Could Our Management Systems Be More Effective And Less Complex?

It’s the nature of business that, as companies grow, they are exposed to more risk and more complexity.

As a senior executive, at some point you have to hand over responsibility and authority to people further down in the organisational structure, while ensuring you’re not unduly exposed to risk. The larger your organisation, the more stakeholders, and if the company becomes public, you’ve got a board of investors to consider (that are even more risk-averse), and controlling all of this requires more systems. Your management systems, therefore, need to be functional and able to respond to risk, growth, and your stakeholders’ and customers’ needs over time.

Management systems touch all the aspects of a business and encompass all the topics discussed in this article series. These systems—whether good or bad—have a significant effect on an organisation’s ability to run effectively and sustainably. The interconnected nature of management systems means that even though a problem might present in one area of the business, the root cause is in another area. 

As critical as the systems themselves, is the way those systems are applied, which can affect the culture of the organisation and vice versa.

If an organisation has a very autonomous approach and the frontline managers have free rein to make large decisions, this usually reflects a high-trust environment. Organisations like this are also very nimble and responsive to customers. This is a good environment for rapid growth or taking market share; however, the organisation may expose itself to unknown risk and unexpected negative financial outcomes, otherwise known as “commercial surprises.”

Opposite to this, if the organisation allows very little autonomy and authority for the frontline managers to make decisions, it can have the opposite effect.

This is normally seen in organisations with lower levels of trust and is not a good model for rapid growth. Often these businesses are outmanoeuvred by their nimbler competitors because the frontline decisions take longer as there are more stakeholders in the authority chain. There is, however, less opportunity for exposure to risk and by default less “commercial surprises.”

From the customer’s perspective, organisations such as these tend to be more internally focused.

Most organisations are trying to balance the relationship between autonomy and risk in one form or another. A tighter approach with less autonomy is better suited to mature organisations that are not looking for high growth.

The counter is true for organisations who are heavily focused on market share and high growth. The challenge for international organisations or large companies with many markets is all variations of the outlined approaches may be required for optimal results. This is a challenge for standardisation in approach for large businesses.

Another issue is the tendency towards using automated systems such as ERP systems before your fundamental processes are proven and effective. This can lead to automated errors and significant challenges for any organisation.