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Simplicity-minded management

Simplicity-minded management

A practical guide to stripping complexity out of your organisation.

Large organisations are by nature complex, but over the years circumstances have conspired to add layer upon layer of complexity to how businesses are structured and managed. Well-intended responses to new business challenges; globalisation, emerging technologies and regulations like Sarbanes-Oxley, to name a few, have left us with companies that are increasingly ungovernable, unwieldy and underperforming. In many, more energy is devoted to navigating the labyrinth than to achieving results.

Accountability is unclear, decision rights are muddy and data is sliced and diced time and time again, frequently with no clear idea of how the information will be used.

Imagine a $14 billion company with more than 100 consumer and commercial brands, a food services business and a commodity trading operation, but no common method for tracking, reporting or analysing results. How would you assess relative brand or business unit performance? How would you evaluate individual performance? How would you know where to place your bets, or what to report to investors and analysts? That is exactly the situation that Gary Rodkin confronted when he became chief executive officer of ConAgra Foods, one of the largest packaged food companies in North America, in October 2005. ConAgra's lack of cohesion was the unintended consequence of an enormously successful growth strategy, launched in the 1970s, which involved acquiring well-known brands like Reddi-wip, Egg Beaters, Chef Boyardee and Hebrew National, and then allowing the acquired organisations to operate relatively autonomously.

That strategy was no longer viable by the time Rodkin came on board. The company's growth had hit a wall. Customers wanted a single face to the company, employees were frustrated with poor communication and competition among units, analysts wanted clearer numbers and investors were unhappy with the wide duplication of functions. The fragmented organisation's lack of common systems, data and processes made it impossible to respond to those demands. So Rodkin made simplicity one of his first priorities, declaring it a hard business objective. He then invested in a series of initiatives to combat complexity, which made life easier for customers and employees; and produced millions of dollars in savings.

Over the past 20 years our firm has worked with dozens of companies and hundreds of executives to improve operational effectiveness, and my colleagues and I have repeatedly seen the frustrations and inefficiencies caused by complexity. By looking carefully at the sources of complexity, we've identified four areas of opportunity that managers can exploit to gain greater control over their organisations, while improving business results at the same time. To successfully counter complexity, managers need to address all four in a multidimensional, ongoing strategy.

In this article I'll describe this strategy, citing the steps taken by Rodkin and other executives. But first, let's take a quick look at the factors that contribute to convoluted constructions in the first place.

The causes of complexity

Complexity is the cumulative by-product of organisational changes, big and small, that over the years weave complications (often invisibly) into the ways that work is done. The causes tend to fall into one of four categories: Structural mitosis, product proliferation, process evolution and managerial habits.

Structural mitosis: In most large organisations, structural shifts are happening all over the enterprise, all the time. They may range from subtle changes in reporting relationships, to job moves accommodating personal preferences, to the establishment of a new unit or shared service centres. The steady accumulation of structural changes drives up complexity over time in ways that sometimes go unrecognised.

At a major pharmaceutical company, the CEO realised that too many layers separated him from the frontline employees. When he challenged the leadership team to flatten the organisation, many of the divisions were surprised to discover that there were more layers than they had realised, as many as 14 in one case. The organisational structure had taken on a life of its own. They all agreed to consolidate down to eight or fewer.

Product proliferation. Companies refresh their offerings continually, with changes as modest as tweaks to package design or the addition of new product features, or as involved as the launch of entirely new lines of products or services. Each innovation has a ripple effect throughout the enterprise, requiring changes in manufacturing and the supply chain, pricing, marketing materials, sales and service training, and so forth. What's more, most large organisations are better at adding new products and services than they are at pruning, so the stock keeping units mount. The resulting complexity is difficult to manage, and can be troublesome for customers, too. At one meeting of a major technology company's customer advisory board, executives and product engineers were surprised to hear that customers wanted fewer new features on some of the company's core equipment. Their assumption had always been the opposite and they'd made it a priority to deliver. But it turned out that customers found that the steady influx of new features and capabilities from their various suppliers was making it difficult for customers to maintain network stability, because of the ripple effects of constant adjustments.

Process evolution. In recent years, corporations have put their manufacturing, accounting and information technology processes through rigorous scrutiny, with Six Sigma, lean manufacturing and reengineering efforts. While those processes tend to be relatively well laid out and controlled, many others haven't benefited from disciplined improvement techniques. Consider budgeting and planning, performance management, customer relationship management, sales forecasting and innovation. All those processes evolve over time; as companies respond to new regulations, for instance, or accommodate a new leadership team, and they often become battlegrounds between corporate staff and line business units. That results in compromises that introduce too much variability and make processes inefficient. ConAgra's multiple operating units, for example, each had their own ways of doing business, making it very difficult for the newly centralised functions to evaluate relative performance.

Managerial habits. While evolving structures, products and processes lie at the roots of complexity, managers frequently behave in a way that exacerbates the problem, though usually they have the best of intentions. Senior executives, for instance, understandably want information, but they may not realise that a request can set off a cascade of reporting work, which often keeps being added to over time. What seems like a simple question to a CEO can turn into a major exercise for hundreds of other people. When Patrick O'Sullivan became group finance director (the chief financial officer) of Zurich Financial Services, in 2002, he discovered that business units around the world reported on dozens of different performance metrics they'd accumulated in response to questions raised over the years. Things had evolved to the point that no two units reported on the same basis. O'Sullivan launched an effort to standardise the monthly and quarterly reporting requirements, so that all units focused on the measures that were most critical both for corporate executives and for their unique business. That move eliminated thousands of hours of work for numerous managers. In March 2007, O'Sullivan became the company's chief growth officer.

Other managerial habits that inhibit simplicity include "reply all" email responses and poor meeting management. Very few people recognise how their own actions contribute to complexity. The sidebar "The Hidden Cause of Complexity: You" discusses in more detail some of the psychological blind spots, many of which involve breaking the most basic and well-known management rules.

To be fair, these behaviours often actually begin as mechanisms for coping with complexities in structures, products and processes. When a company introduces new layers of management, for instance, an executive may naturally ask for more reports and email updates. The undesired result is a vicious cycle of additional complexity.

Simplification as strategy

While none of the elements of simplification are particularly surprising by themselves, countering complexity requires integrating them into a multidimensional strategy. Though the elements each directly address one source of complexity, applying them separately may actually worsen the problem. For example, many companies have found that simplifying processes through large-scale enterprise systems; without addressing organisational structure, product offerings and work behaviours; often leads to diminished rather than enhanced productivity. One-off efforts may interrupt established relationships, introduce unanticipated roadblocks and create confusion over decision rights.

A simplification strategy must also be treated as a business imperative, not a soft, "nice to have" virtue but a key contributor to bottom-line success. With that in mind, let's look at how each of the elements of simplification plays out, paying particular attention to ConAgra, along with a few other notable examples.

Streamline the organisation structure. Once they've clearly framed simplification as a business imperative and connected it to measurable goals and incentives, managers can begin an ongoing attack on structural mitosis. That means periodically adjusting the structure to make sure it serves the business strategy and market needs and is as simple as possible.

Rodkin started by transforming ConAgra from a company with multiple autonomous business units into an integrated operating company. Previously, each business unit contained all its own support functions. Rodkin combined the functions into enterprise units, including product supply, sales, finance, human resources, information technology, research and development, and legal. He then consolidated the commodities trading, food services and ingredients businesses into a commercial sector; and the consumer brands into a consumer sector, subdivided into four portfolio operating groups; snacks, dairy, grocery and frozen. Each sector (as well as brands within each operating group) had its own profit and loss statement and received services and expertise from the enterprise functions. The functions were held accountable for reducing costs and supporting the brands. This new structure was put into place quickly, just a few months into Rodkin's tenure.

Whether you're centralising functions or shifting reporting relationships, the point is to think of organisational design as a dynamic, ongoing and organic process instead of a one-time exercise in engineering. ConAgra's historical strategy of leaving the units as independent companies had led to tremendous success; the organisation had grown from a couple of hundred million dollars in revenue in the early 1970s to a peak of more than $27 billion in 2002. But by the time Rodkin came on board, the structure had outlived its relevance, something that was easy for people working inside it to overlook.

ConAgra continues to monitor and modify its organisational design. Eighteen months after the initial reorganisation, Rodkin and his team realised that the supply chain directors that supported each of the consumer operating groups did not have enough direct access to the people who worked in manufacturing, engineering, procurement and quality control, that had all been centralised in the enterprise units. So whenever there was a supply chain issue, it took too long for these directors to pull together a response team. That led Rodkin's team to further tweak the design by creating small supply-chain support teams dedicated to each consumer group. Similarly, at the pharmaceutical company mentioned earlier, one of the company's periodic organisational-health reviews led to the elimination of an additional layer in the sales organisation a year after the first streamlining initiative.

Prune products, services and features. Once the right structure is in place, simplicity-minded managers take a hard look at the products and services the company offers. Are there too many of them? Which are profitable and have the greatest growth potential? Which have run their course? One way to get some answers is to periodically do a classic portfolio review. That's how Rodkin dealt with the brand structure at ConAgra. Previously, the company's 100-plus brands were assumed to be equal and competed for marketing and investment dollars, which made planning and allocation processes free-for-alls. To inject some rationality, in early 2006 the company sorted the brands into three categories: "Growth brands", which would have priority for investment; "manage for cash" brands, which would be maintained; and "potential for divestment" brands, which could be put up for sale. ConAgra then immediately put the business units containing brands designated for divestiture, such as meats on the market and sold them that year.

Another way of addressing proliferation is to set up processes for evaluating how well the company's offerings match customers' needs. The review should focus both on the overall portfolio and on the simplicity of individual products and usually demands a large dose of customer feedback. At Cisco Systems, for example, a number of customer advisory boards meet regularly to review the company's pipeline of products and services and give input on decisions that involve technology investments, timing and bundling of products. Fidelity Investments managers do regular tours of duty on the firm's 800-number lines, so that they can hear directly from customers about their experiences. Fidelity also has a "product laboratory", where it tests new products and gets feedback about how easy they are to use. While Fidelity was shaping a web-based retirement planning service, it brought in current and potential customers from different demographic segments to explore the new tool and provide suggestions.

Build disciplined processes. Once ConAgra had reorganised its enterprise functions and brand groups, it uncovered a set of processes that resembled a post-construction Tower of Babel. It had sales reports with massive amounts of data that ran to hundreds of pages, but the newly united finance function couldn't analyse them because brands each had different units of sale; pounds, pallets, cartons, dollars, shipments, cans and more. Similarly, ConAgra's supply-chain managers had to negotiate the purchase of dozens of sizes of cans, requiring different procedures, vendors and manufacturing processes. Even ingredients were overly complex; the company was using 12 types of carrots, for instance.

Those processes had to be examined and rewired (or eliminated) one at a time. But Rodkin and his team knew that if it were to stick, process simplification had to become an ongoing activity. So they introduced an initiative similar to the GE Work-Out, called RoadMap, which brought together people from across the company to redesign critical processes.

An early RoadMap simplified financial processes by establishing a uniform reporting protocol for units of measure (such as pounds or kilos), product units (such as cans or cartons) and organisation units (division, brand, or sub-brand). For two days representatives of the consumer brand operating groups, the commercial businesses and the enterprise functions, more than 60 people in all, debated these standards with one simple ground rule: By the end of the second day they would come to a single decision by which they would all abide. And if they couldn't come to a decision, then the CEO or CFO would decide. As it turned out, the group did reach consensus, which allowed finance and information technology to spend several months building a truly company-wide reporting system that was successfully launched in October, 2006, one year after Rodkin had joined ConAgra.

By the end of the year, after dozens of RoadMap sessions, ConAgra had in place a far simpler set of enterprise-wide processes; for reporting, planning, capital expenditures, new product development and introduction, performance management and more. In addition, many of the process rewiring efforts had produced substantial savings. For example, simplified processes allowed corporate human resources to reduce the number of its staff members who processed forms and paperwork in the field, while doubling the number of employees doing these transactions through the centralised HR business centre; without adding any head count in the centre. In the Canadian division an effort focused on simplifying ways of managing discontinued products, ordering raw and packaging materials, along with tracking inventory reduced inventory write-offs by $1.5 million. By this point more than 1000 ConAgra employees had participated in simplification initiatives, either in RoadMap sessions or on implementation teams, so that a cultural embrace of simplicity was starting to happen.

Rodkin and his senior team reinforced that shift by continually beating the drum about simplicity in speeches, town hall meetings, employee lunches and videos.

Engaging employees across the organisation in process simplification, particularly at the grassroots level, can be powerful. People at all levels become more likely to step up and correct a problem before it gums up the works.

Improve managerial habits. If managers are serious about reducing complexity they need to identify how their own (often unintentional) patterns of behaviour complicate matters, along with a personal commitment to simplification.

As part of the change effort at ConAgra, Gary Rodkin invited his senior team to suggest how he himself could manage in a simpler, more effective manner. One thing he learned was that he occasionally failed to specify which person should take the lead on a cross-functional or cross-unit issue. That created what the team called "jump balls": Multiple executives' assuming that they had the lead or that someone else did. Team members would then jockey to catch the ball, creating confusion; or in some cases, no one tried to get it. For instance, an innovative product idea that used commercial food technology, but would be introduced in the frozen foods business was held up because it was unclear whether an executive from research and development or one from the consumer sector should lead the effort. After discussing this tendency with the rest of the leadership team, Rodkin was able to reduce the frequency of jump balls and simplify the resolution of critical issues. He also realised this seemingly innocuous pattern had been replicated in some of the management teams the next level down and was creating complexity there. So working on it with his team as a collective issue had a powerful impact far beyond Rodkin's own behaviour.

It sounds paradoxical, but making your organisation simple and keeping it that way takes a lot of hard work. It requires an explicit strategy and vigilant attention over time. However, simplicity must be more than a feel-good theme; the four elements of a simplification strategy will be effective only if positioned as business imperatives.

ConAgra's Rodkin made it clear to his managers and associates, as soon as he arrived, that the company's complexity was driving up costs, hurting profit margins and hindering the ability to invest in growth opportunities. He set specific cost-reduction targets that were clearly tied to eliminating duplication, and he publicly declared simplicity, accountability and collaboration to be key priorities, ones that would constitute 50 per cent of the performance review criteria for managers.

Similarly, when Peter Loscher became chief executive of Siemens, in 2007, he set out to simplify an overly complicated structure that may have allowed managers to hide improper payments, contributing to financial irregularities. He made a commitment to creating a more streamlined, transparent structure, as well as a less complex product portfolio.

It's a given that senior executive support is vital to the success of any change initiative. But it's easy to give short shift to notions that seem "soft", like simplicity. These CEOs made simplicity a mandatory, "hard" objective, which is the only way it can get any traction.

Sidebar:

The simplicity checklist

Ready to cut complexity out of your company? Use this list to craft your approach.

Make simplification a goal, not a virtue

• Include simplicity as a theme of the organisation's strategy

• Set specific targets for reducing complexity

• Create performance incentives that reward simplicity

Simplify the organisational structure

• Reduce levels and layers

• Increase spans of control

• Consolidate similar functions

Prune and simplify products and services

• Employ product portfolio strategy

• Eliminate, phase out, or sell low-value products

• Counter feature creep

Discipline business and governance process

• Create well-defined decision structures (councils, committees)

• Streamline operating processes (planning, budgeting, and so on)

• Involve employees at the grassroots level

Simplify personal patterns

• Counter communication overload

• Manage meeting time

• Facilitate collaboration across organisational boundaries

Sidebar:

What's your organisation's complexity quotient?

The quiz below can help you gauge your own organisation's complexity. If your score looks alarmingly high, start developing your own strategy of simplicity. If your score suggests that you have complexity under control, give yourself a pat on the back, but don't rest for long. The forces of complexity are constantly at work, and their effects could creep into your business at any time.

1. How easily can you draw a picture of your organisation's structure; the major business units, functions and geographies?

A. It's simple and straightforward

B. It takes a little explanation

C. I would need a computer-aided-design program

2. How many organisational layers are there between the CEO and first-line workers?

A. Seven or fewer

B. Eight to 10

C. More than 10

3. How many committees or councils do you have that either review or make significant business decisions?

A. Five or fewer

B. Six to 10

C. More than 10

4. How many products and services does your organisation offer?

A. A manageable number

B. A few more than we need

C. Way too many

5. If you could streamline your company's product or service lines without reducing profitability, how many stock keeping units (or equivalents) would you eliminate?

A. Just a few

B. About 15 per cent

C. About 25 per cent

6. How many months does it take for your organisation to create its budget for the next fiscal year?

A. Less than two months

B. Two to four months

C. A good part of the year

7. How long does it take for your finance department to officially 'close' the books at the end of each reporting period?

A. Less than a week

B. One to three weeks

C. Three weeks to forever

8. How many people do potential senior hires need to meet in your organisation before offers are extended?

A. Just a few

B. Four to eight

C. Almost everyone

9. To what extent can employees clearly and accurately describe the strategy of your firm?

A. Everyone can do it

B. Many can describe the strategy

C. Not too many can describe it well

10. To what extent do you retire old products or features when new products or features are introduced?

A. This is our regular practice

B. We do it some of the time

C. We rarely think about doing this

11. How much time do your senior managers spend in meetings?

A. Less than 25 per cent of their time

B. About half their time

C. Most of their time

12. If you personally were given the power to reorganise your company (or your part of it) and you had an incentive to improve productivity at the same time, what is the minimum number of people you would need compared with what you have now?

A. 100 per cent of the current head count

B. About 85 per cent of the current staff

C. 75 per cent or less of the current staff

13. Whenever you need to get approval for a capital expense or policy modification, how clear are you about how to make it happen?

A. I know exactly how to make it happen

B. I have a reasonable idea of what to do

C. I'm not really sure how to go about it

14. When a dispute arises between functions or departments, or with a customer, how quickly is it resolved?

A. Right away

B. Within a week

C. Seems as if it drags on forever

15. If the unnecessary complexity in your company were eliminated, how much of an increase in productivity might be possible?

A. None

B. Some

C. A great deal

Scoring: Give yourself one point for every A answer, two points for every B, and three points for every C, and total them up. Then see where you fall on the scale below.

15-25: Normal complexity: You're in good shape; maintain vigilance.

26-35: Creeping complexity: You're heading for trouble; start working on simplification.

36-45: Too much complexity: Your productivity is suffering; focus hard on simplification.

SIDEBAR 3

The hidden cause of complexity: You

Many managers are blind to the way their own actions unnecessarily increase complexity. Complexity-inducing behaviours can be hard to identify and to change, so it's a good idea to enlist the help of a trusted associate or an external coach who can provide a more objective perspective. Senior executives should also discuss their patterns of behaviour with their management team, not just to get their input and support, but also to model the process for their subordinates.

Micromanagement. Managers naturally want to feel in control and want to know what is going on in their organisations, but many insist upon an excessive level of detail, generating needless hours of work for their subordinates. At one consumer products company, the CEO held monthly operating reviews with senior leaders. When his successor dispensed with those meetings, it eliminated thousands of hours of work without compromising the corporation's ability to execute.

Ask: What review processes do you have in place? Do they focus on the right topics, at the right frequency? Can you simplify without reducing control?

Poor meeting management. Most people know the rules: Have a clear purpose for a meeting, carefully select the attendees, send out an agenda, require preparation, manage the interactions, watch the time, leave with clear decisions and spell out the next steps. Yet how many managers actually run meetings this way? In GlaxoSmithKline's pharmaceutical research organisation, for example, the creation of large, cross-functional drug development teams had spawned numerous meetings of teams and subteams; so many that some researchers were spending more time in meeting rooms than on project work. When Amber Salzman became head of development operations, she sponsored a "fit for purpose" initiative that required all team leaders to redesign their team memberships and their meetings and tailor them only to the issues required for that stage of drug development. That initiative saved thousands of hours of professional time and refocused many of the teams on what was most important for bringing their products to market.

Ask: How do you run meetings? Are all of them necessary? Can you apply meeting discipline more rigorously?

Unclear, redundant or conflicting assignments. In a perfect world, managers would give assignments that carefully spelled out the expected results, the timelines and which other people would be involved. In reality, many assignments are given with little context or specificity; "go study this," for instance, "get this started," or "work with so-and-so on this and get back to me." It's also not unusual for a manager to give similar or overlapping assignments to different people without telling them. When subordinates get unclear or contradicting directions, all too often they end up tripping over one another and wasting their time and energy.

Ask: Do you have people working on intersecting or overlapping assignments? Do you have mechanisms to identify, combine or coordinate such work?

Email etiquette. It might seem relatively insignificant or innocuous, but email overload is a serious source of organisational complexity. When you send large numbers of people a message that discusses issues many of them don't need to know about, you're just burdening your colleagues with low-value information that distracts them from important matters. A frequent culprit is the "reply all" button, which can create hundreds of emails, often about insignificant topics such as meeting schedules. Another source of complexity is the recirculation of documents in multiple drafts and redrafts. This creates extra work for the recipients, who must read and organise them, particularly if they must comply with document retention (and destruction) standards. Worse, recipients can become confused about which version is most current and make edits or comments on the wrong one, a waste of time and a source of potential errors.

Ask: Have you established protocols for email behaviour, electronic circulation of documents and retention of materials?

PowerPoint perfection. Presentations with charts and graphs have become the currency of decision making in many organisations. Well-done slides can focus the issues, present data quickly and clearly, and foster constructive dialogue, but presentations can overwhelm decision makers with data, arguments and entertainment. Creating long, overloaded decks has become an industry in itself, taught and reinforced in business schools, and outsourced by consulting firms and other companies to experts in India who crank out data-loaded templates on a 24x7 basis. The result in many cases is what managers refer to as "death by PowerPoint", presentations that are so long and complex that they bore their audience senseless. To counter this trend at Nortel, executive vice president Dennis Carey instituted the "one-minute drill" for presentations, forcing people to reduce their message to its essence, in slides that could be presented in only a minute.

Ask: To what extent has the "presentation culture" in your company obfuscated issues and slowed decision making? Have you created ways to reduce the size and complexity of presentations?

Harvard Business Review

The author, Ron Ashkenas is a managing partner of the Stamford, Conn., consulting firm Robert H. Schaffer and Associates.

Sidebar:

This article describes situations driving complexity that most people will find exist in some form in their organisations, together with practical examples of how companies have simplified their organisations with dramatic results, says Chris Barendregt, chief information officer of Fonterra Co-operative Group and a member of CIO magazine's editorial advisory board, on why he chose this feature from the Harvard Business Review.

"Complexity can and does hold back business innovation, create confusion and cause employee frustration," he says. "With increasing demands on business performance and tight labour markets, no company can afford unnecessary complexity slowing down their business and causing unnecessary pressure during the talent war."

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