compexityATD’s Senior Leaders and Executives Community of Practice interviewed Yves Morieux, senior partner and managing director in Boston Consulting Group's Washington D.C. office. Morieux is the originator of Smart Simplicity®, BCG's new approach to help corporations manage complexity for competitive advantage. He has contributed to the development of organization theory relating to the behavioral and structural conditions for economic value creation and competitive advantage. 

Q: How does corporate complexity prevent companies from innovating? 

A: We must not confuse complexity and complicatedness. By complexity, we mean the various performance requirements that a company needs to satisfy in order to attract and retain customers, to build advantage, and profitable growth. Some examples include global consistency and local responsiveness, innovation and efficiency, speed and reliability, customization and standardization. The main factors that drive this growing complexity are external: competition, technological advances, and evolution of trade barriers. In summary, companies have to solve more demanding, more "complex" problems than 60 years ago. Based on our analysis, this complexity has been multiplied by six over the last 60 years. 

By complicatedness, we mean the organizational solutions companies typically use to try to respond to this complexity: a proliferation of cumbersome structures, interfaces, coordination bodies and committees, procedures, rules, metrics, key performance indicators, and scorecards. Based on our analysis, this complicatedness has been multiplied by 35! It is not complexity that prevents companies from innovating, but the internal complicatedness. This complicatedness creates obstacles to productivity and innovation. People lose direction and purpose in the labyrinth. People cannot cooperate and work in silos, because in silos they cannot build on each other's knowledge. Innovation is not an individual achievement; it is a collective effort. 

Q: How do the hierarchies of organizations prevent them from being cooperative and transparent? 

A: We need hierarchies. The flat organization is a fantasy. Power is inherent to organized action, and hierarchies are ways to channel power in a productive way. The problem with hierarchies occurs when they work in silos, and when there are too many hierarchical layers. Silo behaviors hinder synergies, economies of scale, standardization, cross-functional efficiency, and speed to market. An organization whose vertical interactions are obstructed by too many hierarchical layers will never be able to detect opportunities sufficiently quickly, because decision makers are far from operations and the business reality. 

The less cooperation there is, the more companies add coordination layers, so there is a vicious cycle. The coordination layers try to control what people do by adding rules and measurement, which further deter cooperation. Cooperation cannot be measured; when people cooperate you cannot break down the production function into a sum of separate contributions. What gets measured gets done, yes, but at the expense of what cannot get measured – cooperation! So we end up with well-performing silos and underperforming organizations. 

Q: How can companies reduce internal complexity and counterproductive proliferation of cumbersome structure, processes, and systems? 

A: Companies cannot reduce complexity. They have to face it, because the environment drives it. The real issue is internal complicatedness. This complicatedness hinders productivity and innovation, while demotivating people and making them suffer at work. They have to work harder and harder, longer and longer, but on less and less value-adding activities. This is why removing complicatedness simultaneously increases performance and satisfaction at work: because you remove the obstacles that hinder both.

The basis of competitive advantage is to manage the new business complexity without getting complicated. In my book, Smart Simplicity, I have proposed six guidelines for this. The purpose of these guidelines is to create what I call Smart Simplicity, a way of working that better uses people's intelligence: their adaptiveness, judgment, initiative, and energy. The only way to better deal with the new complexity of business is to create organizations that better leverage people's intelligence at work. This may sound trivial, but it is not. 

Q: Why is it important to avoid internal monopolies? How can learning executives help with this? 

A: Avoiding internal monopolies is part of one of the six principles of Smart Simplicity. As soon as you have a monopoly, be it external or internal, you get bureaucracy. A monopoly organizes around its own constraints, not around its mission in the service of the various stakeholders such as customers, shareholders, and colleagues. Because other stakeholders have no choice, the monopoly can avoid cooperation and externalizes the consequences onto others. 

This is why a company, so eminently customer centric as L'Oréal, refused to have a proper marketing department. So that no function could have the monopoly of deciding what is good for customers. Marketing decisions used to be made in the "confrontation room", between sales, research, communication, and manufacturing. They had to cooperate in a way that made customer satisfaction prevail. 

Q: Explain why the first Simple Rule, "Understand what people really do at work,” is vital for organizational strength. 

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A: The first thing to do to improve performance is to understand what people really do in the workplace: how their actions, decisions, and interactions (their "behaviors") impact performance. Performance is what it is because people do what they do. This is why understanding behaviors is so important. 

Very often managers understand the structures, the processes, and the systems. But this is not what people do; it is what people are supposed to do. Because we don't really understand what people do, we create solutions; new structures, processes, systems, incentives, training, and communication that don't address the root causes. We don't solve the problem, and we add more complicatedness. This is why the first principle of Smart Simplicity is "Understand what people really do at work." 

When you understand what people really do, how their combined behaviors shape performance, you can come with the minimal sufficient organization. You can select structures, processes and systems in full knowledge of their impact on behaviors, thus performance. You end up with fewer structures, processes and systems, and the right ones. It is simpler and smarter. 

Q: How can HR practices practically apply your beliefs and theory on cooperation and engagement on an organizational development and business culture level?

A: The principles of Smart Simplicity have several practical implications for HR practices. The main one is that managers—both HR managers and line managers—start to focus on the context that shapes behaviors instead of personality traits or "mindsets." If people do what they do. It is because this is the best, or least bad, solution they have found to deal with their day-to-day problems, given their resources and constraints. This is what I call the context. 

We may not like what our people do, but instead of blaming their personality, we should blame the context. This context results from multiple choices about structures, processes, and systems. Leaders usually don't understand how these choices, made here and there, year after year, shape the context, thus behaviors. To blame people's personality just adds injustice to ineffectiveness. 

Other practical implications relate to key performance indicators (KPIs). You must never use more than seven KPIs to assess somebody's performance. They should not all be quantitative, some must also be qualitative—not about the “what” (productivity, speed), but about the “how.” How did you achieve that productivity? Was it by cooperating or by not cooperating with others? Because cooperation cannot be measured, you need judgment based on qualitative criteria. This explains why some companies stop with the annual evaluation process. This judgment requires a frequency of feedback much more continuous than once a year. 

Another practical implication is creating career paths that will expose people to the consequences of their actions. For example, making design engineers in an automotive company move to the after-sales network and become in charge of the warranty budget three years later when their new car is launched on the market. They know that if the warranty budget explodes, because the car they designed is too expensive to repair, it will explode in their face. So they cooperate with the after sales people in designing the car, taking into account their constraints and reparability. 

Instead of this, the complicated solution is too often to create a reparability manager, with a reparability process, reparability metrics, reparability incentives, and reparability evaluation. These come on top of other KPIs (cost, safety, noise, petrol consumption, etc.) with a very diluted effect, on behaviors, while adding complicatedness. 

Q: How can learning executives help drive such practical implementation through their leadership roles? 

A: Executives must stop directly jumping from performance issues to new structures, processes, or systems. For example they must stop thinking, "We need more responsiveness, so let's decentralize the structures," or "We need more cross-selling, so let's create cross-selling incentives." In fact, decentralization has no direct impact on responsiveness. Decentralization moves the office and the people's desk closer to customers. But what matters is not the location of the desk; it is the behavior of those working in the desk. 

Executives must get a realistic “behavior based,” understanding of performance. What are the performance gaps in terms of quality, speed to market, working capital, and productivity? What behaviors explain these performance gaps? What context of problems/goals, resources, and constraints shape the current behaviors? How can we use the six principles of Smart Simplicity to change the context, such as create a context such that the resulting behaviors are in line with those required to bridge the performance gaps? What are the practical implications for structures, processes, and systems? 

When executives learn to go through these questions there is no blind spot, black box, or act of faith in the magic power of specific structures or incentives. There is a continuous and rigorous link between performance issues on the one hand and the organizational elements to put in place to resolve these performance issues. They may well end up with no cross-selling incentives and yet enhanced cross selling!