Globalization, technology, and rapid change are creating a more complex world. Corporate leaders are operating in more markets than ever before. Their companies are generating and dealing with more data than ever. Social media are amplifying the effects of customer complaints and internal discussions, creating a greater need for open, honest, and multichannel communications. Executives are interacting with a widening array of stakeholders and addressing an expanding set of business, political, and social issues. Public leaders are facing analogous pressures.
Many organizations thrive amid this complexity. They sort signals from noise and focus on the opportunities that matter most.
Others stumble and struggle. They create an overabundance of committees, layers, key performance indicators, processes, and other internal mechanisms. This organizational mishmash fails to address the complexity they face in the outside world.
To understand the best approaches to addressing complexity, we kicked off our annual leadership series by interviewing four leaders of global companies and—to provide a social-sector perspective—a prime minister and the former head of one of the world's largest private foundations.
Anil Agarwal, the executive chairman of Vedanta Resources, a mining and metals company that he founded in 1976 and has expanded beyond India into Africa, Australia, and Ireland.
Jaspal Bindra, the group executive director of Standard Chartered Bank responsible for the Asia-Pacific region, putting him in charge of a diverse geography and complex business.
Alessandro Carlucci, the former CEO of Natura, a Brazilian cosmetics company with a direct sales force of 1.5 million and a commitment to maintain its entrepreneurial roots as it expands through South America and elsewhere.
Jeff Raikes, the former CEO of the Bill & Melinda Gates Foundation, whose success depends heavily on working with a diverse collection of private and public partners.
Najib Razak, the prime minister of Malaysia, a nation on the brink of graduating from developing to developed nation.
Martin Richenhagen, the CEO of AGCO, an agricultural-equipment maker created through multiple acquisitions and whose business is increasingly powered by software, data, and connectivity.
We selected several leaders based in emerging markets because they are accustomed to working in uncertain and unpredictable environments. They don’t necessarily face more complexity than leaders in mature markets, but they may have longer histories of addressing it.
Despite the differences in their backgrounds and organizations, these leaders describe several common characteristics that are effective in conquering complexity. Their organizations are operating at full strength. Their employees possess a deep and intuitive understanding of the strategy, common objectives, and vision—enabling each individual to know what to do and where to focus. They spend their time doing and leading rather than sitting in meetings. And their people are excited about coming to work because these leaders encourage experimentation, failure, initiative, and completion.
In short, rather than commanding and controlling, these leaders favor fluid decision-making. Rather than setting detailed strategies and goals, they impart a directional vision for their employees to follow. Rather than leading from the top through hierarchy, they institutionalize leadership throughout their organizations. In doing so, they embrace complexity rather than retreat from it or wish it away. (See “Complexity Versus Complicatedness.”)
Just because the world is becoming more complex, organization structures and processes do not need to follow suit. Our colleague, Yves Morieux, has spent most of his professional career studying how organizations respond to complexity. In his view, many organizations unnecessarily create internal complicatedness—procedures, vertical layers, interface structures, coordination bodies, and decision approvals—in response to external complexity.
The end result is that managers spend most of their time shuffling papers and attending meetings and very little time working with their teams. Rather than creating formal guidelines and processes, Morieux advocates smart simplicity, an environment in which employees can work with one another to develop creative solutions to complex challenges.
His approach incorporates a set of powerful principles called “simple rules.” These rules help managers mobilize their subordinates’ skills and intelligence. The idea is to make finding solutions to complex performance requirements far more attractive options than disengaging, ducking cooperation, or pointing fingers. One of the rules, “increase the need for reciprocity,” for example, expands the responsibilities of employees beyond activities over which they have direct control in order to foster cooperation and encourage people to resolve tradeoffs rather than avoid them.
The leaders interviewed for this series intuitively understand and are applying many of these simple rules.
Complexity can scatter and fragment an organization’s mission and sense of purpose. But adhering to an overall vision for a company—or, in the case of Malaysia, a country—in the face of complexity can concentrate effort on the essential rather than the optional. That vision becomes the North Star for navigating through complexity.
Malaysia, for example, is both a multiethnic, multicultural nation and one that is experiencing the effects of globalization. Early in his tenure as prime minister, Najib articulated a vision of “People First, Performance Now” that helps guide the nation’s policies on topics as varied as free trade and social programs. “We do not proceed with a policy or program that does not deliver on this philosophy,” Najib said. “It is very important that my cabinet ministers and the rest of government share the same vision and philosophy for the country.”
A vision also helps engage employees who might otherwise feel pulled in several directions. For example, Natura’s slogan—“bem estar bem,” or “well being well”—helps inform the company’s growth decisions. The company wants to grow but also retain the entrepreneurial and idealistic feel of its youth.
Managing complexity requires the full engagement of employees. It is too big a challenge to be managed at the top of the organization or by employees whose hearts and minds are elsewhere.
The goal, says Standard Chartered’s Bindra, is “having people who wake up and want to come to work because they don’t have to put up with the bureaucracy or the complexity that they have had in the past.”
In a fluid and fast-changing environment, the leaders we interviewed recognize that they cannot set strategy and control decision making as directly as they might have in the past. They are delegating duties downward so that the people closest to the market—closest to the complexity—can solve problems.
“It is really about leadership and not just at the top end of the company, but also leadership pretty far down,” Bindra said. “The firm must have the maturity to empower people—and that takes lots of courage.”
Simplification. Delayering is part of the solution to complexity. The six leaders all agreed that organization structure should resist rather than reflect the complexity in the outside world. They are trying to create an environment without structural and procedural “complicatedness”—one in which employees can exercise personal judgment. Standard Chartered, Natura, and the Malaysian government all are undergoing transformations in order to empower employees. “As you keep growing aggressively over the years, organizations can get quite complex,” Bindra said.
When Martin Richenhagen joined AGCO as CEO in 2004, the company had 26 brands. He reduced the number to four and decentralized operations so that local managers have the authority to make decisions. “We are very decentralized, and we try to have the units tailored in a way that they’re not too big and unit management is completely in control of running the unit,” Richenhagen said.
Agarwal built Vedanta Resources through acquisitions and determination. He is equally committed to keeping his organization from growing bureaucratic and sluggish. “I’ll keep my business very simple, trust people, and empower them,” Agarwal said. “I am not going to allow things to get complicated.”
Collaboration. AGCO, for example, is increasingly relying on networks that extend outside the company in order to address the growing expectations of farmers. As agricultural equipment becomes more sophisticated, the company works closely with dealers and suppliers so that its tractors and implements can communicate with other products. “[If you are a farmer, y]our dealer can communicate with you in order to tell you that you’re maybe running too fast or don’t have the right torque,” Richenhagen said.
Natura wants its customers to influence the development of future products and is investing heavily in technologies to make that happen. “We believe that we really can transform our business and become very close to the customer so the customer is only one click away,” Carlucci told BCG in an interview held before he left Natura in September of this year.
Networks of public officials and private-sector executives also have a crucial role to play in helping the public sector address complexity. “The government of the twenty-first century will need to be much more sensitive to what is happening around us and be able to respond quickly to the needs of the people as well as the private sector,” Najib said.
To ensure that the government is more responsive, Malaysia has created a transformation of civil service that is paying dividends. The country’s Ministry of International Trade and Industry, for example, has helped generate record levels of foreign direct investment in recent times.
This public-private collaboration is especially important as such issues as sustainability gain ground. In order to engage in sustainable mining practices, “we have to sit down together with government,” Agarwal said. “There is no question about the importance of sitting down across the table.”
The Gates Foundation tackles complex social issues by collaborating with a wide array of public and private organization. "We have what to some might seem like large financial resources, but relative to the scale of the problems that we’re taking on, they’re a small percentage of what is needed. So we have to think in a very catalytic, very leveraged way—engaging partners and getting aligned along outcomes," Raikes said.
Big Data. Ironically, the leaders cited big data as both a prime cause of complexity and a potential solution. By drawing inferences and interpreting probabilities from streams of data, executives can come to make sounder judgments. But ultimately they say that they still must make tough decisions on imperfect information.
“However much that you rely on data, nothing beats the power of conversations,” Bindra said. “People tell you more than they will ever write. When people look you in the eye, you get a gut reaction or at least a track record of belief or distrust.” In other words, people networks are as important as computer networks.
What specifically can leaders do to take advantage of these complex times? The following checklist summarizes actions that the leaders we interviewed are taking to win.
Firing on All Cylinders
- Senior leadership is a high-performance team in full agreement on—not just providing lip service to—the organization’s vision, values, and vital priorities.
- The leaders walk the corridors and streets, visit clients and operations, and develop an on-the-ground sense, or take a pulse check, of what is really happening.
- Leaders observe their teams’ behavior and create the right mindset in their employees by providing timely, accurate, and constructive feedback and by acting as a guardian of values and expected behaviors.
- Systematic programs are in place to reinforce vision, values, and priorities throughout the organization, ensuring that employees have a meaningful role in the design and structure of these initiatives.
- Expected behaviors are clearly expressed and understood across all levels of the organization.
- Mechanisms are in place across the organization to provide and capture feedback so that the employees on the front lines and middle managers have confidence that their voices are heard and they can make a difference.
- Compensation, career tracks, and rewards reflect an adherence to corporate values and culture.
- Organization structure is simple and lean in order to ensure accountability and remove redundancies.
- Employees who collaborate effectively across organizational boundaries and with outside stakeholders are recognized and rewarded appropriately.
- Middle managers act both as the conduit for market intelligence but also the translators of vision, values, and priorities.
- When scale effects are less relevant, processes provide guidelines but also allow for flexibility and adaptation.
- Technology tools and surveys capture market data and real-time feedback.
- Employees who combine big-data analytical skills with seasoned business judgment and pattern recognition are given the authority to promote change and rapid decision making.
- Customers and other outside stakeholders are a core part of the innovation process and build other platforms for collaboration.
- Different perspectives from within the organization are cultivated and captured to generate many options.
- Risk taking, experimentation, and even failure are encouraged by giving successful teams the authority to place small bets without undue approvals.
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