8 ways to ... reduce complexity: The finance function sits at the hub of a complex network of systems and processes, from financial reporting to performance management. Perhaps it's time to de-clutter, says Richard Young.
| Position | The list |
1 Grasp the scale of the problem
There are two types of organisational complexity: the kind that creates value to give your firm a competitive advantage or helps solve knotty problems, or there's bad complexity.
"Most organisations start with simple path dependencies," explains Simon Collinson, professor of international business and innovation at Warwick Business School. "Then you develop internal processes to support those. Then you get layers of management -or you roll out new IT systems, or regulations change. Complexity is then embedded and self-replicating."
Prof Collinson's research among the largest 200 global companies showed they're losing an estimated 10.2 per cent of their profit (EBITBA) as a result of harmful complexity in their business. So it's well worth looking at your own finance function and across your organisation to see whether reducing complexity can help.
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2 Take ownership
Finance is probably the best-placed team to address complexity. "The FD is the guardian of profit and that means the finance function must lead on removing complexity," says Melvin Jay, CEO of consultancy Simplicity. "It's often the management accountants who have the right tools for this, too."
For example, it's important to use valuation techniques to assess exactly which activities cost the most - and generate the most value.
And, Jay adds, because finance sits at the hub of so many information flows it can trace complexity: "It can be as simple as being aware of what reports the team is producing. Then you need to look at what that information is doing in the rest of the business. Is it supporting value-creating decisions or is it just being ignored?"
3 Carry out an information audit
The first task is an information audit. "For example, you can use tools to see where information is flowing and who's actually using it - and then why," says Collinson. "A typical example in a global business is finance teams offering departmental, then organisation-wide, regional, national and finally global versions of reports, all containing more or less the same data. And in many cases there's a perceived demand for information that's actually not helping anyone to add value."
He cites one company in the automotive sector which "cut right back from 200 reports to zero - then added them back as managers requested the information", says Collinson.
4 Focus on value
It's easy for each individual or department to understand how they contribute...
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