Complex business structures damage IT suppliers' performance

Corporate complexity at Apple, HP and Samsung, may be hitting their profits and damaging their ability to respond quickly to changing markets, a new study claims.

Corporate complexity at Apple, HP and Samsung, may be hitting their profits and damaging their ability to respond quickly to changing markets, a new study claims.

The companies are among the ITC suppliers identified as having the most complex structures, business processes and product portfolios by Warwick Business School.

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Mobile phone manufacturer Nokia, and notebook specialists Toshiba, Dell, are also struggling to manage the complexity of their businesses, the analysis reveals.

The study, conducted on behalf of the Simplicity Partership, concludes that although the right amount of complexity can give a company a competitive advantage, too much complexity can damage a firm.

"Apple is a surprise, as Apple's reputation is based on its cool design and exciting branding and a relatively simple range of products," says Simon Collinson, professor of international business and innovation at Warwick.

"But its complexity comes from being relatively global, and behind the scenes there are quite a lot of management layers and lots of different cultures," he says.

Nokia is struggling partly because it has grown into a highly complex company through a series of mergers and acquisitions, the study suggests.

"In 2007, 40% of Nokia's stock price was lost at the same time as the iPhone was introduced. The story with Nokia was it failed to respond to the iPhone," says Collinson. "They have tried to diversify quite radically through a lot of media acquisitions, but our data suggests the added complexity of these lines are part of the problems, rather than the solution."

The best-performing companies in the complexity league table include Microsoft, Cisco and Vodafone. But Fujtisu and NEC are among simplest ICT businesses, and could potentially benefit from adding further complexity.

Microsoft's near monopoly position in supplying desktop operating systems is one of the factors behind its success. But it risks suffering from complexity in the future if it does not manage its business carefully, Collinson warns.

Business lose money through complex IT systems

Complicators are companies that have complicated strategies, wide product portfolios and/or a wide geographic range. Some perform well overall, but are losing profits and agility because of growing levels of bad complexity

Performers - many of these are state-owned companies with monopoly positions in large-asset based businesses. Although they have managed complexity well until now, they risk driving complexity too far and damaging their profits as they add new products, services and processes.

Simplifiers are mostly companies that tend to operate in stable and predictable domestic markets, with relatively simple strategies and structures. The have an opportunity to add good complexity by adding new products services and processes.

Strugglers are companies failing to cope with complexity. They have complex organisational structures and strategies, often within turbulent industry sectors or economies. Their profit levels are being heavily impacted by complexity.

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