The McKinsey Quarterly: Cracking the Complexity Code
- Executives should distinguish between two types of complexity—institutional and individual. The former concerns the number and nature of interactions within a company, the latter the way individual employees and managers experience and deal with complexity.
- Most businesspeople focus primarily on institutional complexity and thus fail to see that some forms of complexity, if managed well, can create value and do not have to generate excessive complexity at the individual level. Institutional complexity can enhance organizational resilience and enable companies to take on new strategic opportunities.
- Companies must get three things right to manage complexity for value: organizational design, coordinating processes and systems, and capability building. Each requires thinking about complexity at the individual level, though executives should always be alert to the possibility that a complete organizational redesign may be necessary.
This article contains the following exhibits:
- Exhibit 1: Most companies appear to focus exclusively on institutional complexity, while failing to address individual complexity.
- Exhibit 2: Companies with strong managerial capabilities can increase their complexity while still creating value.
- Exhibit 3: Companies can concentrate their complexity in different areas—each has its pros and cons.