challenges brought on by systems are the reasons why complexity is evidenced in companies that play a very major role in reducing its competitiveness.
The point to note here is that resultant complexity can always be reversed if the right techniques and processes are utilized. In fact, research proves that when a mess occurs in an organization, and is identified on time, its resolution can be instant.
However, people working in different companies tend to be reluctant in reporting challenges that they face which makes them culpable. For the most part, systems that a company employs should be geared towards the highlighting of problems and consequent resolution. Considering that complexity is a contributor of increased costs, then resolution of such complexity related challenges should be apriority to most managers and companies alike.
There is a multitude of solutions that may be crafted to reduce complexities that occur in organizations (Gleick 1987). The obvious ones include cutting on the product lines and reducing programs that are employed in the eventual production of such products.
The best option is simplifying business operations so as to incorporate basic systems that assist organizations in many endeavors. In the same spirit, it is prudent to acknowledge that with changing times, a level of complexity should be tolerated and handled correctly so as not to hurt the operations of an organization in the long term.
While attempting to reduce messes in an organization, the first step should be an assessment of the operations that contribute to the final product. A critical evaluation, much like the one done at Intel, always reveals weak points in the production process that may be important in reducing complexities. In solving problems that arise, managers may be required to re-evaluate the products that they offer (Rosenhead 1989).
If necessary, the number of products or services should be cut. Identifying the products or services that rake in the most costs while having low revenue returns always assist managers attempting to do so. This should also entail unnecessary processes that go into the production of said products and services (von Foerster 1994).
As a rule of thumb in business, focus should solely be on the customer (Fell and Russell 2000). As such, all the products and services offered by a given organization should aim at satisfying customer needs. Companies should always do researches that are aimed at revealing what consumers want (Leunig 1985).
The results of researches conducted should be features that consumers expect in products. Once managers have the input of the customer, then, they should aim at standardizing products so that they best serve those segments (Rose 1997).
This is important and is contrary to what most companies do but is a proven way of staying ahead of the competition, specializing products to serve given market segments can be a tasking operation that requires massive inputs from operators so as to garner the appropriate information necessary. The cost of such an operation is however almost always guaranteed to be offset by the resultant profits (Shaw 2002).
In the discussion above, it is evident that having many products or services in the organization leads to complex situations (Ackoff 1995). Further, it has been pointed out that the discontinuation of products or services with low returns may be the best option in resuming profitability.
However, it is always important to consider that the discontinuation of a product or service may be a perfect launching pad for another product or service. Here, pro-activeness is advised so as to notice opportunities in the market and to utilize them. Emphasis should be on stronger brands that are engineered to give maximum returns to customers and to guarantee profitability to the companies involved (Høeg 1994).
The other strategy that management must employ should be the reconfiguration of the production process in order to eliminate the unnecessary steps that are involved (Ackoff 1981). The elimination of stock pools always is a key factor here. Further, all activities should be consolidated in an effort to removing bureaucracy that retards the growth of products and services (Capra 1996) (Laski 1933).
The aim of such action should be achieving economies of scale that focus on the market needs and the profiteering of the company (von Foerster 1992). This is derived from the above point that states that products and services should always be specialized to a certain segment of the market (Rappard 1938).
At H&M, a design company, the management undertook to reconfigure their products, mainly clothing, to reflect the needs of the customers. There was an overhaul of the design process with focus being on a limited number of features rather than the promotion of a wide range of features (Naughton 1998).
The only constant thing in the process of reconfiguration was the color. Here, the management decided that in order to have better results, customers were allowed to choose a color of their liking (Schön 1987).
The global fashion retailer also acknowledged that peoples taste always change with time and as such, the products were also going to be constantly reviewed to reflect latest trends and designs (Fortune and Peters 1995) (Anderson et. al.2004). Their previous process had bore many complexities that this maneuver was the only way that profitability could be guaranteed.
The presence of many features on a single design brought forth many complexities arising from the many designers who had different ideas (Crowther 1941).
In fending off all the contributions of these designers that made the production process slow and yielded expensive products that could not sustain profitability, H&M found it prudent to employ only a few features to a single design. The result was fewer costs and more standardized products (Ackoff 1974b).
At present, most complexity issues are usually as a result of secondary functions. This entails the involvement of management and information technology (IT) (Glanville 1995a) (Postman 1993). The emphasis on more advanced technologies, while being applauded, could also be a deterrent to profitability (Glanville 1995b). This is because focus is shifted or divided from the final product or service into the process involved (Holister 1974).
This is counter productive as the technology is meant to serve as a supporting factor to the product and as such should not take a central focus (Reyes and Zarama 1998). In the same sense, administration should also be peripheral to the production process (Lakoff and Johnson 1999) (von Foerster and Poerkson 2002).
Many managers tend to be overly involved in the production process which causes overlapping that leads to loss of time in production (Stacey, Griffin and Shaw 2000). The downside to too much involvement is that line staff tend to be complacent and are not challenged enough to made decisions on their own.
Conclusion
It is undoubted that complexity is a major challenge to most organizations. It is therefore futile to attempt dismissing the fact that at some point in the production of goods and services, such complexities will arise (Casti 1994). Modern day companies have a lot invested in them from shareholders to customers and other stakeholders.
Therefore, in an attempt to please all these people, complications occur. This may be reflected in the final product which may be counter productive to all efforts that may be employed (Schoderbeck, Schoderbeck. and Kefalas 1985).That complexity breeds additional costs is not in doubt (Russell and Ison 2000).
The solution to such complexity should always aim at saving on such costs, saving on time and increasing the profitability of the company through the production of goods and services that are standardized and focused in the satisfaction of determined customer needs (Mahoney 1988).
The methods that have been discussed for doing this, if properly employed, could lead to more profitable ventures and consequently build a brand loyalty which is the desire of most companies (Talbott 2002).
In conclusion, an organization that strives to manage the complexities that occur within its activities should begin by evaluating the processes and products that they offer (Hutton 1995) (von Foerster 1984). From thence, suitable models should be employed which may include the reduction in the number of products and services offered (Mulgan 1998).
The other option would be to limit design options, to automate some functions and to streamline administrative procedures. There are also very many methods that may be applied depending on the complexity of the situation.
The industry design and the composition of the company inevitably influence the outcome of the final product. Thus, they are major contributors to complexities that arise in the processes, products and the market.
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