A global bank knew it had to digitize, and fast, as it struggled to keep up with rising customer expectations and increasing competition, including new players from outside the financial services industry. To begin its digital transformation, the bank analyzed the customer and employee journeys. It first identified the steps in key end-to-end business processes that needed to be automated, and it even launched a pilot project for deep learning and robotic process automation.
The bank also pushed the digital team to conduct sprint meetings on key customer journeys, which resulted in 20,000 lines of new code and an implementation plan that called for a phased trial of new customer journeys, and after eight weeks, less than half of the phase was completed.
Why have efforts stalled despite the promises made by top leaders? The answer is complex. It extends to the entire organization, with symptoms including vague responsibilities, vague IT requirements and governance, unclear ownership of cost centers, and high management hurdles. These issues hinder the bank's ability to respond effectively to customer needs and competitor initiatives.
Equally important, additional research shows that companies that address complexity realize valuable bottom-line gains. In fact, when we compared the top quartile of organizations for simplicity to those at the bottom of the list, we found that the simpler the organization, the more likely it was to see 20% or more share price growth, higher revenue growth rates, and greater profit margins, with employees 3.5 times happier, 3 times more pride, and 2.5 times more likely to stay.
1. Where does complexity come from?
Complexity stems from what is done within a company, and it contrasts with complexity, which arises from external developments in the business environment beyond the organization's control. We define the complexity that companies implement to manage the escalating complexity of the external business environment as the number of organizational structures, processes, procedures, decision-making powers, metrics, scorecards, and committees increases. By taking these steps, businesses feel that they are proactively dealing with external complexity, but they are exacerbating its complexity. The resulting changes slow down reaction times and erode productivity. For example, if a company tries to address the problem of declining product quality by adding a dedicated organizational unit to monitor production, it may introduce more rules, governance mechanisms, and meetings. In other words, complexity is rooted in the context of the organization.
Excessive complexity can be found in one or more of the following eight areas:
Leadership, including how managers lead by example, follow rules and procedures, etc
The strategy and transformation agenda, including the overarching vision, the process for executing the plans, and the values for implementing those plans across the organization
Organizational structure, including management, reporting lines, and areas of control
Activities and roles, including the roles and responsibilities of the unit and employees
Processes, systems, and IT, including business processes and the rules and policies that support IT systems and infrastructure
Decision-making, including the hierarchy of decision-making power and the way decisions are promoted through the organization
Performance management, including processes, key performance indicators, and rewards
Person-to-person interactions, including employee development, career paths, engagement, and meeting culture, among others
Reducing complexity must start with a change in the leadership domain, which is linked to other areas.
When struggling with complexity, perceptions of leadership can hinder any effort. Most notably, many senior leaders don't realize just how complex their organizations really are. Our research shows that an organization's top management often perceives it as less complex than non-management employees think, and the reason for this difference in perception is that senior managers can often bypass the rules in order to "get things done", while junior employees are expected to follow all the rules.
When top management is not affected by the complexity of the organization, they do not support initiatives to deal with it. If senior leaders don't support efforts aimed at eliminating sources of complexity, the problem persists – and could even get worse.
2. Complexity and Culture
Digital transformation is more about culture than technology. Leaders generally recognize that technology is only one factor in a successful digital transformation, and that cultural change is just as important, if not more important. But too often, even if executives recognize the need for a culture change, that awareness will lead neither to a successful digital transformation nor to an effective change in organizational culture.
Why? In some cases, leaders inadvertently introduce more complex factors into the organizational structure as they seek to implement digital initiatives. For example, a leader might set up an independent, multidisciplinary team to work on various digital initiatives, but then the leader maintains the company's traditional reporting hierarchy, creating confusion about who reports to whom and who will handle which tasks. The layers of complexity have been increased because people now have to deal with both old and new structures.
In other cases, leaders of initiatives aimed at changing culture fall into the trap of trying to directly change behavior by telling people to change, and it is nearly impossible to influence minds, mindsets, values, and attitudes – and thus behaviors – simply through bold communication activities. Leaders will be more effective if they change the environment of their organization. By doing so, they can develop behaviors that create a new culture they desire.
3. Simplifying Digital Transformation: 4 Steps
Understanding the factors driving organizational complexity is critical to implementing a successful digital transformation, but it's not enough. Leaders must also take a disciplined approach to eradicate their root causes and prevent them from taking root again.
To do this, we have devised a four-step approach called Smart Simplicity. By deploying this approach, these companies have successfully removed the complexities that prevent them from bringing their digital vision to life and generated measurable business value. Let's take a look at each step in turn.
1. Have a smart start
To start wisely, businesses should identify the digital transformation issues that come with complexity. They should prioritize issues that take up a lot of resources, account for a significant portion of operational costs, hinder innovation, or cause delays in important business processes. These kinds of problems are causing measurable harm to businesses and will unlock the greatest value if they are addressed.
Next, companies should quantify the benefits of solving each problem. For example, if the organization shortens the average development cycle for a new mobile app, can it bring a product to market twice as fast?
Take a closer look at each module of the complex and identify the symptoms and level of complexity in each area. Consider benchmarking your organization's complexity against that of other organizations to establish a baseline for your company.
Ultimately, organizational leaders should agree on an answer to the question: "What's the biggest barrier to complexity in our digital transformation?" ”
2. The reasons behind the complexity of diagnosis
Identifying the root cause of organizational complexity requires analyzing the problem behavior of executives, managers, and employees, as well as identifying which aspects of the organizational environment are contributing to that behavior.
Use interviews with social organizations to get to the root causes of behavior. Despite the difficulties caused by such an act, there are reasons for its appearance; People have a motive to behave in a certain way. The interviews were particularly in-depth, responsive to individual feedback, and interactive. As a result, they are particularly valuable for creating a detailed understanding of the systems working in an organization.
Based on the results of these interviews and situational diagnostics, look for connections between the organization's context and people's problematic behaviors. These links will point to areas in the corporate environment that need to be simplified to eliminate these issues.
Here's an example: a company's IT staff can get bonuses and promotions if they can reduce their overall IT costs. With this incentive system in mind, employees would decline new requests for temporary IT resources from the business. As a result, business units began to build their own shadow IT teams to get the job done. While the behavior of IT staff and business unit employees makes sense to their respective organizations, it ultimately costs the business far more than team collaboration.
3. Process targeted solutions
Leaders should ask themselves, "How can we modify an organization's environment to reduce or eliminate sources of complexity and value-busting behaviors that hinder our digital transformation?" The answer lies in identifying new behaviors to encourage. Then consider what should be adjusted to foster these behaviors. Using the previous example, a company can eliminate problematic behavior by making IT and the business jointly responsible for reducing costs. This will align incentives for the organization to benefit the company as a whole.
Here are some additional examples of solutions that leaders can apply in each environmental domain to address complexity in their organizations:
Leadership. Hire, fire, and promote people in a way that rewards cooperation and transparency.
Strategy and Transformation Agenda. Translating the company's strategy into the necessary initiatives to ensure alignment.
Organizational structure. Remove unnecessary tiers and streamline top-down communication while empowering lower management.
Activities and roles: Eliminate duplicate activities to reduce work that doesn't add value and make it easier for the organization to navigate.
Processes, systems and IT. Eliminate switching between departments, improve end-to-end accountability, and streamline interactions between units.
Decision-making. Clarify the responsibilities of managers and committees to avoid escalating decision-making at multiple levels and promote collaboration.
Performance management: Introduce key performance indicators that foster collaboration to help managers encourage teamwork and ensure recognition for the employees they work with.
Relationships and interactions eliminate "silos", establish career management programs, and reduce the importance of personal relationships in promotion.
4. Execute the solution
After developing a solution, establish a Project Management Office (PMO) to prioritize the solutions that best leverage the company's competitive advantage and achieve strategic priorities. The PMO can create an implementation roadmap for each priority, drive the change process, and monitor progress.
Fourth, continue to digitally transform
This rigorous, four-step, intelligent simplification approach is at the heart of our approach to implementing and sustaining digital transformation and securing a competitive advantage, enabling leaders and the entire management team to better take ownership of change, stay engaged, and collaborate on action to successfully manage the change that comes with digital transformation initiatives. It promotes the desired behaviour by identifying the required interventions, and does so by providing transparency of priorities, project plans, and progress, as well as impediments and plans to remove them.
In the case of a global bank, management has built an integrated team of journey members, technical staff, and procedural experts using a smart streamlining approach. Tasked with continuously monitoring the progress of the project's implementation, resolving issues that arise between the project teams, and overcoming administrative hurdles that can hinder progress, the new team leads a focused effort with clear goals, a continuous improvement cycle, leadership support, and optimized business processes – ready for a more agile and sustainable implementation. To ensure this wasn't a one-time success, the team leveraged these lessons learned and the Intelligent Simplification framework to make change across the organization – and lay the groundwork for milestones in overall performance.
Digital initiatives – whether for a single process or a global transformation – are more prevalent than ever. But most organizations haven't addressed the complexities that led to the failure of these projects. Aim for complexity before embarking on your digital journey. By starting with the right mindset – simplifying first, then digitizing – companies can lay the foundation for a successful digital transformation.
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