You’re Wasting 10% of Your Profits

You’re Wasting 10% of Your Profits

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In certain circumstances, complexity can be a good thing for business. Like all things though, there comes a tipping point at which continually adding complexity will be bad for performance.

What exactly is complexity in business? It’s adding new products, new processes, people, organisations and strategies.

The more moving parts there are, the more interrelated they are to each other, and the pace of change in these relationships, the more complex your business becomes.

The price of complexity

The Global Simplicity Index, developed by Henley Business School prof Simon Collinson, reveals just how wasteful complexity can be.

Using data gathered from the US’s 200 biggest companies, 10,2% of their profits were being lost annually as a result of bad complexity. What’s that in money talk? $1,2 billion per year, per firm, and $237 billion across the group.

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The hole in your pool

Knowing you have an expensive problem in your company is only vaguely helpful. You need to know exactly where the money leak is in order to fix it. Here are the six most common sources of complexity that impact performance.

  • External drivers: Such as regulation, or economic turbulence.
  • People: The everyday behaviours of yourself and your managers.
  • Process: The complexity of the business processes that you use.
  • Strategic: The choices you make concerning where to focus and how to win in your market.
  • Organisational: How you organise and structure your business to deploy people and make decisions.
  • Products and services: Complexity caused by the number of products, their design, and the structure of your portfolio.

Take the time to analyse each point to determine whether your business’s complexity falls on the good or bad side of complexity and performance. The move could save you millions.

Tracy Lee Nicol
Tracy-Lee Nicol is an experienced business writer and magazine editor. She was awarded a Masters degree with distinction from Rhodes university in 2010, and in the time since has honed her business acumen and writing skills profiling some of South Africa's most successful entrepreneurs, CEOs, franchisees and franchisors.Find her on Google+.