Gregory Kesler and Amy Kates
White paper, 2011
“Learning to make conflict productive is fundamental to getting things done in a global business.”
Organizational simplicity is great when the business is simple – when there are only a few products, serving a few markets. Leaders execute business plans, the corporate functions support them directly, and together they are a tightly-knit team. Lines of authority are clear and there is little need for dual-reporting lines, typical of a matrix organization.
In a complex, multi-divisional company, managing diverse products across the globe things get more complicated. Companies are under enormous pressure to extract as much value as possible from physical assets, people, brands and market reach scattered across the world. Harmony is the wrong goal. When there is no tension among businesses, functions and geographies there’s a good chance value is being left on the table somewhere.
Take Nike, marketing a core brand across a number of consumer categories with hundreds of footwear and apparel products all over the world. The voice of the global soccer consumer has made its way into Nike’s day-to-day decision making, and with record-shattering results. But the seasonal story line for the swoosh has to deliver for basketball, running, fitness and other consumer categories too, so the global soccer team has to line up behind a bigger marketing story. That’s only the beginning of the creative conflict. South Africa wants to go one way on footwear design profiles and color palette while The Netherlands, Brazil and Korea may argue for a different mix.
Simply put: to ignore any of these competing voices diminishes the potential of Nike’s powerful blend of brand, design and market reach. Nike executives simply cannot afford to keep things simple – to make the wrong compromises. Nike’s executive team is very intuitive about how to make money by working the complexity and the tension across the matrix in their organization.
Today’s complexity challenge
Organizations need to be as complex as the strategies they support. In the balanced matrix, power is shared equally between two reporting lines (such as geographic leadership and global product leadership). While this sharing of power through dual reporting produces more complexity, it is often the only way to make human and financial capital fully productive.
Conglomerates with powerful global business units, like GE, are adding more complexity to their organizations. It’s no longer enough for the separate businesses to act autonomously to make sales calls to the shared corporate customers, or to set up their own infrastructure in China and India. In 2011, regional executives in GE’s powerful divisions began to take on another reporting axis to corporate market executives who manage across product divisions to leverage infrastructure, build local relationships and manage key customers in 13 critical markets. That means another axis added to the matrix organization and it means tension. GE’s matrix is still not as complex as the structure of IBM or P&G. Both of these successful giants have mastered the complexity and turned it into an advantage for customers and shareholders.
The real nature of complexity
There are two types of complexity: One is strategic complexity, the necessary complexity to support a complex strategy, indicated by the number and nature of contact points among diverse teams and business units, dispersed around the world. Global Philips CEO, Frans van Houten, refers to this as “rewarded complexity.” The reward is in the management attention that is brought to many diverse sources of value, simultaneously – like customers, brands, products, emerging markets, shared services and other strategic choices.
The second kind of complexity (unrewarded, in van Houten’s lexicon) is experienced complexity, that which is experienced by employees as slowness to act and indecisiveness. From the customer’s perspective unrewarded complexity feels lke “these guys are difficult to do business with.”
Rewarded and unrewarded complexity should not be confused. Strategic complexity is often aimed specifically at making things simpler for customers. The powerful Walmart business units inside P&G, Unilever and many other companies create enormous complexity challenges for leadership inside these suppliers, but Walmart, the customer, is well served and greater value is delivered. This is a positive form of tension in the matrix. Often when organization models are made “simple” for leaders to manage customers are left frustrated – as in having to deal with multiple sales reps from several different product divisions of the same supplier.
On the other hand confusion and frustration are nearly always symptoms of organizations that have too many layers, fuzzy roles and decision rights, competing incentive systems and leaders who do a poor job managing across the boundaries.