Interplay of Innovation and Complexity

We hear often that smaller companies innovate better as they are more flexible, faster and creative as compared to larger organisations. This is all but half true. Its not the size of an organisation that decelerates the innovative pace-rather complexity. Hence organisations seeking sustainable growth need to find the balance between innovation and complexity.

If we look at large companies, the ones considered to be highly innovative; one can easily see a common pattern. They all have managed to keep their order of complexity low keeping innovation as the key organisational value. We recently saw the iconic Steve Jobs unveil yet another product from Apple’s closet- a company valued at 180 Billion Dollars well above Google and Microsoft; The ipad. One could argue that the dual play of artistic brilliance and engineering excellence mastered by Steve is not radically innovative in nature, when one looks at the technological aspect alone. Yet, Steve manages playing an impeccable technology broker in the heart of Silicon Valley to orchestrate breakthrough product ideas one after the other.

Apple has a sharp product focus, driven by the vision of their sometimes arrogant, to the boundaries impatient yet impeccably visionary and strong leader. The product development process is secretive and the communication and marketing around any product launch is signature Steve. Apple has mastered in its own ways to think simple- not just in its products minimalistic but as an organisation for itself as well. Almost all of its products launched after Steve’s comeback can be put straight on the rack of one’s playing at the convergence of Media, Software and Communication technology industries- infotainment as some say.

Managing Complexity is not like managing risk. One should not look at ‘mitigating’ complexity for the sake of it. As Einstein himself said, ‘ make things as simple as possible but not simpler’. On the edges of chaos, thrives innovation. One needs to manage an organisation in such a way that it finds the right spot between perfect order and perfect chaos. This means excessive complexity should be reduced but not reduced any further. Motorola did this in early nineties using what they called a ‘Complexity Index’. They set targets to reduce this index, which was an index composed of various drivers of complexity considered important by Motorola leadership.

One could however, only try to manage organisational complexity better, how could one manage market complexity? There could be many ways to attempt the same. One could be spotting trends (if at all they could be seen) with content analysis and predictive market intelligence. Another way could be creating an innovation ecosystem, creating open domains and embracing diversity. Ashby’s law of requisite diversity states that a controlling system should have at least the diversity of the controlled system.

If one looks at an organisation as a controlling system, controlled system being the market itself- this should mean reflecting diversity of the market in the organisation should certainly help one manage the market complexity better. However as all questions in management; answer to this would also be ‘it depends’. A recent study by IMD stated that boardroom diversity sometimes hampers decision making and makes leadership weak. It could be the case that the ‘democratic premium’ divulges ones boardroom or product development teams into endless discussions. The optimal solution should lie somewhere in between, drawn by the actual context the organisation is in.

Many organisations feel that they have lost their soul. There core values. The talks that take rounds in many large companies are of how great these organisations were in the beginning or yet some years ago and how they have transformed themselves into mediocre organisations. Organisations where bureaucracy takes centre stage and innovation is stifled. Where big product ideas are launched but don’t bring any additions to the bottom line.

Organisations that are so lost that not being able to find the real reasons for this mess, of Billions being invested into Research and development but not enough returns on the same to be proud of; are looking outside- at collaborations with smaller companies for quick fixes. However unless one’s own house comes into order fundamentally, couple successes with these collaborations are not going to sustain the growth path, let alone guarantee survival of these organisations.

One needs to hence keep eyes focussed on Innovation, but feet firmly on the brakes to manage complexity when it is bound for chaos.

Complexity has again two faces- organisational complexity and market complexity. Degree of complexity or order can depend on a myriad of factors. For Organisational complexity, it could be the organisational design, performance and reward systems, product or service platforms, degree of diversification, cultural context, managerial capabilities, geographical spread as well as spread of the revenue streams. Market complexity entails on the other hand  technological as well as business life cycle of products or services, spread of market potential, degree of competition, Value Chain dynamics, Interplay of complementary and supplementary capabilities and regulation.

About the author

Gunjan Bhardwaj, advisor, senior editor and member of the editorial board. Gunjan is the leader of the Global Business Performance Think-tank of Ernst&Young. He is also the solution champion for Pricing strategy and effectiveness as well as Innovation management in the advisory services of Ernst & Young with a focus on Pharmaceutical and FMCG sector.

Gunjan is also a guest professor for Growth and Innovation management at European Business School (EBS) in Germany and a member of the scientific advisory board of Plexus Institute in the US which researches on complexity in health sciences.

Gunjan has published a number of papers and articles in various Journals and magazines and has been a frequent speaker in conferences on marketing and innovation related topics. He is also the chief editor of the quarterly journal of Ernst & Young’s advisory practice called Performance.
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