For years, cost has been a priority for COOs. Trimming the budget, tightening the supply chain, and doing more with less were main focuses. But today, business leaders realize complexity is just as important, and even more dangerous.

Operational complexity is risky because it’s easily overlooked. Unlike cost, it doesn’t show up in budgeting reports. Rather, it is evident in missed deadlines, reduced quality, and employee frustration.

But with the right outlook, COOs can identify complexity early and prevent it from becoming a bigger issue.

What Is Operational Complexity?

Operational complexity exists across systems in the following ways:

• System Complexity: Sprawling tech stacks, redundant software, and legacy systems that were never retired
• Process Complexity: Duplicated workflows, approval layers, and increased exception handling
• Organizational Complexity: Functional ownership gaps, unclear decision-making processes, and vague reporting systems
• Supply Chain and Vendor Complexity: Inconsistent data standards, fragmented partner relationships, multi-tier dependencies

While each of these issues can be manageable on its own, things can get out of control when they interact.

Why Complexity Outpaced Cost as a Primary Risk

Operational complexity is risky in that it is harder to detect than cost concerns, but it has become a bigger issue over the years due to modern advancements, such as:

• Technology Sprawl: Many companies add new software faster than they retire old systems. According to GlobeNewswire, one in five dollars companies spend on technology is devoted to underused or failed equipment, and 53% didn’t see the ROIs they expected on new technology.
• M&A and Rapid Scaling: Companies that grow quickly through expansion or acquisition often overlook fragmented systems and duplicated processes.
• Regulatory Layering: Compliance requirements multiply across jurisdictions and departments and are rarely simplified. An Amarna Vida report reveals small and medium-sized businesses spend up to ten times more on compliance than large firms, and these costs increase as they expand into markets.
• Hybrid Work: While remote work is convenient, coordination requires meetings, tools, and systems that can enhance complexity.
• Increased Customer Expectations: Technology has raised demand for customized services and more options in products, pricing, and fulfillment, fueling a need to scale quickly and often expensively.

The Hidden Costs of Complexity

Operational complexity can impact companies in more ways than one, leading to the following disadvantages:

• Decision Latency: Approval layers and unclear ownership delay the decision-making process, interfering with productivity.
• Reduced Quality and Increased Errors: Handoffs between disconnected systems increase the risk of errors and reduce the quality of work and output.
• Employee Burnout and Attrition: More complex systems and unclear processes lead to employee frustration, which can contribute to high turnover.
• Reduced Visibility of Risk: Fragmented processes and data make it difficult to identify the source of risks.
• Unpredictable Scaling: Metrics become harder to measure and predict when they are spread across multiple, often unaligned, systems.

Signs a Business Has Complexity Issues

Your business may have complexity issues if the following problems exist:

• Multiple systems perform overlapping or duplicate functions
• Decisions that require sign-offs from multiple people – this should be especially unnecessary with simple matters
• Long onboarding processes for new employees or partners
• Manual walkarounds that occur when systems are too slow or complicated

How to Effectively Manage Complexity

Historically, cost-cutting has been used to manage complexity, but in modern times, we find this solution is ineffective. Reducing headcount or consolidating vendors without a system redesign just places more complex processes on fewer people. And focusing on cost-cutting by department creates friction across boundaries rather than removing it.

However, there are better methods.

• Audit for Redundancy: Conduct a department-wide audit to identify the source of redundancy.
• Consolidate Platforms and Standardize Workflows: Eliminate unnecessary tools and systems and develop standardized processes that reduce errors.
• Clarify Ownership in Decision-Making Processes: Ensure everyone is aware of where to go for approval, including the person calling the shots.
• Design for Adaptability: New systems should be created to adapt to evolving needs and expansion.
• Invest in Real-Time Visibility: Set up systems that allow you to identify risks as they develop, before they get out of control.

These measures will help you reduce complexity in your organization, and decreased costs will follow.

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