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THERE are people who make simple things complex. And there are the inveterate simple-lovers who shun anything complicated. But Michael L. George and Stephen A. Wilson have a different thought to share in their book Conquering Complexity in your Business, published by McGraw-Hill (www.books.mcgraw-hill.com): That there's what's called `value-added complexity'. Just as too much complexity is bad, so too is too little. Customers look for variety, options or customisation, all of which add to complexity in your business. You shun that, you lose profit and miss growth opportunities. So, you need the right level of complexity.

First rule is this: "Eliminate complexity that customers will not pay for," because that only adds to your cost. Next, the corollary, "Exploit the complexity customers will pay for." Third, "minimise the costs of the complexity you offer." This implies you rigorously analyse "every element of your service or product", as Toyota has been doing successfully.

Chapter 2 names complexity as the silent killer. Why? Because you will not know that your complexity level is high from any outside signals too soon, even as it continues to hurt your company like high blood pressure can. "It won't show up in managerial accounting and is hidden from GAAP accounting," but market pressures "will actually push you even further down the path of complexity proliferation."

Beyond complaining about complexity, you should be able to quantify it. Here is how. "Process Cycle Efficiency (PCE) = Value-add Time / Total Lead Time." Are we aiming at 100 per cent? No, world-class PCE level is 20 per cent for service processes, inform the authors. For manufacturing, it ranges between 10 and 30 per cent.

Examples of non-value-added time are: "rework, supervision, scheduling, information technology, setup time, downtime, tracking down information to complete an order and so on." A `simplified complexity equation' is more elaborate: PCE = 2V(1-X-PD)/N(2A+1)S. In the numerator are V for total value-add time in the process, X for per cent of products or services with quality defects, P for processing time per unit, and D for total demand of products and services. In the denominator are N for number of different tasks performed at an activity, A for number of activities or steps in the process, and S for the longest setup time in the process.

For `total lead time' there is the Little's Law that plugs number of things in process (TIP) in the top and average completion rate at the bottom. TIP is commonly called WIP and comes in many forms: "customer inquiries, phone calls to return, repair orders, emails waiting to be answered and so on." To improve lead time and thus PCE, reduce TIP; a tip, that is.

One grave risk that complexity leads to is the slowing down of critical info. Lead time to make a decision is given by a formula: N(2A+1)S/2(1-X-PD), where N is the number of decisions to be made, A is the number of levels or activities the decision must pass through, and S is the preparation time to make the decision.

To use complexity as a strategic weapon, you need to know the `six precepts'. One, "Customers define value." They never see your internal complexity, notes the book. "But they indirectly pay the price for it in numerous ways: long wait times, higher prices, poor quality." Precept two is that the biggest gains come from step-change improvements, when committed resources or fixed costs are released for better use. Three, "focus on what matters most — 100 per cent of your value creation probably resides in only 20 to 50 per cent of your offerings". Four, think value share rather than market share — something as different as smart and dumb growth. Five, "growth results from value-driven application of finite resources." And six, "First eliminate offerings that can never generate positive economic profit, then attack internal complexity."

Let there be no laxity in conquering complexity!

ManageMentor@TheHindu.co.in

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