For companies, getting bigger often means becoming more complex as new products, people, processes and divisions are added into the mix. But to what extent does increased complexity affect how well a company performs?
The Global Simplicity Index (GSI) was developed by Professor Simon Collinson of Henley Business School, England, to analyze the relationship between complexity and company profitability. Focusing on the world’s 200 largest companies, Collinson and his team looked at 18 drivers of complexity and performance, aiming to identify the most harmful causes of complexity in big companies.
Their discovery was an inverted relationship between complexity and profit. A certain degree of complexity can be good for business performance, but continually adding to it can be detrimental. Tendencies such as trying to serve too many different market segments or customers, attempting to do everything in-house and having a constantly changing business strategy can all negatively impact the bottom line.
In fact, the GSI estimates that on average, the world’s 200 biggest companies are losing over 10% of profit as a result of value-destructive forms of complexity, equivalent to $1.2 billion of lost profits on average per firm. “The good news is that all companies have both good and bad complexity within their business. So every single company has the opportunity to improve their performance by removing bad complexity,” says Professor Collinson.