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Complexity Costs

Feb. 7th , 2012

Closed organisations require complexity to survive. They need to protect themselves and their IP, they need to reduce costs, and they need customer acquisition and retention. All of these functions require levels of complexity.

The bigger a closed organisation gets the more it needs to dedicate resources to its own complexity. There's a complexity cost, the cost of doing everything required just to exist as an organisation without actually delivering a direct benefit to its users.

The cost of delivering user benefit is service cost. The higher the complexity cost the fewer resources are available for service costs. Hence why my five phone calls to Vodafone have failed to sort out a simple problem. It's not that Vodafone is under-resourced. It's simply mis-resourced.

Businesses grow until the complexity cost is as high as it can be maintained. In other words when the service cost has been reduced to its absolute minimum and it can get hold of enough resources to survive.

Logically, all large, closed, complex organisations will grow to the point where they only serve themselves. This is a problem inherent in all public-facing, closed organisations. Ivan Illich's De-Schooling Society talks about precisely this problem.

Traditionally, closed organisations been good vehicles for making money. And making money helps to build the complexity required to grow. Closed organisations can also have lots of clever systems. The side effect of all the layers of complexity and need to reduce service costs is lots of systems. When you want to grow by processing users with systems instead of growing to benefit users with service, a closed organisation is the way to go.

Closed organisations can be money-making, systems-driven processing machines. And for long periods of time they can be unbeatable. The huge, complex, closed organisations of recent years, like Microsoft, Google, Apple and now Facebook are testament to this.

The real danger for closed organisations is their complexity cost. This Clay Shirky article talks about the precarious position of complex organisations. Interestingly, one of his illustrations of complex organisations being disrupted is the film industry. He talks about the disruptive power of Youtube, which of course is part of Google. So in reality one complex system has been disrupted by another complex organisation.

The key point, however, is that it's the internet that has disrupted the film industry. The internet enables people to create their own content. The internet can enable us to do just about anything. It's also very good at enabling complexity. Three of the four businesses mentioned above have seen their greatest successes because of the internet.

But this success is just a blip. Just as the internet is good at allowing complex organisations to grow quickly, it's also good at dismantling them. Today's big, closed organisations are more vulnerable than any big organisations in history. As much as the internet is a petri dish for complex organisations, it's also pretty much inert and doesn't guarantee the survival of anything.

Big organisations know this. They survive day-to-day through an ongoing process of just enough innovation to keep everyone happy and as much control as they can get away with. Google gives us free stuff for using its services and locks us into its search engine through ubiquity. Facebook gives us social toys and makes sure that we're sharing our lives with enough people we like to stay loyal. Apple gives us shiny things and locks us into two-year contracts and eco-systems to make sure we never leave.

Facebook's recent "de-risking strategy" (developing new services to protect their growth ahead of IPO) is perhaps an outward sign of a complex organisation panicking. The trends in social networking are turning away from Facebook (and Google). The market is maturing and people are starting to use smaller, niche services for different things. And this user-level simplification, choosing precisely what services we need is a massive threat to companies like Facebook.

Ultimately there's every chance that the simple, indestructable nature of the internet will conquer the complex organisations that have built themselves upon it. At the very least, complexity costs will become less and less sustainable and closed organisations will have to find new models to grow. Ultimately perhaps the way we use the internet will properly mirror the way the internet is built: simple, node-to-node and with endless possibilities.