THE COST OF UNNECESSARY ORGANISATIONAL COMPLEXITY: IT’S TIME TO SIMPLIFY

During my HR career, and now as an HR software provider with regular insights into how diverse companies operate, I often see mind-boggling levels of unnecessary organisational complexity. I wonder how these companies ended up with such complex practices and the potential cost savings of simplification (not to mention other benefits such as employee job satisfaction and innovation).

While some organisational complexities are necessary – e.g., unavoidable due to the nature of the workforce, legal requirements, or the regulatory landscape – many others are unnecessary. In this article I explore the impact of unnecessary organisational complexity, which reduces productivity and increases business operating costs.

I will share some practical examples of necessary and unnecessary complexity, the negative impacts of the latter, why top management need to proactively eliminate it, and how technology can help improve efficiency but is not a panacea.

Necessary Organisational Complexity

Organisational complexity is often an unavoidable aspect of business operations. Several factors contribute to this, for example:

1. Organisations with a diverse range of jobs undoubtedly have to manage a greater level of complexity. Different types of job may require different processes for different groups of employees within the same organisation, for example recording working time, managing performance, recruitment, training, and health and safety.
2. Organisations with operations in different sectors and countries will be subject to different laws, regulations, and market norms. Their processes and systems must be able to manage this complexity, for example managing employee absences, compensation, benefits, and statutory reporting.
3. Many organisations have a significant employee population with no work IT access. This means that many core processes have to be designed to be done with and without computer access.
4. Historically some sectors have had high levels of employee absenteeism and attrition. This results in a workforce that is very challenging to manage and HR departments often struggle to keep up with the volume of administrative tasks.
5. Some countries, sectors, and companies more than others are subject to onerous legal and regulatory requirements. This is not a criticism of regulation. It is simply an observation that managing such requirements is usually complex.

Unnecessary Organisational Complexity

While some complexity is inherent, many organisations suffer from self-imposed complexity. Here are some examples that I regularly see in a variety of organisations:

1. Decision-making processes where too many people are involved in a workflow. I recall an organisation asking PeopleWeek to build a workflow where 5 people must approve a job vacancy (one after the other) before it can be published.
2. Lack of empowerment of employees resulting in the concentration of administrative tasks with managers or support functions. Examples that come to mind are HR managing employees’ absence requests, accounting submitting employees’ expense claims, and managers writing performance objectives for their team members rather than employees taking the lead.
3. Lack of empowerment of managers is a similar problem and can result in a culture where managers do not take ownership (as they are not expected to). This creates complexity because workflows have to skip managers or include additional people to check that the manager has made the “right decision”, e.g., HR, Finance, or a more senior manager double approving timesheets, home-working requests, expenses, and even annual performance reviews.
4. Employees having multiple reporting lines and it being unclear what each manager is responsible for. This can be challenging for the employee, doubles the managerial effort, and makes workflows in IT systems heavy to build and maintain.
5. Heavy performance management forms and processes that require too much employee and manager time to complete and leave little time for the employee and manager to have a meaningful conversation (“dialogue”). HR also take on the role of the police to ensure completion deadlines are respected (which is rare in most organisations).
6. A mix or design of employee benefits that may be very attractive to employees but is very challenging to administer and consumes a disproportionate amount of time. An example is employee share participation schemes that are so complex they are barely manageable, even with a customised software solution.

The Cost of Unnecessary Complexities

The cost of unnecessary complexity is high, including:

• Inefficiencies leading to lost productivity and time wastage.
• Low employee job satisfaction as there are too many menial tasks, decision-making is slow, and there is not enough time to work on higher value-added activities.
• Low technology transformation as processes have to be managed manually (Excel and other “home-made” tools) or in many different IT systems, which is expensive, risky, and not a good employee experience.
• IT systems need a high degree of customisation to be able to handle the complexity, which is expensive and renders the systems more difficult to maintain.
• Bureaucratic organisational cultures that are slow moving and poor innovators.

It’s clear that an organisation exhibiting these characteristics may struggle to attract talented late Millennials and Gen Zs, who generally seek work environments that are dynamic, tech-enabled, and innovative.

The Role of Top Management

Top management, starting with the CEO, should actively identify and eliminate unnecessary complexity. While this task may not seem as glamorous or exciting as product design, marketing, or sales, it deserves equal attention. Just as management would never accept an unnecessary 10% discount on the selling price of a product or service, they should not tolerate a 10% reduction in productivity due to unnecessary organisational complexity. Prioritizing simplification can lead to significant improvements in efficiency and overall business performance.

The role of Technology

Well-designed technology offers a fantastic opportunity to automate organisational activities and streamline processes, significantly reducing complexity. However, if an organisation is unnecessarily complex, its IT solutions will mirror that complexity, making the implementation of new technologies and user adoption more difficult and costly. This could ultimately lead to failure.

By taking a proactive approach, organisations can align their processes and culture for success, leveraging technology as a powerful tool to enhance efficiency. Addressing unnecessary complexity unlocks significant benefits, including freeing up valuable resources, boosting employee satisfaction, and fostering innovation. Focusing on simplicity positions organisations for long-term success in a fast evolving world. As such, reducing organisational complexity is not just beneficial; it’s a strategic imperative.