Growth equals complexity
As organisations grow revenues, headcount and related activity increase too. An organisation which grows headcount by 25% from 10,000 people in 2015 to 12,500 people in 2016 moves from having 18.5 million employee hours a year at its disposal to 23 million hours per year (assuming a 40 hour working week and standard holidays). Leaders signing pay cheques hope each additional hour is jam-packed with activity. More activity equals more profit.
Or does it?
Many of these activities will be crucial to the organisation’s growth and success. But a big portion of time will probably be spent unwisely. These hours often become lost irrevocably to managing internal complexity.
When it comes to organisational activity, the status quo prevails. How many times do you, or your people really question whether something needs to be done at all? Or whether there is a smarter, simpler, more efficient way? Usually, it’s much easier to accept history. It guides us to how things should be done. It’s a much safer bet. Few people get fired for blindly following norms or what the previous person did (assuming they didn’t get fired).
Truly simple organisations do not fall for this trap. They don’t accept that things can only be done the way they have always been. Smart organisations encourage employees to constructively challenge what is done and why. These organisations not only know that people are their greatest asset, they ensure they do everything they can to invest capacity where they can generate the biggest return. That is clearly not spending 28% of a week on internal emails1, or 40% in internal meetings2.
Clearly not every email or meeting is unnecessary. But too many organisations are awash with activity which is time consuming, value sapping and deeply frustrating. Sometimes simplifying isn’t enough. As management guru Peter Drucker observed: “There is surely nothing quite so useless as doing with great efficiency what should not be done at all”.
The case for stop
Two of the most lauded examples of organisational simplicity actually had ‘stop’ rather than ‘simplify’ as the keystone in their story.
When Steve Jobs returned to Apple in 1997, Wall Street described the business as finished. Apple was reeling in complexity from acquisitions and extensive product families. It was deemed the worst managed business in the industry and had lost its reputation for simplicity in the eyes of its customers. Jobs immediately instilled an obsession for two related disciplines: simplicity and focus.
Jobs went on a stop crusade across Apple. Apple had little choice but to stop and challenge the way things were done. One of the first things Jobs did was to dramatically stop R&D activity. In the first 12 months, 80% of projects were cut. The purpose? Generate time and an unwavering focus for the products which would define Apple. The iPad and the iMac were among those which survived and later flourished from additional capacity, energy and focus.
Apple also stopped large amounts of activity in its value chain. Manufacturing was outsourced to China. Jobs recognised that this could be done better there. As well as saving dollars, this allowed Apple to focus man hours on what it had to be great at: product design and marketing.
Apple’s results? Under Job’s leadership, Apple enjoyed a 42% average annual growth in market capitalisation. In 2011 it overtook Exxon Mobil to be world’s most valuable company. 10 years earlier, Apple was number 287 in S&P 500.
The second example is General Electric under Jack Welch. As a global conglomerate, some complexity was to be expected at GE. But Welch was clear: for any large organisation to be effective, it needed to be simple. Although simplifying the overall corporate structure of GE yielded some results, Welch felt GE needed to go further. He noticed that despite simpler structures, people in the businesses did not change behaviour. Leaders, managers and employees reverted back to old ways of working. Everyday activity did not change and complexity continued to prevail.
Welch launched an initiative called Workout, where managers came together in sharp workshops to remove specific complexity and bureaucracy in their businesses. Existing activity and ways of working were challenged and stopped. Simplicity, achieved through challenging the status quo, was engrained into the culture. Those who demonstrated this were rewarded. Those who did not paid the price. As a result, processes became leaner and decision-making quicker. People were spending their time on what mattered to GE and not satisfying endless reams of self-created internal bureaucracy.
GE’s results? When Welch arrived as CEO, GE was earning $26.8bn in revenues and had a market value of $14bn. When he left 20 years later, revenue had grown to $130bn and the firm was worth $410bn. The Workout was so successful it was copied by organisations such as General Motors, Sears and Home Depot.
Our own client experience has shown what is possible when organisations take the time and show the courage to stop. It’s often counter cultural to do less. But the results are there to see for those who are brave enough to do so. At a major airline we worked with, when the number of strategic projects were reduced from over 100 to less than 20, significantly more was achieved. And at two major retail clients, the total number of management reports were reduced by between 20% and 50% by simply asking management what data and insights were actually required, rather than what was assumed or had always been reported. Stopping the production of reports which were not read created significant capacity in both organisations for activities which were far more valuable.
Back to the relationship between growth and complexity. Bain & Co. found that companies with the lowest levels of complexity grow 30% to 50% faster than their average competitors3.
It might sound overly simple. But at the very heart of simplicity is stop.
1 McKinsey Global Institute, 2012
2 Bain & Co., Busy CEOs spend nearly one day each week managing communications, two days in meetings, 2014
3 Bain & Co., Operational performance improvement in industrial companies, 2015