In 2011, the Global Simplicity Index did a study on the cost of complexity in the world’s 200 largest companies. The result showed that on an average about 10% of the annual profits were wasted due to excess complexity in the organization. They also found that business leaders regard “complexity”, both internal and in the world around them, as one of the greatest challenges they face.
What is “complexity”, what causes it and how do we deal with it? The study talks about two kinds of complexity in an organization: The one that is most visible is “structural complexity”, the one you see in processes, in systems and products, in the organizational setup and in strategies. But there is also a behavioral side of it, how our actions and decisions in the organization result in complexity. We all recognize the behavior: it’s so much easier to “improve” and “develop” processes by adding complexity rather than spending that extra effort in making them simpler. The pursuit of “progress” overpowers the need to simplify.
The study points at this behavior as an explanation to the structural complexity we suffer from in our organizations.
However, I think that the opposite is true as well. There are other reasons for complexity than human behavior. The IT systems in a company often cause complexity purely for technical reasons. Technical limitations in hardware and databases cause the systems to operate in a less than efficient manner. Data is replicated and shuffled around. Batch jobs need to run at nights or weekends, causing delays in access to vital information.
Why do we need to spend more time reconciling financial data from different sources rather than analyzing them? Why do we need to wait a week for sales orders to have an impact on production planning? Simply because our IT systems suffers from complexity induced by technical limitations. This causes our organizations to design overly complex business processes to get around the limitations our IT systems imposes on them.
This is why SAP’ new S/4HANA business suite is so important. Using the power of the SAP HANA in-memory platform, the IT architecture can be simplified, the complexity in the systems drastically reduced. Reporting is done on real time data, providing everyone with information at their fingertips, available anywhere at any time. Batch jobs and can be eliminated, making it possible for the systems to react immediately on real time data.
We have already seen the Simple Finance part of S/4HANA. Now we are close to the launch of SAP Simple Logistics, creating a platform for reducing complexity in our supply chain and production processes. And, of course, opening up for new business processes that were previously not possible due to technical limitations in our IT systems.
Businesses today need to react fast to what is happening around them. Reducing complexity both in processes and IT systems is a key to that.