Business Success Depends on Managing Complexity Well: KPMG Study

DAVOS, Switzerland, Jan. 26, 2011 /PRNewswire/ -- More than 90 percent of senior executives across 22 countries say their organization's success depends on managing today's complex business issues, primarily the regulatory landscape and information management, but less than half believe the actions they are taking to manage complexity have been very effective, says a new study from KPMG International.

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The study, Confronting Complexity: How business globally is taking on the challenges and opportunities, revealed that 70 percent of executives believe increasing "complexity" – caused by regulatory compliance, information management, government oversight, changing operating models, speed of innovation, tax policy and other factors – is among their company's biggest challenges.

"Powerful forces have reshaped the global business landscape in the last few years, accelerating the rise of complexity as a source of challenge, change, risk, unpredictability and even opportunity that  executives must understand and embrace with new tools and skills in order to succeed," said Timothy P.  Flynn, Chairman of KPMG International, the global network of professional services firms providing Audit, Tax and Advisory services. 

The KPMG global study, which consisted of interviews with 1,400 senior executives in 22 countries globally, found that at least seven out of ten executives believe complexity can create new opportunities for their businesses, including gaining competitive advantage, creating better strategies, expanding into new markets and improving efficiencies.

"The KPMG research indicates that although complexity and its challenges are placing increasing pressures on organizations, opportunities really do exist for those who can think differently and turn potential hurdles to their competitive advantage.  Indeed, we see businesses increasing their  focus on managing complexity to be better positioned to capture the opportunities," Flynn added.   

Some of the top-line findings of the KPMG global study also suggest that:

• Complexity is global – reaching across both mature and developing markets, as well as across industry sectors.

• Complexity is increasing -- three quarters of the respondents say complexity has increased for their organizations over the past two years, and a majority expect things to become even more complicated in the coming two years. 

• Complexity is not static – about half of respondents expect the causes of complexity to shift over the next two years, and a majority say their companies will need to take different or additional actions to manage complexity.

• Increased risk is the greatest challenge presented by complexity, along with increased costs and the need for new skills.

Businesses Taking Action to Address Complexity

The KPMG research shows that business is taking significant actions to address complexity, particularly in the areas of information management, business organization and human resources.  But success has been mixed with only a minority finding the actions they have taken to be very effective in addressing complexity.

The most effective actions taken according to the research have been improving information management, business reorganization, investing in new countries or geographies, and conducting mergers or acquisitions, but still, fewer than half of executives say these actions have been very effective.

"Business needs the ability to manage simply, continually streamline, not create internal bureaucracy, and be good at executing," said Alan Buckle, Global Head of Advisory for KPMG's network of firms.  "We find that 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."

Regulation and Technology are Key Factors

Regulation is identified in the research as the leading cause of complexity globally, cited by almost three-quarters of executives surveyed.  Closely related to regulation, government oversight is identified by 60 percent of respondents as a leading cause of complexity.  The research reveals one of the driving issues with regulation to be global inconsistency; in fact, close to 90 percent of respondents say governments should work together to make the global regulatory environment less complex.

The research also shows technology to be a critical issue, both as a cause of complexity and a key solution.  Information management is the second-most identified cause of complexity in the survey as well as the top focus for businesses in addressing complexity. 

Speed of innovation is also shown to be a growing cause of complexity, particularly in developing economies.  Looking out two years, a majority of executives surveyed expect the speed of innovation to be an even more important cause of complexity for their businesses.

Complexity is Creating Critical Need for New Skills

The need for new skills to manage complexity is a key challenge for business according to the research, identified by more than three-quarters of executives globally.  Not surprisingly, the need for new skills to address complexity most impacts the technology sector, where more than 80 percent say it is a top challenge.  Geographically, the need for new skills is shown to be particularly acute in Brazil, China and Japan, where 90 percent of executives surveyed identify it as a critical challenge.

"The need for new skills reflects the challenges businesses are facing in addressing complexity and leveraging it to their advantage," said Flynn.  "There are many drivers of complexity and organizations need to be agile, adopting specific strategies with the right talent and resources to respond."

Note to editors:

KPMG commissioned Lighthouse Global to carry out a study of the causes and impact of complexity among large companies – 40 percent of the companies have global revenues of US $1 billion or more – in 22 countries.  Interviews were conducted with 1,400 senior executives including CEOs, CFOs and finance directors.  The research was conducted across a range of industry sectors between October and December 2010 in the following countries: US, Brazil, Canada, Mexico, UK, Denmark, France, Germany, Ireland, Italy, Netherlands, Spain, Sweden, Switzerland, Russia, South Africa, China, India, Japan, Singapore, South Korea and Australia.

About KPMG International

KPMG is a global network of professional firms providing Audit, Tax and Advisory services.  We operate in 150 countries and have 138,000 people working in member firms around the world.  The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.  Each KPMG firm is a legally distinct and separate entity and describes itself as such.

SOURCE KPMG