of 17 /17
Mastering disruption, Embracing complexity White Paper

Mastering disruption, embracing complexity

Embed Size (px)

DESCRIPTION

Complexity cannot be reduced; it is a natural phenomenon. Consequently, instead of fighting complexity, organizations should embrace it. Building on the Be Informed white paper “Embrace complexity, simplify your organization”, this white paper explains how organizations should embrace three important aspects of complexity: dynamic complexity, social complexity and emerging complexity. It also outlines what may happen with organizations that fail to do so. Co-authored by JW Ebbige and F. Buytendijk.

Citation preview

Page 1: Mastering disruption, embracing complexity

Mastering disruption,

Embracing complexity

White Paper

Page 2: Mastering disruption, embracing complexity

1

Mastering disruption, Embracing complexity

Executive summary

Complexity cannot be reduced; it is a natural phenomenon. Consequently,

instead of fighting complexity, organizations should embrace it. This, in short, is

Be Informed’s view.

Building on the Be Informed white paper “Embrace complexity, simplify your

organization”,1 this white paper explains how organizations should embrace

three important aspects of complexity: dynamic complexity, social complexity

and emerging complexity. It also outlines what may happen with organizations

that fail to do so.

Not all organizations are the same, and the Be Informed impact assessment test

will help you establish which aspects of complexity are most relevant for your

organization.

The Be Informed business process platform, and the available solutions for

financial services and the public sector, helps organizations to turn the

complexity of their business into a competitive advantage or effective and

efficient execution of public policy.

1 www.beinformed.com, “white papers”

Page 3: Mastering disruption, embracing complexity

2

Mastering disruption, Embracing complexity

Introduction

The rapid escalation of complexity is the number one challenge CEOs are facing,

according to a recent study by IBM’s Institute for Business Value2. Furthermore,

an overwhelming majority of respondents expect that complexity will continue to

grow, while less than half feel their organization is equipped to deal with it.

The logical reaction for organizations is to try to reduce complexity. However, as

a natural phenomenon, complexity cannot be reduced. And as the cliché goes

“the world is getting more complex in an ever-increasing pace”. In fact, trying to

reduce complexity is a dangerous and often even counterproductive approach. It

leads to oversimplified processes, systems and controls that are disconnected

from reality. Lethal in any public or private organization.

This seems to contradict what Einstein said, and what has become a well-

established business best practice: “Everything should be made as simple as

possible, but not simpler.” But there is a difference between what makes the

world complex and what makes it

complicated. Complicatedness is a human

concept. It encompasses all the systems,

processes and exceptions organizations have

created. Over the years, companies have built

complicated systems and processes, but this has rarely given them greater

control. On the contrary: complicatedness leads to less control, inefficient

operations and a growing distance from the customer.

A competitive advantage in the private sector or sustainable government in the

public sector can be achieved through a different competence: embracing

complexity.3

If an organization understands what complexity really means, by tackling this

phenomenon they turn an organizational risk into an organizational asset. After

all, if you can adapt to the changing needs in the market quicker than the

competition, or even better, drive the changes yourself, you can achieve a

competitive advantage in business, or – as a public sector organization – a better

service proposition to citizens.

2 www-935.ibm.com/services/us/ceo/ceostudy2010/

3 Also see “Embrace Complexity, Simplify Your Organization”,

www.beinformed.com, 2011

“Trying to reduce complexity is a

dangerous approach.”

Page 4: Mastering disruption, embracing complexity

3

Mastering disruption, Embracing complexity

The three types of complexity

Not all complexity is the same. In fact, complexity is multifaceted. Some aspects

simply cannot be described on a single piece of paper, while others have too

many moving parts to keep up with, or need to function in a void where there

are no rules or the rules are unclear.

Depth/breadth

Change

Uncertainty

Mass customization

Componentization

Regulation

Continuous

transformation

Blue ocean

Black swans

Co-creation

Value networks

Sourcing

Stakeholders

Dynamic complexity

Social complexity

Emerging complexity

Figure 1: Aspects of complexity

Focusing on business operations, including strategies, processes, policies, product

and service structures, regulations and so forth, three aspects of complexity

stand out:

Dynamic complexity can describe matters in both depth and breadth.

When a subject requires extensive explanation, it is complex in terms of

depth. When a subject is multifaceted, it is complexity in terms of

breadth. Moreover, the rules change continuously, which makes it hard

to keep up with reality.

Social complexity arises when there are many interactions with a fast-

changing environment. For instance, business operations usually involve

multiple stakeholders, each having different and sometimes conflicting

requirements.

Emerging complexity is characterized by disruptive change and the

uncertainty that these disruptions create. Organizations which are unable

to deal with the risk of uncertainty risk being outperformed by new

entrants and existing competitors.

Page 5: Mastering disruption, embracing complexity

4

Mastering disruption, Embracing complexity

Why today’s best practices no longer work

Today’s business jargon is dominated by terms such as co-creation, mass

customization, value networks, smart sourcing, collaboration, connectivity,

continuous transformation, uncertainty management and so forth. They are all

consequences of a more fundamental shift that has taken place, from a

manufacturing paradigm that was dominated by transactions, to a services,

information and combination economy based on interactions.

It seems that most trends in business operations affect the aspects of complexity

directly. Unfortunately, the way we structure our organizations, the controls we

have put in place, the best practices we use, and the processes we have designed

often do not reflect that new reality.

Page 6: Mastering disruption, embracing complexity

5

Mastering disruption, Embracing complexity

Dynamic complexity

Some topics are simply complex in nature, and cannot be explained on a single

sheet of paper. Insurance premiums and pension plans are based on complex

actuarial calculations. Government grants and subsidies depend on many

regulations. Airline pricing and seating is a continuous and dynamic planning

process.

In general, the way organizations interact with their customers has changed. In

the public sector, treating citizens fairly used to mean treating everyone equally.

Now it means taking everyone’s personal circumstances into account. In business,

there are often countless ways to

configure a product or a service. In

the 1980s, Volkswagen was already

able to offer 15.7 million different combinations for a Volkswagen Golf, instead

of just a few standard configurations and a handful of colors. This principle, now

common practice in business and the public sector, is called mass customization.

In short, every transaction and interaction is different.

Business processes, and operations in general, become complex when they

consist of many elements, many combinations of elements, and many different

types of relations between elements. A further complicating factor is that all

these business components often interact with others, and have cause-and-effect

relationships. This makes the complexity of business even more dynamic. Lack of

insight and oversight with respect to the components and their

interdependencies leads to loss of control and organizational inertia. Consider

the following examples:

Hospitals have a large catalogue of procedures and treatments. Many

have dependencies. Some can be combined, others cannot. They can also

be subject to preconditions. For instance, some procedures require an

empty stomach, whereas others require the opposite. This raises the

question of how every single combination of steps can be defined.

A pension plan has many elements. There are multiple risk profiles,

various other pension plans from previous employers may be

incorporated, the output can be fixed or variable, and so forth. As a

result, every single pension plan can have different components and

results. However, the configuration needs to be transparent.

Consequently, the result needs to be explained to a consumer in a

personal, yet repeatable and structured manner.

Tax systems are generally subject to many different complex sets of

rules. There is an endless list of combinations of income, deductibles,

assets and other factors that determine the amount of tax that needs to

be paid or returned. As a result, the question is how taxpayers can be

guided seamlessly through a complex tax-return process in a manner that

optimizes their rights and, at the same time, maximizes the tax income

for the authorities.

“Every interaction is different.”

Page 7: Mastering disruption, embracing complexity

6

Mastering disruption, Embracing complexity

What happens if you do not embrace dynamic complexity?

Every trend has a countertrend. Some organizations have created a value

proposition by simply ruling out dynamic complexity and offering one or just a

few variations on a product or service. Take budget airlines, without pre-seating,

or straightforward call plans offered by telecoms. This is a perfectly valid

strategy. Still, as margins continue to erode, it is hard to compete on price

alone. Organizations adopting a different strategy have no choice but to embrace

dynamic complexity. If they do not, their processes and systems will simply not

be capable of handling the variety of customer requirements. Or even worse, as

these systems were only built to deal with a predetermined world, these

organizations will not even notice the customers’ attempts to interact with

them.

Page 8: Mastering disruption, embracing complexity

7

Mastering disruption, Embracing complexity

Social complexity

In addition to dynamic complexity, social complexity arises in interaction with

the environment. Particularly in the interaction economy, many stakeholders are

involved, each having their own requirements and expectations. Shareholders

have a different view from employees on the business, and their requirements

may very well be at odds with each other, proposing almost opposed paths of

optimization. Different customer segments can also have very different

requirements. Moreover, sometimes even a single person may have conflicting

requirements, for instance as a citizen demanding businesses to be green, and as

a consumer demanding cheap products and driving an SUV. Social complexity is

even more prevalent when stakeholders not only have different requirements,

but also their own values and belief systems. Social complexity often goes hand

in hand with dynamic complexity, with the requirements changing all the time.

Business trends underlying social complexity include globalization and sourcing

practices leading to value networks and increased market transparency.

Stakeholder

requirements

Business

objectives

Market trends

Regulatory requirements

Figure 2: Reconciling different forces

Consider the following examples:

Transportation insurance can be dauntingly complex, as insurance

premiums and cover are determined based on the cargo, destination,

point of departure, type of transportation and so forth. One extreme

example is supertanker transportation. Supertankers often change

ownership (and associated stakeholders) multiple times during their trips

overseas, and changes in destination are not uncommon. Every time

there is a change, regulatory requirements can be different based on

ownership and destination. The question is therefore how to administer

such a volatile environment in a transparent and secure way.

Immigration services deal with tens of thousands of rules, based on a

country’s internal politics, treaties between countries, and supranational

regulations such as those of the EU. At the same time, changes occur all

the time. One immigration service estimates it has over fifty major policy

Page 9: Mastering disruption, embracing complexity

8

Mastering disruption, Embracing complexity

changes per year to deal with. This raises the question of how that level

of change can be kept up with, without loss of transparency.

Infrastructure projects, ranging from private infrastructure projects such

home renovation, to complex public infrastructure projects such as the

construction of railways or highways, are subject to infrastructural and

environmental permits. Complex public infrastructure projects can be

subject to thousands of different permits, some of which can be in

conflict with one another. Even after permits have been granted, reality

may change. During implementation of the project, archaeological or

environmental discoveries may be made, leading to re-evaluation of

permits. This presents the challenge of managing this dynamic process

without endangering the deadlines, whilst also respecting the interests of

all of the stakeholders.

What happens if you do not embrace social complexity?

By its very nature, social complexity cannot be reduced. Furthermore, the

complexity arises outside of most organizations’ circle of control or even

influence. Being able to reconcile different requirements is the key to social

complexity. Rigid organizations that are only optimized to deal with single

stakeholder requirements, such as efficiency within the organization itself, or are

overly focused on shareholders, may suffer from diminishing responsiveness.

They may also miss strategic opportunities, risk non-compliance, have a long

backlog of required changes, and a very high cost of change or transformation in

their operations.

Page 10: Mastering disruption, embracing complexity

9

Mastering disruption, Embracing complexity

Emerging complexity

Sometimes the rules do not change, but are simply absent. They need to be

made up on the spot. This is the world of emerging complexity. Emerging

complexity is characterized by disruptive change and the uncertainty that these

disruptions create.

It may be the case that these disruptions come as a surprise, because of sudden

changes in economy, technology or politics. For instance, the corporate scandals

led to new legislation, creating entire new levels of complexity for businesses

and governments around the world. Disruptive

technologies have created emerging complexity

for years in the world of IT. Changing paradigms

are almost the only constant there. And the

credit crunch created emerging complexity for

many businesses, almost overnight. These

sudden changes in the market are sometimes referred to as black swans – things

you never knew were possible, until you suddenly encounter them.

In some cases, organizations drive these disruptions themselves, for instance by

means of a new business model or invention which allows them to create new

market space for themselves. As a result, there are no established competitors,

no clear customer requirements, no best practices and no rules. They write the

rules and redefine the very logic of competition as they go along. These new

business models are called blue ocean strategies. In blue oceans, demand is

created rather than fought over. There is ample opportunity for rapid, profitable

growth.

Consider the following examples:

A minister is considering a major change in policy, which will affect many

citizens in a financial sense. As the new law has many components

(dynamic complexity) and there are many influencing factors (social

complexity), it is hard to predict what the exact outcome is going to be

(emerging complexity) on a microlevel, and how constituents will value

the impact on their life. The question is how the right simulations should

be run, so that the minister can communicate the new policy with

confidence.

Many internet businesses have had to invent their own business models,

and are still doing so. One best practice popularized in this industry is to

run multiple versions of a business process next to each other,

benchmarking them for operational business results. The best-scoring

business process is implemented and a new round of experiments starts.

As a result, the key issue is how multiple versions of business processes

can be managed and control in parallel.

Strategy formulation, or policy-making in the public sector is often still a

very analytical exercise. However, there is not much to analyze in an

environment full of emerging complexity. The question is, therefore, how

the walls between strategy formulation and execution can be broken

down to make strategy or policy-making a continuous process.

“The question is how to

make strategy a

continuous process.”

Page 11: Mastering disruption, embracing complexity

10

Mastering disruption, Embracing complexity

What happens if you do not embrace emerging complexity?

Survival in non-blue ocean markets is perfectly possible, provided that the rules,

although dynamic, are clear. However, survival is not possible without the ability

to absorb black swans. Organizations need to build their capability to

reformulate strategy and adapt almost instantly, both in their management

processes and in their business operations. Resilience is the minimum

requirement for survival.

Page 12: Mastering disruption, embracing complexity

11

Mastering disruption, Embracing complexity

Impact Assessment: Take the test

The examples of dynamic, social and emerging complexity do show that

mastering disruption and embracing complexity is part of every facet of business

operations, from interacting with customers and other parties and taking the

right operational decisions, to dealing with a wide variety of business events and

managing organizational assets such as information, capacity and resources. In

fact, these four perspectives – smart interaction, smart decisions, smart events

and smart assets – form the core of every set of business processes.

Smart decisions Smart interaction

collect classify profile action plan

• Inbox• Converters

• Classify events • Risk profiling • Action plan

Smart events

1 j uli 2009 26

Smart assets

Monitor Maintain Action plan

• Events• Plans

• Requests

• Formulierenü alleen relevante

vragen stellen,

ü voorinvullen,

ü kennisinstrumenten

• Action planü Documents

Asset usage

Smart assets

Figure 3: Core of every set of business processes

In determining whether you are able to embrace all aspects of complexity, it

helps to benchmark your operations using these four perspectives: (I) interaction,

(D) decisions, (E) events and (A) assets. Answer the following questions to assess

your own organization. The more questions you answer with “yes”, the higher

the complexity in and around your organization.

Dynamic complexity

(I) Our customers find it hard to understand our products, rules and

operational decisions. Our communication to stakeholders often consists

of explaining these to them. Yes or no?

(D) Seniority in our organization is based on a person’s ability to quickly

judge complex situations and make the right decisions. Yes or no?

(E) There are a wide variety of business events, such as customer

requests, that we need to process. Yes or no?

(A) It takes considerable effort to keep all product and service

components aligned across all parts of our organization, to remain

Page 13: Mastering disruption, embracing complexity

12

Mastering disruption, Embracing complexity

coherent and consistent and provide insight and oversight at will. Yes or

no?

Social complexity

(I) Our interaction with stakeholders is often about changing regulations,

new products and services, special requests from customers and other

changes in and around our organization. Yes or no?

(D) Nothing is certain until it is certain. Operational decisions are often

re-evaluated because of new information. Yes or no?

(E) It is hard to predict which business events, such as customer requests,

we can expect, and often events are just different than before. Yes or

no?

(A) The information in our databases becomes outdated very quickly; we

need to come up with new products and services all the time, and/or our

people often need to learn new skills. Yes or no?

Emerging complexity

(I) Communication can be a dangerous activity. New circumstances can

easily place recent communications in a negative light, so we put a limit

on our level of transparency. Yes or no?

(D) We make decisions under a high level of uncertainty; it is hard to

predict a return on investment or impact on anything else longer than six

months in advance. Yes or no?

(E) We need to take a very volatile market into account. Demand may

increase or drop based on partially uncontrollable circumstances. Yes or

no?

(A) We outsource as much as we can, to keep our asset base as lean and

mean as possible, and to make sure we can reallocate investments when

needed. Yes or no?

Page 14: Mastering disruption, embracing complexity

13

Mastering disruption, Embracing complexity

Embrace complexity with Be Informed

Be Informed is a general-purpose business process platform, built to support

complex administrative and often less-structured processes that require a

knowledge-intensive approach. Analyst firm Forrester calls this style of process

management dynamic case management. Forrester estimates the market for

solutions that address less-structured, knowledge-intensive processes to be three

to four times larger than the traditional business process management market.

Be Informed’s solutions contain all the elements necessary to support business

processes end to end, and manage all the interactions, decisions, events and

assets involved. Moreover, Be Informed’s solutions contain all the necessary logic

for specific processes in financial services and the public sector.

With the Be Informed business process platform, organizations can embrace

complexity in and around their organization, whether it is dynamic, social or

emerging.

Dynamic complexity

Be Informed recognizes that it is often no longer possible to describe every single

combination of process steps. There are often simply billions of combinations,

and how they interact is changing all the time. Be Informed has found a very

simple solution to the problem: do not put the process in the center, but

concentrate on the case. A case consists of all the work that needs to be done to

achieve a certain result for a customer, for example, or an object such as a

building. Be Informed is goal-oriented and it continuously shows which activities

are needed in order to complete the case and nothing else. There is no

predetermined sequence or set of activities that needs to be completed – there

are no unnecessary steps. Be Informed does not distinguish between straight-

through processes and manual processes. Cases are handled straight-through

where possible, and manually where necessary.

Social complexity

One of the most important design principles of Be Informed is to separate “the

know” from “the flow”. The “know” consists of all the business rules and pre and

postconditions that may govern the activities. This is already enough for the

engine to execute transactions in a straight-through manner, or generate the

necessary user interaction for manual completion of the case. The “flow”, which

consists of all the logic for managing, for instance, all the interactions, decisions,

events and assets involved is built into the product. This means that IT can

concentrate on the flow, ensuring scalability, performance and manageability of

the business process platform, while the business users are responsible for

maintaining the business rules themselves. Any changing stakeholder

requirement, including regulatory compliance, in business rules can be handled

by the business users themselves, and does not require IT assistance. Changes in

business rules immediately affect the business process. The model of business

Page 15: Mastering disruption, embracing complexity

14

Mastering disruption, Embracing complexity

rules and activities actually equals the application, and also equals the

documentation.

Emerging complexity

If cases cannot be completed straight-through, and manual completion is not

possible, the workplace can be invoked. The workplace contains all the

functionality necessary to allow knowledge workers or analysts to collaborate on

new business rules or resolve conflicting business rules. Changes in business rules

can be simulated, and tested before they are put into practice. Figure 4 provides

an overview.

Search in dossiers, knowledge bases, government records, catalogues etc.

Case based notifications

Impact analysis & simulation

Publishing in variants & by

multiple channels

Laws and Regulations

Time Lines & history trail

Monitoring & reporting

Task & time management

Task specific editors

Authorisation

Knowledge base

Xpedia for professionals with definitions, notions, persons

Team repository

Taxonomies Wizards/checklist/e-forms

Case

Figure 4: Workplace

Page 16: Mastering disruption, embracing complexity

15

Mastering disruption, Embracing complexity

About Be Informed

Be Informed is an internationally operating, independent software vendor. The

Be Informed business process platform supports administrative processes, which

are becoming increasingly knowledge-intensive. Thanks to Be Informed’s unique

approach to dynamic case management, the next wave after business process

management, organizations using Be Informed often report cost savings of tens of

percents. Further benefits include a much higher straight-through processing rate

leading to vastly improved productivity, and a reduction in time-to-change from

months to days.

Authors: Thei Geurts, Jan Willem Ebbinge, Frank Buytendijk

Page 17: Mastering disruption, embracing complexity

Be Informed

Wapenrustlaan 11-31

7321 DL Apeldoorn

The Netherlands

T +31 (0)55 - 368 14 20

E [email protected]

www.beinformed.com

[Type a quote from the

document or the summary of an

interesting point. You can

position the text box anywhere

in the document. Use the Text

Box Tools tab to change the

formatting of the pull quote

text box.]