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On Organizational Complexity

Most entrepreneurs are all too familiar with the challenges involved in growing their business, especially if they manage to go past the stage of running a small "lifestyle business." When you are starting a company, you are typically a “one man show” or have a few colleagues with whom you are well acquainted. Your company is small and nimble – and in many ways, quite effective. The trouble is that as you grow, the demands on your time and that of your team multiply. You are now faced with a challenge to hire additional employees and start to delegate tasks to others. The added hierarchy, structure and process often means more complexity which may in turn impair organizational functioning.

The very definition of growth is expanding the business by increased use of resources which typically includes hiring people who add the skills needed by the business. By hiring specialists, you can concentrate on aspects of the business where you can add the most value. The founder’s role may indeed change from working in the business to working on the business. Delegating tasks involved in the day-to-day running of the business (the in the business) frees up time to plan, set strategic goals and thinking about the future (the on the business).

Indeed, each stage of a business' life cycle (such as designing an effective business model, hiring and managing talent; the evolving role of the founder and the company's culture as the business grows, sources of financing) has its own challenges and may have negative repercussions if not thought through carefully. Moving from a flat management structure, with limited hierarchical levels and consensus-based decision-making, to a more complex organization may create what Stanford Professor Bob Sutton calls "organizational overload". Otherwise referred to as “cognitive overload” the basic idea is that more managerial layers, more complexity and more “red tape” may slow the business down and may render it dysfunctional.

Professor Sutton advocates “disciplined subtraction” which focuses on a few key activities, trying to keep things as simple as possible. In Scaling Up Excellence (co-authored with Huggy Rao) they note:

Skilled leaders wield their power to eliminate needless friction and complexity — not to burden employees with “rules, tools, and fools” that make it tougher to do their jobs and that waste money and talent.

We can all relate to the challenge of turning the “problem of more” into a "problem of better.” Of course, context matters but here are some ideas which may work across the board:

  • minimize the number of approvals required for proposed actions

  • reduce the number of internal meetings

  • simplify or eliminate performance appraisals (replacing them with regular feedback sessions or "one2ones")

  • keep strategic goals to not more than five.

The resultant nimbleness that comes from shorter decision-making channels, more flexibility and freedom of action, can keep a company humming along as if it was still run like an early start-up. The sophistication that comes from introducing enhanced operational, planning and control systems always needs to be set off against the need for simplicity. A difficult balancing act but a very necessary one.

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