Removing your organizational clutter
Like a house at the end of a long winter, most enterprises are full of clutter. While domestic mess may include outgrown clothing, broken sports equipment, and general dust and dirt, organizational clutter comes in the form of unprofitable products or services, redundant or duplicate processes, organizational structures and reporting lines that are no longer fit for purpose, KPIs that do not align with new strategic objectives, and/or objectives that are no longer relevant. All this clutter leads to complexity that gums up and slows down the organization. Complexity is a by- product of normal business operations, yet most companies tolerate far more of it than they should. In this article, we explore how to effectively deal with the complexity that lurks within your company. It is about clearing up the clutter, simplifying your organization and keeping it that way.
Complexity has a bad reputation, but it is not always damaging. Indeed, there are plenty of examples of good complexity. It is what makes you different and why your competitors have a hard time copying you. In academic terms, it is an isolating mechanism: it protects your source of competitive advantage from fast and easy imitation. This is complexity that you want to optimize. Bad complexity, on the other hand, destroys value and inhibits your ability to compete. If the response to good complexity is optimization, then the response to bad complexity should be elimination.
Let’s take a product example. In the early 2000s, LEGO was struggling. Fierce competition, a high cost base, and the substitution of plastic toys for video games among LEGO’s key 5 to 12-year-old boy demographic conspired to push the company into ever expanding losses. The company responded to these threats head on. Among other moves, it targeted new consumer segments with innovative product offerings, launched company- owned stores and expanded its theme parks. These moves helped to increase revenues, but the underlying complexity they created wreaked havoc with the bottom line. By 2003 the company was one quarter away from bankruptcy. The new CEO, Jørgen Vig Knudstorp, implemented a simplification agenda called “back to the brick,” which radically reduced product and process complexity. LEGO is now much simpler and more profitable than ever.
A structured approach to simplification
To help manage both good and bad complexity, we propose the SPRING Clean framework. Each letter of the word SPRING stands for a different step: Standardize, Prioritize, Rationalize, Institutionalize, Navigate and Govern. The first three steps – Standardize, Prioritize and Rationalize are tackled concurrently. Their objective is to remove bad complexity and optimize good complexity. This is the starting point of the simplicity journey.
The final three steps – Institutionalize, Navigate and Govern – are about keeping good complexity optimized and preventing bad complexity from returning. Just as the first three steps are about removing complexity, the last three are about maintaining simplicity. This is an important distinction. Removing complexity is nice, but staying simple is the source of long- term benefits.
The SPRING Clean framework will help build a mindset of simplicity that permeates your enterprise. It forms a simplicity lens through which to see the world, where decisions are assessed, at least in part, on their potential impact on organizational complexity. Rules, metrics and governing structures are developed to guide organizational decision-making to optimize good complexity and eliminate bad complexity, much in the same way that organizations today make decisions based on their effect on “customer orientation” or “shareholder value.”
The first step in building a simpler organization is to manage the existing complexity. Most companies operate amid a lot of clutter, and it can be difficult to ascertain what is valuable and what is not. Consider the famous Pareto Principle, sometimes referred to as the 80/20 rule, which states that a large percentage of “effects” arises from a small percentage of “causes.” For example, it has often been shown that 20% of customers account for 80% of profits, or that 20% of products account for 80% of sales. Many of the remaining customers or products (or systems or processes) not only do not add a lot of value, they destroy it. Thus, an organization could vastly increase its profits without any new investment, revenues or products by simply cutting out these value destroying elements.
However, the practical application of this policy is not straightforward. How can you know if something is too complex? And further, whether this complexity is good or bad? In order to attain a simpler form, we turn to the first three elements of the SPRING Clean framework: Standardization, Prioritization and Rationalization. The simultaneous examination of these three components is necessary to manage existing complexity.
Simplicity begins with doing the same things the same way. Doing the same things differently across an organization adds cost and inefficiency, leads to duplication and builds complexity. For these reasons, standardization is a critical piece of the simplicity puzzle. Organizations that have successfully simplified have managed to standardize many of their elements (for example, systems or processes) along the way.
Some elements need to be standardized while others need to be eliminated or rationalized. However, in order to know which is which, their effect on complexity must be assessed. This assessment results in a process of prioritization.
Simplification decision tree
Prioritizing can be done by asking two questions. First, does the element provide a point of competitive differentiation and second, does it need to be locally adapted. In Figure 1, we provide a simplification decision tree that examines the case for organizational processes. A similar decision tree can be constructed for other organizational elements, such as products, systems, suppliers or customers.