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Complexity Killed Your Company

The following  is a guest post by Jason Lorimer, fellow entrepreneur @CulturaHQ. Visit his blog and follow him on Twitter.

You never change things by fighting the existing reality. To change something, build a new model that makes the old model obsolete. ~ Buckminster Fuller

Ancient Civilizations

I was sitting at Terminal C in Philadelphia recently, reading over the first thing handy in an overly crowded airport lounge. A New York Times article to which I was unable to find an online url, about the demise of Ancient Civilizations. The Greeks, Romans and Maya are well known examples of societies that have ceased to exist throughout time. The list goes on. I was instantly intrigued by this phenomenon and came to find that many books have been written on the subject. My favorite among the ones I perused being The Collapse of Complex Societies by Joseph Tainter. The authors premise, as I understand it, is that once organizations pass a certain point of complexity, they begin to decline. That the law of diminishing returns comes to play as soon as you pass over into abundance — having more then you need to survive and grow sustainably.  Mr. Tainter expresses that it is human nature to create complexity. That once a group of people cross over efficiency into complexity, it is, in a word — doomed.

Being that we work with companies that have a pre-internet business model in a post-internet world, having this new found knowledge of the fall of these societies prompted me to notice some blaring connections between extinct civilizations and the organizations we study. Companies small and large that have long since crossed into abundance create processes and employ people to fill those procedures, the hope being that the employee will generate more revenue than it costs to run the company, and therefore result in profits. Inevitably, over time, the processes we create become less than the optimal solution, often crossing the chasm into a pointless exercise.

Nobody starts out to create massively complex organizations.  Its incremental and often sneaks up on you. Before you know it, you’ve gone from a small agile organization to a bureaucratic mess of people, places and things that need to be managed. Thus, initiating their own creeping demise into extinction.

Unfortunately, this is a seemingly irreversible process. Complexity is a common excuse for companies that are becoming increasingly more obsolete. The people who make up those organizations are the ones charged with changing course, but it is not typically in their own self interest. That is, the status-quo is what pays their bills — in the short term anyway. It is my position that in a world as rapidly changing as ours, complex organizations are wasting their time doing anything but fundamentally reinventing their business model. If they don’t, somebody from the outside will do it for them.

Scaling Back Is A Misnomer

In speaking with companies of all sizes across various industries, I regularly hear them use phrases like “scaling back” and “increasing agility.” These are great buzz words as they elicit the concept of controlling costs and improving profits. The problem is that it is not realistic to expect to achieve this when operating from the inside of the organization itself. Too many moving parts and more importantly — too many people who are benefiting or at least think they are benefiting from the way things run currently.

In the post-internet age, simply placing technology at the center of your organization will not suffice. You must change your business model or eventually cease to exist. It’s a slow transition, but not as slow as big companies are. It’s elastic, unlike big companies resistant to change. Jason Fried, Co-founder of 37 Signals and author of the best selling REWORK has a quote I like a lot:

Competition that kills isn’t pre-announced — it catches an unsuspecting incumbent by surprise…

Right now, as I write this, there are a few ambitious upstarts, working off of the free-wifi @Starbucks. They are chock full of caffeine and systematically building a better widget — A better business model. To survive, you must do the same.

Forget Competition – Fear Obsolescence

In the old days companies fought competitors within their own industry and occasionally one from just outside of it. Today competition, as we have come to understand it, is basically moot. Your industry itself, all industries, are under attack by agile, web based companies building disruptively better solutions for your customers. Products and services that they can participate and add their own value to.

Recently, I was asked by a current client to meet a family friend who worked as an executive at a print newspaper conglomerate. One Friday late-afternoon, I traveled to his office expecting to step out for a quick bite and some conversation on their needs. Instead, what I found was a boardroom filled with sales executives. Middle-aged men in suits looking to me as if they had been patiently waiting for me to arrive with the solutions to their problems. I quickly explained that I was confused as to the premise of this meeting and after a few laughs, I sat down at the far edge of the table, next to the VP of sales and awaited questions. Inevitability, within minutes the name Craig Newmark steamrolled up from about half way down the table. Craig, founder of the now common place Craigslist, a utility for people around the globe was not well liked in this room. The bitter tone of the sales manager who raised this name led us into a conversation about how Craigslist had “stolen” the newspapers industries bread and butter classifieds business.

Instead of arguing the many ways they could have leveraged Craigslist to drive their own revenue  rather than choose to sit on their hands, I looked down the table and said:

What Craig Newmark did to newspapers is a drop in the bucket compared to the absolute shellacking your shareholders are about to take from location based services and group sale sites if you don’t fundamentally rethink your business model and now.

Silence.

I went on to explain that their small business customer base which makes up some 90% of all their customers are currently being approached left and right with opportunities to drive people in the door in a measurable way. To pay only for what they receive.  Foursquare and Groupon are just the beginning. They went on to discount these sites as “fire-sale opportunists” and I shook my head as if to say:

Remember Craig Newmark.

Regardless of your industry, the fact that the internet and more specifically mobile technology has become ubiquitous in our lives means your business model is no longer the best offering. It is likely not even close. Grab your best people and most loyal customers and go back to the drawing board before it is too late.

Industry Advocates

It is all but impossible to take an existing organization and shift it towards the future when you have the people within that organization benefiting from the current operational structures. That is why we work with industry advocates to create new models. People that have experience within an industry — enough so they understand the intricacies, pain points and opportunities that our research would never expose fully.

You have the human capital in your organization. They are the most frustrated among you.
Those who have all but given up. We love working with these people.

Don’t Smother Innovation — Build Your Own Start Up

Trying to build a new company insides the confines of your existing organization is all but impossible. Many have tried and failed at the same. Constraints are ideal for innovation.
Existing rules and barriers are the death of it. Albert Einstein once famously wrote::

We can’t solve problems using the same kind of thinking we used when we created them.

Handpick your internal advocates to partner with an outside team to conceptualize and build the solution your customers will find the most utility in.

Incubate the venture using a test market from within your existing infrastructure and once proven, integrate it for the future.

In the end to survive, let alone thrive in the post-internet economy you must think ahead five years and execute in less than one.  Now get to work.

As always, your comments, thoughts and feedback are much appreciated.

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3 Comments

  1. Jason: Thanks for this because the greater the “buzz” the more the understanding of these fundamental issues grows.

    We, at Ontonix, have a 100% quantitative solution (http://wp.me/P16h8c-7L) but “complexity” sounds like the creation of a consultant struggling to earn a crust “righting” more recognised forms business ailment!

    Introducing a solution to a threat that isn’t fully understood or appreciated is perceived as a “challenge” to conventional wisdom that is the base of power and wealth of those who embrace the institutional model. It’s tough man!

    I loved Clay Shirky’s quote from a previous book: “It is easier to understand that you face competition than obsolescence”

    I hope this piece adds to the understanding and thanks again!

    Complexity: it’s complex, real, multi-layered and VERY dangerous (http://wp.me/p16h8c-98)

    David

    Wednesday, April 6, 2011 at 6:07 am | Permalink
  2. "A new technique for the selective measurement of atmospheric peroxy radical concentrations of HO2 and RO2 using a denuding method"

    Friday, September 30, 2011 at 10:57 pm | Permalink
  3. Why visitors still make use of to read news papers when in this technological globe the whole thing is presented on web?

    Monday, January 6, 2014 at 9:17 pm | Permalink

2 Trackbacks/Pingbacks

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    […] or students experience in interacting with them. Those who do venture out of their organizations complexities into the sunshine that is the efficiency of a post-internet world are typically cast away into […]

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