Business loses money through complex IT systems

Businesses are losing profits because they are relying on over-complex IT systems, a study of the world's top 200 companies reveals.

Businesses are losing profits because they are relying on over-complex IT systems, a study of the world's top 200 companies reveals.

Research by Warwick Business School claims unnecessary complexity is costing business over 10% of their profits, equivalent to $237 billion for the Forbes top 200 firms.

Over-complex IT is one of the underlying causes of the lost profits, says Simon Collinson, professor of international business and innovation at Warwick.

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"There seems to be a particular issue in larger companies," says Simon Collinson. "If you buy a company or buy a new system, you are adding an extra layer to your IT infrastructure. It adds complexity to your existing IT systems and extra complexity for the users."

Nearly 40% of the companies analysed by Warwick Business School for research consultants, the Simplicity Partnership, have six or more specialist IT systems. And 13% have 16 or more.

Introducing new software and systems is one of the most disruptive processes that can add significant complexity to a business, the research reveals.

"Changing software, particularly at the departmental level and introducing new IT systems is a huge source of complexity. There are cyclical changes in IT that add complexity," he said. "And on top of that, there are the longer term issues of legacy systems."

The research reveals a certain amount of complexity can help companies thrive, but beyond that complexity starts to make companies less efficient and eat into profits.

"The tipping point depends on the firm. But when they reach it, it hits their performance because they lack strategic and operational clarity," he says. "Firms need to find out where they are on the curve."

Mergers and acquisitions are another major source of added complexity. Buying a new company could easily tip the firm over from peak performance to losing profits, says Collinson.

"A company like Vodafone has accumulated so many different companies, it has different packages, different ways of doing IT and multiple IT departments. Their experience is that at some stage you just have to get rid of the IT departments and systems, and simplify the whole model across the firm," he says.

Collinson advises organisations to audit their IT systems to check whether they are adding value to the organisation.

"You have to know where IT is helping your performance or at what point it is adding complexity that eats away at your profits," Simon Collinson says.

Causes of complexity 

  • External Drivers: such as regulation or economic turbulence
  • People: the everyday behaviour of people and managers
  • Process: the complexity of business processes used in an organisation
  • Strategic: the choices organisations make on where to focus and how to win in their markets
  • Organisational: how companies organise and structure their business to deploy people and make decisions

Source: The Simplicity Partnership and Warwick Business School

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