The well-being of humanity, both now and in the future, is deeply influenced by the advancements brought by industrialization. The discrepancy between industrial manufacturing practices now and three decades ago, let alone ten decades ago, is very significant. Examining the history and projections of the manufacturing industry and its effects on the increasing complexity in organizations and management layers will give us insight into crucial aspects of building a resilient leadership team.

What is Organizational complexity? Well, it can be defined as “The amount of differentiation that exists within different elements constituting the organization; variety’’ (Dooley, 2002). Sources of this variation are both internal and external and originate from variety, dynamism, and causal mechanisms (unpredictability). This means that there are market and political aspects (external), as well as diverse roles, technology, and cultural aspects (internal) to deal with.

The Effects of Previous Industrial Revolutions on the Complexity of Organizations

The industrial revolutions were powered by technological advancement and had an enormous impact on the development of business institutions like financial services and transportation, as well as developing internal leadership structures to steer the increasing scale of operations (Mohajan, 2019). This is a common development within all four industrial revolutions, the technology allowed more effective and efficient production, which allowed the scaling of production and exporting abroad. This made organizations and networks in which they operate more complex. To support this complexity, organisations created structures to accommodate the increasing complexity, such as a finance department. This has resulted in the increasing number of management layers and domains within organisations.

Big trends, Big Impact, Big Complexity

Current trends in manufacturing, such as digitalisation and automation, significantly increase quality and efficiency but also increase technical complexity. This technical complexity has required more specialisation and increased the size and scale of the operations. In addition, the globalisation of the industrial world has extended the complexity across multiple domains, whether it is in R&D or in production. For example, allocation of production to best-cost countries, leading to an internationally distributed organization with more complex supply chains, or R&D centres distributed across countries, with round the clock development cycles. We can reach a simple conclusion: Current trends are set to increase complexity throughout the structure. Whether in IT, Production, Corporate Finance, or R&D, the organization will have to cope with the increased external and internal complexity. One valid method of dealing with complexity is designing an internal structure to support it. A tangible example is the set-up of Centres of Excellence for topics like process mining and AI. Others might search for external partners or outsource the field entirely. But what is clear is that dealing with these trends will need further specialisation within departments, feasibility studies, and experts to lead implementations; in other words, it does not make business life easier to manage.

Tomorrow's leaders need to have a thorough understanding of the environment in which the organisation operates. Building an organizational structure and network of partners to deal with increased complexity is one key element of a successful leader in the manufacturing industry.

Management of the Complexity Puzzle

Explicit methods that go beyond forecasting and strategic planning can solve the complexity puzzle. Standard practices, such as structuring the business in regional and practice areas, ensure that operations remain manageable. Furthermore, building barriers around daily operations, such as sales teams, can increase efficiency.

But how could management deal with the uncertainty of technical complexity? Given the lack of technical certainty and greater unpredictability, the organization will need more decentralisation and less formalisation. Basically, reducing the formalisation of this role would empower the experts to deal with technical uncertainty and align with others in the organization on tackling the problem statement. Giving away decision-making power and aligning the actors on a common goal is key to the successful management of complex organizations. More often than not, the rigid structures in industrial firms are unable to accommodate these management practices. They remain loyal to their autocratic procedures and are not transforming at the speed that the current trends require. In practice, the new management style means leading by well-defined parameters and shared responsibility. Many of the long-serving industrial leaders have great difficulty adapting to the new standards and are therefore unable to guide the organization to excel during uncertain times.

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Sources

Dooley, K. (2002). Organizational Complexity. International Encyclopedia of Business and Management, 6, 5013-5022.

Mohajan, H. (2019). The First Industrial Revolution: Creation of a New Global Human Era.