Finding opportunity in an increasingly complex business environment

DAVOS, SWITZERLAND—Companies today are juggling more complexities than ever before, but a recent study by KPMG suggests they’re also finding ways to turn those hurdles into business opportunities.

The global consulting firm interviewed 1,400 senior executives from 22 countries across a range of sectors from financial services to technology, industrial and energy.

Three quarters of respondents said complexities—such as tax policies, information management and regulations—have increased over the past two years.

And the majority expects that in the next two, things are going to get even more complex.

“Powerful forces have reshaped the global business landscape in the last few years, accelerating the rise of complexity as a new source of challenge, chance, risk unpredictability and even opportunity”,” says Timothy Flynn, chairman of KPMG International.

Complex issues were among companies’ top challenges, according to 70 per cent of respondents, but the same amount said those complexities pose opportunities such as expanding into new markets or creating better strategies.

Executives in emerging economies were more likely to see opportunities compared to respondents in developed nations.

More than 90 per cent of all respondents agreed that properly managing complex issues is going to be crucial to their success.

And many of them are taking action.

The most common approaches included improving information management, reorganizing business, investing in new countries or geographies and making mergers and acquisitions.

These were also the most successful tactics, according to respondents.

“Organizations are most successful when they keep their business models simple and don’t create more complexity of their own with the actions they are taking,” says Alan Buckle, global head of advisory for KPMG’s network of firms.

Some of the least successful methods were trying to influence regulation or public policy, taking a new approach to human resources, and outsourcing functions.

That’s a lesson some North American manufacturing companies have already learned first-hand, says Mark Tomlinson, executive director and general manager of the Society of Manufacturing Engineers in Dearborn, Michigan.

Tomlinson says manufacturing has its unique set of increasing complexities, from tracking errors along a larger supply chain to protecting intellectual property when dealing with overseas partners.

He says one mistake that a lot of companies make is forgetting labour only represents 18 per cent of costs.

“So, their gut reaction is to go get it made elsewhere because it’s cheaper. But the major pitfall is not evaluating the cost of inventory, shipping and most importantly quality.”

Instead, he advises firms try to manage complexities by educating their workforce and supply chains or networking through industry organizations with other companies that have similar experience.

Mergers can be useful, but only if they’re based on a “deep understanding” of the other organization’s process and systems, he adds.

In Canada, one of the most important things a company can do is stay on its toes, says Jeff Brownlee, vice-president of public affairs with Canadian Manufacturers and Exporters.

“There has been one constant in the Canadian industry over the past few years—the challenge of change,” he says.

Brownlee says the industry is swept up by increasing competition in its largest export market and rapid technological advancements.

“Time is now the currency for many companies…agility is a critical success factor.”

So is foresight, according to David Wood, a lecturer in operations management at the Richard Ivey School of Business at the University of Western Ontario.

He says constantly changing regulations pose challenges for Canadian companies.

Almost three-quarters of executives in the KPMG survey identified regulation as the leading cause of complexity, with four in 10 calling it the single greatest cause.

But Wood says this one area where manufacturers can seize a competitive advantage.

He points to Ontario, where the government has introduced legislation requiring brand owners of electronics to take responsibility for their products at the end of their life cycle.

“These items have value and companies are looking at this as an opportunity to create a closed-loop system,” he says.

Businesses are now organizing collection events, partnering with retailers, government organizations or other manufacturers.

“This is also giving them a sustainable competitive advantage both for themselves and their supply partners. Xerox is one example of a company that saw this coming years ahead of the regulation,” he notes.

Most of the leaders in environmental management are larger companies, but Wood says there’s nothing stopping smaller manufacturers from gaining mass through partnerships with distributors, retailers or manufacturers in their industry.

“There can be large companies that fall behind just as there are small ones that can excel. The ones that worry me are those that are just flying under the radar and not paying attention to what’s changing,” he says.