For business, increasing complexity is not just an inconvenience. It can radically affect the way that businesses are managed, challenging profitability with new costs, adding new risks and creating opportunities.
To measure the causes and impact of complexity KPMG commissioned one of its largest ever surveys among large companies around the world (40 percent of the companies have global revenues of US$1 billion or more).
Between October and December 2010, we interviewed 1,400 senior executives. They included CEOs, CFOs, and finance directors in a wide range of industries in 22 countries: Australia, Brazil, Canada, China, Denmark, France, Germany, India, Ireland, Italy, Japan, Mexico, Netherlands, Russia, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, the UK and the US.
The initial results of this survey were released at the World Economic Forum in Davos in January 2011. This document is a more detailed review of the results, with additional insights, drawing on the practical experience of KPMG experts from all over the world. The key findings of the study are:
But the experience of complexity differs around the world. Mature economies in Europe and the Americas are feeling the dual effects of recession and increased regulation, while developing economies and those in Asia-Pacific are focused on the accelerating speed of innovation and rising costs.
It is a challenge for modern, international corporations to understand the range of enterprises they control. Outdated IT systems are a significant barrier to managing complexity.
Its causes change as companies move through the business cycle and economies develop. New technologies lead companies to seek people with new skills, mergers and acquisitions lead to issues over information flows and management, and new regulations are a constant source of change. Companies need to be agile to cut through these layers of complexity and achieve growth.
Improving information management, reorganizing the business or changing the approach to people management, are all popular responses to complexity. But less than half of the people who undertook them thought they were particularly effective. Least effective of all is direct lobbying of policymakers.
Most people think complexity provides opportunities for change, but companies in developing economies are more likely than those in mature economies to see complexity as an opportunity to develop new strategies and new products.
Embrace it as a spur to innovation and change; or try and avoid it by keeping business processes simple. Executive teams need to decide which path is more appropriate for their companies.