This article dicusses the findings of PricewaterhouseCoopers' 9th annual CEO survey in which increased business complexity was found to be a major side effect of globalisation.
Leading the Way is a column written by PricewaterhouseCoopers professional staff. It appears in the Business section of the Bangkok Post twice each month. The column provides specialised advice to corporate decision-makers in Thailand on global and local business trends.
This article appeared in the February 21, 2006 issue of the Bangkok Post
By Matthew Wyborn
What comes to mind when you reflect on globalisation? According to some CEOs, globalisation is no longer just about cost cutting. Nowadays, it is about moving into emerging markets to find new customers, and servicing existing ones. However, like a two-sided coin, the dynamic of globalisation comes at the cost of increased business complexity.
According to many, the level of complexity in their organisation is higher than it was three years ago, and there's no end in sight. CEOs worldwide are working to change, innovate, grow, secure and retain talent, harness talent and ultimately create value for the stakeholders of their organisations. Given the growing speed of complexity, how are we coping with it? What are the causes? What capabilities are essential to help us cope better, and to what extent do such capabilities currently exist within organisations?
These questions are at the forefront of PricewaterhouseCoopers' ninth annual Global CEO Survey which focuses on globalisation and complexity _ two powerful and inevitable forces that are a top concern among the 1,410 CEOs who participated.
Challenges of Globalisation
More than 60% of the respondents in the survey are confident that globalisation will have a positive impact on their business over the next three years.
Optimism notwithstanding, the CEOs understand that the road to globalisation is fraught with obstacles, though not necessarily the obstacles that conventional thinking would suggest. Overregulation and trade barriers/protectionism are perceived as the top two challenges, while terrorism and the anti-globalisation movement are near the bottom of the list.
Interestingly, while both developed and developing-economy CEOs view overregulation and trade barriers/protectionism as significant, differences exist in other areas. In developing economies, there is a clearer focus on the need to consider the impact of political instability, corruption, country currency policies and social issues.
Increasing Complexity: Managing the Inevitable. The respondents say the overall levels of complexity in their organisations have increased over the past three years, caused by a variety of factors. As a result, taking steps to manage complexity is becoming a higher priority. But what exactly does managing complexity entail? To participants, it means coping with complexity when it adds value, and simplifying when it does not.
The causes of increased complexity are many and varied. Some, such as commercial activities, can be managed and add value. Others, such as geopolitical forces, can only be influenced. Commercial activities include launching new products and services, extending operations to new territories, forming strategic alliances and outsourcing. And because these activities are considered to add value, most CEOs are engaged in more than one. In fact, less than 1% of respondents are performing none of these activities, while 86% are engaged in three or more.
Topping the list of commercial activities that most increase the level of complexity are extending operations to new territories, engaging in mergers and acquisitions, and launching new products and/or services.
Coping with Complexity. Managing complexity is clearly an important issue. The chart indicates which "capabilities" the CEOs deem as the most important, and how they rate their overall success in these areas.
While we are not surprised that CEOs have definite views on what must be done to manage complexity effectively, we were surprised by the size of the "capability gap" we discovered between the respondents' understanding of the challenges that complexity poses, and their abilities to manage this complexity effectively.
Final Thoughts. Do CEOs understand the importance of effectively managing complexity? Yes. However, it would appear that many feel they are not currently as effective as they could be in translating that understanding into meaningful action. The ability to manage and close the capability gap will, over time, be the action that defines the fortunes of an organisation.
CEOs understand that attempting to eliminate complexity sometimes misses the point. When complexity is associated with value-creating activities, it should be managed as effectively as possible. Only when complexity destroys value should it be reduced or eliminated. The winners in a complex global economy will be those companies whose leaders recognise the nature of complexity their organisations are facing, and then work to manage it successfully.
The above is based on findings from PricewaterhouseCoopers' ninth annual Global CEO Survey, in which 1,410 interviews with CEOs were conducted in 45 countries during the last quarter of 2005.
