mastering disruption, embracing complexity
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.TRANSCRIPT
Mastering disruption,
Embracing complexity
White Paper
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”
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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.”
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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.
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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.
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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.”
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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.
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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
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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.
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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.”
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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.
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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
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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?
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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
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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
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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
Be Informed
Wapenrustlaan 11-31
7321 DL Apeldoorn
The Netherlands
T +31 (0)55 - 368 14 20
www.beinformed.com
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