SECTORS AND THEMES

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KPMG INTERNATIONAL
Confronting Complexity
Research Findings and Insights
kpmg.com
MAY 2011
Contents
Introduction 1
Global executive summary –
a world striving for simplicity 2
The story from the research 4
Information management –
problem or solution? 14
Managing increasing risk 16
Speed of innovation 20
The need for new skills 22
Government and regulation 24
Management actions –
what works and what doesn’t 26
Conclusion 27
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
Conf r ont i ng Compl exi t y | 1
Introduction
In recent years we have seen profound
changes in our economic, regulatory,
political, and social environments. The
result is a world of increasing complexity,
where markets and systems are more
interconnected, and where organizations
must learn to navigate uncertainty,
innovate, and adapt to changing realities
as well as new market opportunities.
More transactions are taking place
across more borders, and the changing
global regulatory environment is
forcing businesses to react to ensure
compliance while managing new risks.
Technology is a hot-spot – it’s changing
business models, improving processes,
and opening new markets, but also
creating volumes of new data that must
be managed, supported, and secured.
To gain greater insight into how
increasing complexity is impacting
business around the world, and how
business leaders are responding,
KPMG International conducted research
globally, speaking with 1,400 senior
corporate decision makers from 22
countries representing seven main
business sectors.
The research shows that the issue
of complexity has risen to the top of
the business agenda. Senior decision
makers we spoke with recognize
complexity as a critical issue that their
companies must take significant actions
to address.
The vast majority of executives say
complexity has increased in the last
two years, and most expect it to
increase over the next two years.
These executives see complexity
not only as a source of additional
risk and cost, but most also believe
that complexity is creating new
opportunities. Opportunities to take a
fresh look at their strategy, rethink their
business model, and make operational
improvements to gain competitive
advantage.
The following report provides an
in-depth review of findings from the
research along with insights from KPMG
business leaders on what the findings
mean and how businesses can address
the critical issues raised. We hope the
report will help you to better understand
the causes and impact of complexity,
and ways to integrate actions into your
strategies that will not only help you to
manage the challenges that lie ahead,
but also to take better advantage of new
opportunities.
Timothy P. Flynn
Chairman
KPMG International
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
Global executive summary –
a world striving for simplicity
The world is undoubtedly becoming a
more complex place. The rise of new
industrial powers adds new layers
of complexity to global trade. New
technology challenges conventional
thinking as it provides radical new forms
of production and communication.
And in an attempt to exert control over
these factors, to minimize the harm
they can cause and bend them to the
public good, new layers of regulation are
added with increasing speed.
For business, increasing complexity
is not just an inconvenience. It can
radically affect the way that businesses
are managed, challenging profitability
with new costs, adding new risks and
creating opportunities.
To measure the causes and impact of
complexity KPMG commissioned one
of its largest ever surveys among large
companies around the world (40 percent
of the companies have global revenues
of US$1 billion or more).
Between October and December 2010,
we interviewed 1,400 senior executives.
They included CEOs, CFOs, and finance
directors in a wide range of industries in
22 countries: Australia, Brazil, Canada,
China, Denmark, France, Germany,
India, Ireland, Italy, Japan, Mexico,
Netherlands, Russia, Singapore, South
Africa, South Korea, Spain, Sweden,
Switzerland, the UK and the US.
The initial results of this survey were
released at the World Economic Forum
in Davos in January 2011. This document
is a more detailed review of the results,
with additional insights, drawing on the
practical experience of KPMG experts
from all over the world. The key findings
of the study are:
ª Rising compIexity is an issue in
all the countries surveyed, and in
all sectors. But the experience of
complexity differs around the world.
Mature economies in Europe and the
Americas are feeling the dual effects
of recession and increased regulation,
while developing economies and
those in Asia-Pacific are focused on
the accelerating speed of innovation
and rising costs.
ª Information management stands
out as both a cause of complexity
and a solution. It is a challenge for
modern, international corporations to
understand the range of enterprises
they control. Outdated IT systems
are a significant barrier to managing
complexity.
ª CompIexity is not static. Its causes
change as companies move through
the business cycle and economies
develop. New technologies lead
companies to seek people with new
skills, mergers and acquisitions lead
to issues over information flows and
management, and new regulations
are a constant source of change.
Companies need to be agile to cut
through these layers of complexity
and achieve growth.
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ª The actions many companies
take to deal with complexity are,
at best, moderately effective.
Improving information management,
reorganizing the business or changing
the approach to people management,
are all popular responses to
complexity. But less than half of the
people who undertook them thought
they were particularly effective. Least
effective of all is direct lobbying of
policymakers.
ª Opportunities do exist in compIex
situations. Most people think
complexity provides opportunities for
change, but companies in developing
economies are more likely than
those in mature economies to see
complexity as an opportunity to
develop new strategies and new
products.
ª BroadIy, there are two aIternative
strategies for dealing with
complexity. Embrace it as a spur
to innovation and change; or try
and avoid it by keeping business
processes simple. Executive teams
need to decide which path is more
appropriate for their companies.
KPMG’s view
In each contribution to this report from
KPMG’s member firm professionals,
the central theme focuses on stepping
back from the operational side of the
business and thinking more strategically
about the nature of the organization.
A clear view of the purpose of an
organization, combined with an
understanding of its overriding culture,
provides a vital framework for coherent
thinking. It gives guidance on important
practical matters like the appetite for
risk; decision making; how traditional
functions need to change to meet new
challenges and working with external
partners.
It’s easy to lose this clarity as companies
get larger and more diverse. But
for those who can read them, there
are always signals that show where
operations can be improved.
Regulation is a strong signal that
companies need to take action.
Although it may appear to be an
additional burden, a new regulation can
help an organization to re-focus on its
overall purpose. It can then examine
what each part should be contributing to
that purpose, and review the common
platforms that are needed to manage
risk and create value.
It is not the nature of the complexity
that a company faces that will
determine its success; it is the extent
to which the company can analyze the
problem, identify the most effective
way to address it, and then implement
appropriate action. In doing so, the
challenges of complexity can be turned
into opportunities for growth.
It is not the nature of the
complexity that a company
faces that will determine
its success; it is the extent
to which the company
can analyze the problem,
identify the most effective
way to address it, and then
implement appropriate
action.
Conf r ont i ng Compl exi t y | 3
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
94%
Complexity is a major issue
for businesses globally –
94 percent of executives
believe managing
complexity is important
to the success of their
company.
The story from the research –
managing complexity is at the
top of the business agenda
Respondents were virtually unanimous
on the importance of managing
complexity, while 70 percent said that
increasing complexity is one of their
biggest challenges.
For most of these people, the increase
in complexity over the past two years
has been substantial. Nearly half
(44 percent) reported a ‘somewhat
significant’ increase in complexity over
this time, while for 28 percent there had
been a ’very significant’ rise.
The impact of complexity is global, but
it is not felt everywhere to the same
extent. Even those countries reporting
the lowest increases in complexity
(Denmark and the Netherlands) 52
percent and 44 percent respectively
said that for them, complexity
had increased very or somewhat
significantly since 2008.
Complexity is a major issue for businesses globally – 94 percent of executives
believe managing complexity is important to the success of their company
Managing complexity
is important to my
company’s success
Increasing complexity
is one of the biggest
challenges my company faces
Agree Disagree
0 20 40 60 80 100
94%
70%
6%
30%
Source: KPMG International, 2010
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From a regional perspective, the data
shows there is little to choose between
the Asia-Pacific countries, where
33 percent of respondents reported a
very significant increase in complexity,
and the Americas, where 32 percent
said the same thing. But in Europe,
only 24 percent responded that
complexity had increased very
significantly for them.
The difference is even more marked
between the emerging economies
of Brazil, Mexico, Russia, South
Africa, China and India and the mature
economies of Europe and North America.
Among the emerging economies,
34 percent reported a very significant
increase, while among the mature
economies the figure is 26 percent.
Estimating changes in the next two
years, there is a similar pattern. Among
the Asia-Pacific economies 24 percent
expect a very significant increase in
complexity, compared with 16 percent
in the Americas and only 9 percent in
Europe. In the emerging economies,
the same view is held by 20 percent,
compared with an average of only
13 percent among the mature economies.
Net increase in complexity (%)
Italy, China, South Korea and South Africa saw the largest net increase in complexity
70%
69%
64% 64%
63%
62%
61% 61%
56% 56%
54%
52% 52%
44% 44%
40%
10% 10%
Italy
China
South Korea
South Africa
US
Brazil
0
10
20
30
40
50
60
70
80
58%
68% 68%
48%
Net increase in complexity = (increased very significantly + increased somewhat significantly + increased minimally) – (decreased + stayed the same)
Denmark
Netherlands
Mexico
Sweden
Russia
Ireland
France
Switzerland
India
Spain
Japan
Germany
UK
Canada
Singapore
Australia
“You have to make sure you understand what is making your
business complex and understand the consequences before
doing something too quickly.”
HR Director, Transport/Logistics, Germany
Source: KPMG International, 2010
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Net future increase in complexity (%)
Australia, China, South Africa, Brazil and US expect the largest net increase in complexity
-20
-10
0
10
20
30
40
50
44%
43%
38%
36%
35%
34% 34% 34%
26%
21%
18%
16%
13%
10%
6%
4%
2%
0%
-2%
-8%
-12%
-14%
Net increase in complexity = (increased very significantly + increased somewhat significantly + increased minimally) – (decreased + stayed the same)
Australia
China
South Africa
Brazil
US
India
Japan
Singapore
Sweden
UK
France
Switzerland
Germany
Canada
Denmark
Mexico
Netherlands
Russia
Spain
South Korea
Ireland
Italy
Source: KPMG International, 2010
At a sector level, complexity affects
all industries. More than 70 percent
of executives from five key areas
said that complexity had increased.
Financial services has seen the
greatest increase in complexity, with
44 percent of respondents reporting
a significant increase in the past
two years, and 33 percent saying
the increase was very significant.
Technology is next, with 47 percent
seeing a significant increase, and
29 percent seeing a very significant
increase. In each of these sectors,
clear majorities expect complexity to
continue to increase at a rapid rate
over the next two years.
Significant increases in complexity
over the next two years are also
predicted by around half the
executives in the energy and natural
resources, diversified industrials and
consumer sectors.
An industry view
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© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
Causes of complexity
Globally, the most common cause of
complexity is regulation, cited by
71 percent. Among the sectors,
78 percent of respondents in financial
services saw regulation as the major
cause in their industry and both
regulation and government oversight
were seen as significant causes of
complexity by 75 percent across
all sectors.
At a regional level, 73 percent
and 74 percent in the Americas and
Europe, respectively, cited regulation
as their primary cause of complexity.
This compares with 65 percent in the
Asia-Pacific countries.
71%
Globally, the most
common cause of
complexity is regulation,
cited by 71 percent.
Source: KPMG International, 2010
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84%
Information management
stands out in this survey as
both an important cause
of complexity and the
most popular means
of managing it. It was
chosen as a solution to
complexity by 84 percent
of respondents.
One of the main concerns with
regulation is its inconsistency
across borders. Nearly 90 percent of
respondents said that governments
should work together to make the global
regulatory environment less complex.
Information management is key
The second most frequently cited cause
of complexity at a global and regional
level was information management. In
the Americas, 71 percent chose this
as a key cause, rising to 80 percent in
Brazil. In Europe this was the choice
of 60 percent and among the Asia-
Pacific countries, it was the choice of
63 percent. Indian businesses were
particularly concerned about information
management, chosen as a cause by
72 percent.
Information management stands
out as both an important cause of
complexity and the most popular means
of managing it. 84 percent chose it as a
solution to complexity. In both senses,
this is consistent with managements
working hard to understand exactly
what is going on in increasingly complex
and widely spread organizations. They
often have to cope with incompatible
and inadequate IT systems that need
substantial investment to provide good
quality information, both as an aid to
good decision-making and a means of
controlling the organization. At the same
time, the pace of change in information
management is dramatic, as with the
rapid emergence of cloud computing as
a possible solution to IT issues.
Mixed views on speed of innovation
Among the Asia-Pacific economies,
65 percent of respondents also cited
speed of innovation as a primary cause
of complexity, ranking it alongside
regulation. Among the emerging
economies, speed of innovation was
marginally ahead of regulation as the
main cause, chosen by 67 percent.
This compares with only 57 percent of
respondents from the mature economies.
Identifying and ranking the causes of complexity
71% 42%
25%
21%
25%
26%
16%
18%
63%
60%
59%
57%
55%
50%
Regulation (other than tax)
Information management
Government oversight
Increased speed of innovation
Tax policy
Operating in more countries
Doing mergers or acquisitions
Greatest causes
of complexity
Source: KPMG International, 2010
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This is not to say that the speed
of innovation is an issue limited to
developing countries. Across all sectors,
speed of innovation is identified as a
leading cause of complexity by more
than half of respondents.
Moreover, the speed of innovation is
expected to have a much greater impact
on complexity going forward. 70 percent
of respondents in developing economies
and over 60 percent in the Americas and
Asia-Pacific economies expect rapid
innovation to increase its impact on their
companies over the next two years.
Challenges and opportunities
One of the greatest long-term
challenges is that complexity is not
static. Its causes will likely change
over time as economies develop and
become more complex. This view is
held particularly strongly in the Asia-
Pacific region, where 60 percent of
respondents expected changes in the
nature of complexity.
The respondents expect these
changes to be driven primarily by faster
innovation. But where innovation
leads, regulation will likely follow, so
companies will find themselves dealing
with successive waves of additional
complexity as their markets develop.
Today, three immediate challenges
stand out.
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The greatest of these is a
straightforward increase in the number
of risks that need to be managed.
Globally, 84 percent of respondents
opted for increased risk as their main
challenge, (87 percent in the Americas).
The increase in the number of risks
organizations manage is itself a cause of
additional complexity. Many businesses
routinely react to a new regulation by
introducing a new compliance initiative.
It does not take too long before the
number of overlapping initiatives is so
great that the sheer complexity of the
compliance arrangements within an
organization is itself a new source of
risk. We look at this in more detail in the
section on managing risk.
Closely linked to risk is increased cost.
Globally, 78 percent of respondents
thought that this was the principal
challenge of complexity. This rose to
88 percent in the Asia-Pacific economies.
The impact on cost was particularly strong
in China (93 percent), Japan (90 percent),
India (86 percent). In the UK the figure
was 86 percent which, alone among the
European nations, chose increasing costs
as the principal challenge.
The third most frequently identified
challenge was the availability of new
skills. This seems to correlate closely
with those economies where speed
of innovation is a strong cause of
74%
73%
60%
57% 55%
58%
56%
42% 42%
60%
51%
65%
63%
58%
71%
70%
65%
59%
61%
57%
Europe Asia-Pacific Americas
40
45
50
55
60
65
70
75
80
Americas – Brazil, Canada, Mexico, US
Europe – Denmark, France, Germany, Ireland, Italy, Netherlands, Spain, Sweden, Switzerland, UK
Asia-Pacific – Australia, China, India, Japan, Singapore, South Korea
Regulation
(other than tax)
Information
management
Government
oversight
Increased speed
of innovation
Tax policy Operating in
more countries
Doing mergers
or acquisitions
Factors causing complexity by region
Regulation and information management a bigger concern in Americas and Europe. M&A, increased speed of innovation and operation in
more countries a bigger concern in Asia-Pacific
Source: KPMG International, 2010
Conf r ont i ng Compl exi t y | 9
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complexity. This is true of Brazil
(where 92 percent identified the need
for new skills as a major challenge),
Japan (90 percent) and China (92 percent).
It is also a major factor for the technology
sector, where more than 80 percent say it
is a significant challenge.
Creating new opportunities
Increasing complexity is also a source of
new opportunities. Three-quarters of all
respondents agreed that opportunities
can arise from complexity, with gaining
competitive advantage and creating new
and better strategies as the two most
common opportunities identified.
There were some interesting alternative
views, however. Among German
respondents, for example, 40 percent
did not think there were opportunities to
be had. Those who did see advantages
were focused mainly on the need for
new products.
At a regional level, there was a
slightly higher tendency to see new
opportunities in Asia-Pacific and the
Americas (78 percent and 79 percent,
respectively, compared to 69 percent for
Europe). But the emerging economies
were significantly more positive, with 81
percent seeing opportunities compared
with 72 percent for the mature
economies. Large majorities in Brazil,
Mexico, India and China see complexity
as a stimulus to improve existing
corporate strategies or create new and
better ones.
Among the more mature economies, the
Irish, Spanish and Japanese were most
optimistic about new opportunities. Their
optimism might be a reaction to the
recession, which hit these economies
particularly hard.
All told, at least 70 percent of
respondents said complexity can create
opportunities for:
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“Keep an open eye on all the new complexities that occur in some countries; if
you are the first to resolve them you will have an advantage on the challenger.”
Consumer Market respondent, Germany
Challenges of complexity by region
More new skills needed and a greater cost in Asia-Pacific due to complexity
Europe Asia-Pacific Americas
More risks
to manage
Increased
cost
Need new
skills
More difficult
to implement
change
More difficult
to compete
More difficult
to make
management
decisions
Deals and
transactions
take more time
40
50
60
70
80
90
100
82%
84%
87%
82%
79%
66%
71%
63%
70%
73%
55%
64%
54%
55%
51%
88%
84%
60%
69%
64%
66%
Source: KPMG International, 2010
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73%
72%
70%
70%
60%
58%
Focus our existing business strategy
Create new products
Make my company more efficient
Expand into new markets
Create new and better strategies
Gain competitive advantage
6%
20%
Complexity can create new opportunities Opportunities created by complexity
74%
Yes No Don’t know/Can’t say
The response from business – actions
to address the challenge
Businesses around the world are
working hard to meet the challenges
of increased complexity. Respondents
from all regions, all sectors and both
emerging and mature economies chose
better management of information
as their main response. This perhaps
explains the proliferation of solutions
being developed for business
intelligence, data analytics and cloud
computing.
Reorganizing all or part of the business
came second, chosen by 70 percent of
the global sample and, again, a popular
response across all regions and sectors.
It was particularly popular among
respondents who also said that they had
experienced a very significant increase
in complexity over the past two years.
81 percent of this group said that their
response was some form of business
reorganization.
Source: KPMG International, 2010
*Due to rounding, graphs may not add up to 100%
Businesses are addressing complexity in a variety of ways ... with mixed success*
Actions taken to address complexity Effectiveness of the actions
Significantly changed approach to human resources
Reorganized all or part of your business
Improved information management
Outsourced functions
Did mergers or acquisitions
Influenced regulation or public policy
Invested in new countries or geographies
84% 16%
44% 48% 8%
70% 30% 45% 47% 9%
53% 47% 39% 49% 12%
49% 51% 43% 42% 15%
46% 54% 29% 48% 23%
45% 55% 43% 42% 15%
42% 58% 34% 49% 17%
Yes
No
Very effective
Somewhat effective
Minimally effective
Source: KPMG International, 2010
Conf r ont i ng Compl exi t y | 11
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These options may have been the
most popular, but there is some
doubt as to how effective they have
been. Around half of respondents
whose organizations tried improving
information management or business
reorganization said that their actions
had been only moderately effective in
solving their problems.
A need for new skills
The impact of the third most popular
option, changing the approach to human
resources, was equally mixed. Although
this was a favored option for 53 percent
of respondents, overall it was seen as
very effective by only 39 percent.
The least effective option was to try
to influence regulation or public policy
directly through lobbying or other
representations. However, this was a
popular option in financial services and
energy and natural resources. It was
also relatively popular in the Asia-Pacific
countries, where 53 percent chose it as
an option, compared with 47 percent in
the Americas and 42 percent in Europe.
Despite this enthusiasm, nearly a
quarter of respondents said that
direct representations were minimally
effective in controlling complexity, and
only 29 percent were prepared to say
they were very effective.
Outsourcing functions was popular
as an option in China, Japan, Brazil,
Russia and Ireland, but it has a mixed
following among other countries, with
only 34 percent declaring it a very
effective response.
These results show that simply taking
on new tasks or outsourcing functions
to respond to complexity is not a
guarantee of success. If these actions
are not integrated into the existing
business model, there are likely to be
overlaps, duplications and conflicting
initiatives. These, in turn will increase
the complexity that an organization has
to manage.
Future plans to meet the challenge
of complexity
Just over half of the people interviewed
expected that in the next two years
their companies would be taking
different or additional actions to deal
with complexity. But responses varied
significantly between countries.
The most active countries looking forward
are South Africa, where 76 percent expect
to increase or change their activity, Ireland
where the figure was 74 percent, and
the US with 71 percent. At the other end
of the spectrum, the countries where
companies are least likely to change
or increase their anti-complexity activity
are Italy, where 56 percent expected
no change, the Netherlands where the
figure was 66 percent and Spain, with
68 percent.
Improving information management is the number one action taken across all market sectors
Actions taken Overall
Market sector (%)
Financial
services
Technology
Communication
media
Consumer
Chemicals and
pharmaceuticals
Diversified
industrials
Energy and natural
resources
Improved information
management
84 83 88 85 83 81 82 82
Reorganized all or part of
your business
70 69 78 76 65 67 76 65
Significantly changed
approach to human
resources
53 51 57 44 54 54 58 54
Invested in new countries
or geographies
49 44 60 40 45 58 52 44
Influenced regulation or
public policy
46 55 43 47 40 40 40 53
Did mergers or acquistions 45 41 51 36 44 50 48 43
Outsourced functions 42 44 50 49 38 39 44 39
Source: KPMG International, 2010
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Again, the most popular action by
a long way is improving information
management, followed by reorganizing
all or part of the business, and changing
the approach to human resources.
The option of doing more mergers and
acquisitions is proving relatively more
attractive, particularly among emerging
economies, while the option of seeking
to influence regulation directly is
becoming even less popular.
Next steps
Although there are clear differences in
the impact of complexity on different
countries, regions and business sectors,
there is consistency in the importance
decision-makers place on it and in the
actions they are taking to address it.
It is also clear that these actions have
met with limited success so far. There
is wide agreement on the need for new
and better approaches.
In the face of complexity, leadership
needs to be a management priority.
Leaders need to ask themselves
the following:
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complexity facing my business
and industry?
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challenges of complexity?
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insight into complexity to drive
opportunity creation and growth?
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is managing these responsibilities
effectively today, while also planning
for the complexity of tomorrow?
In the rest of this report, we look
more closely at some of the key
themes arising from our research
and offer some thoughts on how
companies may choose to meet the
challenges and take advantage of the
opportunities it presents.
Actions to address complexity, in order of importance
Action to address complexity
over the past 2 years
Improved information management
Reorganized all or part of
your business
Significantly changed approach
to human resources
Invested in new countries
or geographies
Influenced regulation
or public policy
Did mergers or acquisitions
Outsourced functions
Improve information management
Reorganize all or part of
your business
Significantly change approach
to human resources
Do mergers and acquisitions
Invest in new countries
or geographies
Outsource functions
Try to influence regulation
or public policy
Action to address complexity
over the next 2 years
59%
Looking ahead to the
next two years, just
over half of the people
interviewed expected that
their companies would
be taking different or
additional actions to deal
with complexity. But there
was a significant variation
between countries.
Source: KPMG International, 2010
Conf r ont i ng Compl exi t y | 13
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
Information management –
problem or solution?
If regulation, speed of innovation and
the economic environment are the three
main external causes of complexity, the
three main internal causes are managing
information, operating in multiple
countries and the effects of mergers and
acquisitions on internal organization.
Among these, the only element
identified as both a cause of complexity
and a method of dealing with it is
managing information. It is the most
popular technique for dealing with
complexity, both now and in the next
two years, in all regions and in
all sectors.
The implications of this are profound.
This report suggests that companies
are struggling to find out what is
happening in their own organizations,
either through lack of good quality data,
inconsistent information, or through
problems interpreting what they have.
Short versus long term
This idea is supported by the results
of another KPMG survey, (A New
Role for New Times, KPMG and CFO
Research, 2011), which examines the
role of the chief financial officer (CFO)
and the finance department in a modern
international corporation.
59% to take different or additional actions to address complexity
Improving information management (73%) and reorganizing all or part of your business (59%) the most important future actions
73%
59%
46%
43%
42%
41%
40%
5%
None of these
Invest in new countries or
geographies
Outsource functions
Try to influence regulation
or public policy
Do mergers and acquisitions
Significantly change
approach to human resources
Reorganize all or part of
your business
Improve information
management
11%
31%
Additional or different actions to address
complexity over the next two years
59%
Yes No Don’t know/Can’t say
Source: KPMG International, 2010
14 | Conf r ont i ng Compl exi t y
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The two greatest challenges cited by
the CFOs interviewed are the internal
complexity of their organizations
and difficulties in finding and using
an effective IT system that is able
to collect, analyze and present the
information needed.
Problems with IT systems frequently
arise because executives find
themselves needing more and better
information from systems that were not
designed to carry such a burden. This
is especially common in organizations
that have been through a large M&A
program and have to cope with several
different legacy systems.
The only long-term answer to this
problem is a complete structural review
of the system. Short-term fixes can help
for a while, and some KPMG teams
have been able to reduce 250-page
management information packs to 50-60
pages by careful selection and analysis
of the information available. But modern
organizations need modern information
systems. To better obtain the benefits of
an accurate and comprehensive view of
a company’s performance, there is often
little alternative to investing in proper
integration of information management
systems to create a common, reliable
and effective platform.
Embedding controls at the right level
Focusing on managing information
suggests a widespread need to
develop an accurate central view
of the risks and performance of an
organization. It is a short step from
here to developing centralized controls
in the belief that these are an effective
method of solving problems.
However, although an accurate central
view is clearly important, KPMG’s
experience shows that heavily
centralized controls are rarely the most
effective way to manage a diverse,
multinational enterprise. The reality is
that in a modern corporation it simply
may not be possible or even desirable
to run things from the center with good
IT, when agility and responsiveness to
complex, rapidly changing markets is
what is really needed.
KPMG subject matter experts talk
instead of embedding best practice at
the lowest possible level, whether this
is in a tax, finance, or risk management
function, or in an operational department.
This view was expressed eloquently
by a Russian finance director in the
consumer sector, whose comment
on complexity was, “Every single
employee should be responsible for
what they do. Give them the power to
make decisions on what they specialize
in, as if every member of staff owns the
company they work for. Because, today,
even if you know what to do and that
this is the right thing to do, you still need
approval from a director or manager who
may not be competent on that issue.”
Although an accurate
central view is clearly
important, KPMG’s
experience shows that
heavily centralized
controls are rarely the
most effective way
to manage a diverse,
multinational enterprise.
Conf r ont i ng Compl exi t y | 15
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
Managing increasing risk
A large majority of the businesses
polled in this survey feel the effects of
increased complexity primarily through
an increase in the number of risks they
have to manage. As we noted earlier,
a common response to identifying a
new risk is to create a new program to
handle it. It doesn’t take long before
the number of programs is itself a new
cause of complexity, not least because
these programs often overlap and,
once in place, it can be very difficult to
remove or consolidate them.
This is not just a problem of organization,
it can be a major contributor to costs.
A survey carried out for KPMG in
September 2009 (The Convergence
Challenge, KPMG and EIU, 2010)
revealed that 50 percent of respondents
thought governance, risk and
compliance costs account for 5 percent
of overall revenues, while for 20 percent
they were as high as one-tenth.
These costs might not be a significant
problem if they were seen to be providing
a good return on investment. But only
one-third said they were able to see this
as an investment. For the rest, it was
simply a (rising) cost of doing business.
Governance, risk and compliance
convergence and integration
In larger companies, especially when
highly regulated, the expansion of
governance, risk and compliance activity
has created many large, unwieldy and
often autonomous risk and control
functions. It is not uncommon to have
dozens of committees dealing with
different aspects of risk, many of them
overlapping yet not communicating.
In the midst of this bureaucracy
and duplication, many organizations
are drowning in a sea of their own
complexity. They are unable to
distinguish the critical business risks at
both the group and entity level, and may
come to mistrust some of the business
intelligence they are receiving.
One approach to resolve this problem is
to align and converge the organization’s
governance, risk and compliance
functions and processes (i.e. internal
audit, regulatory compliance,
operational risk, information security,
and risk management) to help
provide increased confidence in, and
transparency of, information. Once risk
and compliance functions and process
silos are removed, the organization
can gain broader insight and can foster
improved decision-making, choosing
how and where they want to assume
greater risk to enhance performance.
An increasingly common strategy
for dealing with the complexity of
governance, risk and compliance is
to tackle head-on the difficult task
of converging or integrating risk
management, creating simpler, more
effective governance and information
management structures.
Organizations are viewing enterprise-
wide risk management more
strategically, while also looking to draw
more efficiency out of existing risk and
control functions. This combination
results in pre-existing silos being broken
down from a risk information perspective
(risk convergence), allowing for more
efficient identification and management
of risk, including emerging risks.
Although this may sound logical and
practical, it can meet with some
resistance from the risk and control
functions who may not fully understand
the impact on their work. The
Convergence Challenge found that
44 percent of respondents thought
simple resistance to change was
the largest single barrier to greater
convergence of governance, risk and
compliance. These efforts therefore
16 | Conf r ont i ng Compl exi t y
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
require senior management support
and careful consideration to change
management. It needs to be clear
to everyone in the risk and control
functions that the goal is to identify
opportunities to share risk information
more efficiently, and to leverage and
coordinate activities and resources.
The business is no longer accepting
multiple requests to the same people
from various risk and control oversight
functions, asking for similar information.
This approach will ultimately require the
risk and control functions to coordinate
activities from risk assessment and
planning through to execution of work
and managing issues. To allow this,
there will need to be agreement of
guiding principles by all stakeholders
to establish protocols and to assist in
decision making throughout the risk
convergence initiative.
These guiding principles may include
statements related to the establishment
of a common risk language,
simplification of processes, protocols
for working together and others.
They will set the basis for improved
cooperation across functions.
Clear establishment of roles and
responsibilities is critical in any risk
convergence initiative along with a
transparent change management plan to
embed the right behavior in people and
processes. With these functions working
in harmony and by leveraging appropriate
technology to manage risk information,
an organization should be able to
combine the necessary risk oversight
with continuously improved performance.
But, effective though it is, risk
convergence is not an easy process, and
many companies have tried alternative
methods of reducing complexity.
Popular options are reorganization and
transformation.
Reorganization as a soIution to
increased risk
Respondents to the complexity survey
chose reorganizing the business as
the second most popular method of
dealing with complexity, after improving
information management. Seven out
of 10 respondents to the survey said
they had already done this, and a clear
majority expect to do this within the
next two years.
It is likely that many of the organizations
that were polled in the study had taken
part in the very active mergers and
acquisitions market leading up to 2008,
and are still dealing with the issues
raised by bringing together separate
businesses and groups of people.
Mergers and acquisitions were clearly
identified as a cause of complexity
by 50 percent of respondents. It
does not take much thought to
conclude that bringing together
businesses from different countries,
as many companies were doing in a
response to the boom in international
trading opportunities, would present
formidable organizational difficulties.
But, like information management,
mergers and acquisitions were cited
both as a cause and a solution for
complexity. More surprising still, M&A
was thought to be a good solution to the
problem, and said by 43 percent to be
very effective.
Improved integration techniques
For insight on this, it is helpful to turn to
KPMG’s long-running series of studies
on post-merger integration techniques.
This survey has been conducted
every second year since 2000, and
has charted a steady rise in the level
of professionalism, the understanding
of organizational problems and the
standardization of methods applied to
large-scale reorganizations of business.
Supply chain
reorganization
One area in which we have seen
direct evidence of a widespread
move to reduce complexity
through reorganization is in
international supply chains.
This comes from the most recent
of KPMG’s regular surveys of
global manufacturing. Published
in late 2010, it showed clearly
that large companies are actively
reorganizing their supply chains
specifically to reduce cost and risk.
The focus for many was on cutting
down the number of suppliers they
deal with, and on taking the time
and trouble to check the financial
health of this reduced number to
cut down the risk of a failure, which
might affect the whole group.
Although cost reduction
was a declared aim of these
reorganizations, many conceded
that an excessive concentration
on cost reductions in the past
had damaged relationships with
important suppliers. As a direct
consequence, risk had increased,
either through poorer quality, late
deliveries, less co-operation on
product development or a mixture
of all three.
By choosing instead to deal with
fewer suppliers, but to take time
to build improved relations of trust
between supplier and principal,
these organizations have sought
to simplify their operations and
improve management of risk
through reorganization. Many have
conceded that pursuing the lowest
possible cost in all cases carries too
high a risk, and have opted to take
a broader, longer-term view of cost
management in the expectation of
better long-term results.
“Most countries’ tax authorities purport to follow the OECD
transfer pricing guidelines, but each authority interprets the
guidance differently. Everyone likes it, but everyone has their
own take on how it should be done.”
Steven Fortier, Global Head of Transfer Pricing, KPMG International
Conf r ont i ng Compl exi t y | 17
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
The latest study, to be published later in 2011, reaffirms
some key lessons from previous surveys; that successful
integrations/reorganizations are done fast, they integrate the
new/reorganized business completely, and they are planned
very thoroughly in advance.
In terms of complexity, the most difficult issue that arises,
and one which consistently receives less attention in
the due diligence phase, is merging different cultures. In
extreme cases, problems in getting people to understand
and work with each other can prove to be a deal breaker,
either because key people leave, or because the
accumulated problems of communicating effectively become
overwhelming.
There is further evidence of this problem in the complexity
survey, where 53 percent of respondents said they had made
significant changes in their approach to human resources in
an attempt to deal with complexity, but only 39 percent were
prepared to say that this had been very effective.
Both surveys suggest that there has been much
improvement in the techniques of business reorganization,
and that using these techniques can bring a new logic and
structure to complex organizations that can improve their
performance. But both also suggest that there is work still to
be done on the effective management of cultural complexity,
and that this has become more urgent as businesses expand
further beyond their national borders.
Transformation of traditional functions
Major reorganizations require good information and vision,
and it is in pursuit of these that many organizations have
taken an alternative route to better management of risk and
cost – transformation of core functions like finance and tax
from their traditional transactional role into active providers of
insight and value.
KPMG’s forthcoming survey of CFOs shows that finance
departments, in particular, are coming under increasing
pressure to provide high-quality business analysis of the
information that they routinely collect. Typically, a finance
department that yesterday might have spent 15 percent of
its time on supporting decision making for value creation,
30 percent of its time on financial controls to protect value
and 55 percent of its time on transactional processing, will
today be expected to spend 50 percent of its time on value
creation, and only 20 percent on processing transactions,
often at a much reduced cost to the organization.
Risk management stiII a
challenge
An underlying theme of this survey is that executives
globally see complexity as a source of additional risk
that they must manage. They recognize that poor risk
management in increasingly complex environments
has contributed both to the international financial
crisis of the late 2000s and to more industry-specific
incidents, at great cost to all involved.
KPMG recently sponsored a research report in co-
operation with the Economist Intelligence Unit that
examined the post-recession role of risk management
in international organizations (Fall Guys – Risk
Management in the Front Line – KPMG/ACE/EIU 2010).
The key findings from this research were that:
t 4USBUFHJDSJTLNBOBHFNFOUSFNBJOTBOJNNBUVSF
activity in many companies
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in key business decisions
t 5IFSFJTMJNJUFEBQQFUJUFGPSJOWFTUNFOUJOUIF
risk function
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there is a danger that this will not be a permanent
change; and
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among non-executive directors.
So has anything really changed in the last couple
of years? While these findings may suggest not,
KPMG member firm practitioners’ experience in this
area suggests that some companies are working
hard to embed sophisticated risk management in
their decision-making. The goal is to turn risk, or at
least the effective management of risk, into a positive
advantage that can generate value.
These organizations view risk as an issue that
affects everyone, not the sole responsibility of a risk
management department. People who can clearly
articulate and quantify the risks they face and their
probable impact on performance are likely to make
better business decisions.
18 | Conf r ont i ng Compl exi t y
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
This is clearly a major
challenge for CFOs –
the need to provide an
accurate, understandable
picture of what is
happening in increasingly
complex organizations,
and to interpret it for
opportunities, while
making sure that the core
transactional work of
the function is still being
done flawlessly.
This is clearly a major challenge for
CFOs – the need to provide an accurate,
understandable picture of what is
happening in increasingly complex
organizations, and to interpret it for
opportunities, while making sure that
the core transactional work of the
function is still being done flawlessly.
But among participants in KPMG’s
CFO survey, just under half said they
were already playing a larger role in
business strategy than five years ago,
and 62 percent expected to increase
this part of their work in the next
five years. A CFO from Singapore
commented, “This role means to
actively participate in decision making,
providing high-quality analysis that is
fact-based and objective. By and large
finance is able to play this role, but it
struggles with catching up with the
constantly changing environment.”
There are many techniques for
managing this kind of transformation
within large organizations, but no one
method that is guaranteed to provide
a perfect result every time. In most
instances, the basic requirements of
those driving these programs are a deep
understanding of the organization’s
goals and business, a strong adherence
to processes and policies, and, in many
cases, the ability to acquire a new and
different set of skills.
Source: KPMG CFO survey 2011
Similar role Larger role Smaller role
Five years ago Five years from now
0
10
20
30
40
50
60
70
49%
12%
2%
36%
62%
38%
CFOs say their finance functions play a much larger role in
decision-making now than they did five years ago, and they expect
this involvement to increase in the future
“The answer for many organizations is to take their approach to
risk back to basics, review compliance in the light of how their
business looks today, and rebuild on a more rational basis.”
Mike Nolan, Global Head of Risk and Compliance Services , KPMG International
Conf r ont i ng Compl exi t y | 19
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
Speed of innovation
Although the pace of change is
increasing for all respondents,
speed of innovation is a major cause
of complexity for the emerging
economies. In China and Brazil, it
is cited as the number one cause,
ahead of regulation or tax issues. In
India, it is second only to information
management, and in Mexico it comes
second after tax policy.
Among the mature economies, speed
of innovation is the top cause of
complexity for Japanese businesses.
But elsewhere, in the US, Germany,
Canada and the UK, for example, it
comes well down the list, after regulation
and information management.
For the mature economies, this may
say more about the relative importance
of regulation than it does about speed
of innovation as a cause of complexity.
Nevertheless, innovation is being used
throughout the world as a stimulus for
new structures, new thinking and new
solutions to problems.
On one level, companies in emerging
economies are finding growth
opportunities driven by demographics.
In many cases, they already have much
larger, faster growing populations than
in the developed world. This rapidly
growing domestic market means
that organizations that can develop
efficient manufacturing and distribution
processes can gain an advantage.
It requires continuous innovation
to exploit this opportunity, adapting
existing products and solutions to
local requirements. This is a challenge
that European companies know well.
One German respondent said, “You
must keep an open eye on all the new
complexities that may occur in your
countries; if you are the first to resolve
them you will have an advantage over
your challenger.”
A Swiss CFO added, “Keep your ears
open, everything is changing very fast.
It’s death for those not adapting their
business.” In this environment, the drive
for growth drives relentless innovation.
On another level, many global
manufacturing firms are locating
research and development centers in
emerging economies. This is to take
advantage of a lower-cost base and the
availability of highly skilled workers to
ensure that products and services meet
local customer needs.
20 | Conf r ont i ng Compl exi t y
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
A premium on agility
Most emerging markets suit highly
diverse conglomerates. These are the
companies best able to adapt to fast-
changing opportunities in the drive
to grow. Indeed, they have to do so,
which in turn places a premium on
agility and innovation.
Techniques for developing these qualities
vary widely. One Korean respondent
spoke proudly of the “Intrapreneuriat”
which his company had established as
a successful focus for entrepreneurial
thinking within the company. This
formalized approach can work very well
in one company, but may not be suitable
for those with a different culture.
For any company, harnessing the
creativity and imagination of employees
is necessary to remain competitive. This
is clearly a complex task. It could involve
adapting technology to create new
products, reducing the cost of products
to appeal to markets in emerging
economies, or adapting products and
solutions to meet new regulations.
The key to managing innovation is to
maintain an open and receptive policy
on new ideas, and to avoid internal
complexities that might stifle or divert
creativity. Those who get this right
will succeed.
“Businesses in emerging economies are finding greater
growth opportunities and acting upon them more quickly than
those in the developing world. The companies that are most
successful have efficient manufacturing and distribution
processes that deliver profitable, low-cost products and
solutions. This requires continuous innovation to adapt existing
products and solutions to local requirements.”
Adam Bates, Partner, Risk and Compliance Services, KPMG LLP (UK)
Conf r ont i ng Compl exi t y | 21
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
The need for new skills
Economies in a period of rapid
technological change will naturally be
hungry for people with the necessary
new skills to help build and maintain a
competitive advantage.
In this survey, speed of innovation
is identified as a leading cause of
complexity in Brazil, Mexico, China and
India, so it’s not unreasonable that these
countries should also identify the need
for new skills as a top priority.
If we compare emerging with mature
economies, the need for new skills is
identified as a major challenge by
81 percent and 76 percent respectively.
It is interesting that the gap between
the two is not wider.
In Japan, for example, the need for new
skills is rated as the top challenge of
complexity, chosen by 90 percent of
respondents, alongside increased costs.
In Europe and North America the figures
are between 70 percent and 80 percent.
Demographic changes driving
changing labor force
Part of this may be simply due to the
pace of technological change in these
countries, but for further insight it is
helpful to look at some of the work
on demographic change that is being
done by Bernard Salt, a KPMG partner
in Australia who has specialized in
analyzing the global impact on business
of changes in population.
His work on population trends in large
economies has identified a widespread
decline in the rate of growth in
numbers of active working age people
(defined as 15–64 years of age) in
these countries. Aging populations and
declining birth rates have meant that,
taking Japan once again as an example,
the number of Japanese working age
people began to fall in 1994 and has
fallen every year since then.
In France, the rate of growth has
declined substantially from the peaks of
the 1970s and 1980s, and is expected
to tip into a net reduction in the working
age population by 2012. China is
expected to reach the same point
in 2016.
India does not have the same problem.
Its relatively young population is
expected to provide growth in the
number of working age people for
decades to come. But in the UK
and the US, declines in the growth
of the indigenous population have
been overcome only by large-scale
immigration; in the UK, migrants have
come largely from former colonies and
from the EU, and in the US they have
come from Latin America.
For businesses faced with a labor force
where the average age is steadily
rising, there may be a desire to bring
in new people with fresh skills and
different ideas. If these people are not
available in the domestic workforce,
then this is clearly going to be easier
to do in countries where there is a
tradition of immigration to fall back on,
as in the US and the UK.
As to where these people might come
from, India would seem to be a good
place to look. UN statistics suggest that
over the past four years, around
Changing demographics
presents a number of
challenges for human
resources: businesses
will have to adopt
new approaches to
recruitment.
22 | Conf r ont i ng Compl exi t y
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14 million working age people a year have
been added to the Indian workforce.
These changing demographics present
a number of challenges for human
resources. Businesses will have to
adopt new approaches to recruitment
and start to look outside their traditional
marketplaces for resources. A more
proactive and flexible approach to
workforce planning may be required.
The development of new skill sets
among existing workforces will also
become more important. Finally, for
many countries it appears that the war
for talent is imminent, which means
attracting and retaining resources will
become a business priority.
The results of Bernard Salt’s research were published as The Global Skills
Convergence. This included interviews with senior HR executives in several
global companies. Their preferences for the ideal corporate recruit are
summarized in the table below, and set alongside their actual experiences
of recruiting among “Generation Y,” people coming into the workforce in the
mid-2000s. The differences between the two may go some way to explain the
problems businesses are having in filling their need for new skills.
Ideal Corporate Citizen Reality of Generation Y
Age 38-42 Age 15-30
Agreeable or moveable spouse/partner No relationship commitments
Law degree and business degree, e.g. MBA No mortgage, deferrable debt
Second language as well as English Widely travelled, possibly second language
May have lived abroad in youth Backpacker, gap year
Experience in running a division or program Possibly involved in volunteer work abroad
Possesses and employs cultural sensitivity Exposure to different cultures via technology
Possibly spent time in military Children of rich, guilty and indulgent parents
“Known” within the industry Moves frequently between jobs
Technically excellent Prefers autonomy to corporate direction
“Businesses will have to adopt new approaches to recruitment
and start to look outside their traditional marketplaces for
resources.”
Rachel Campbell, Global Head of People, Performance and Culture, KPMG International
Conf r ont i ng Compl exi t y | 23
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
Government and regulation
For companies in Europe and the
Americas, particularly the more mature
economies, regulation is the number
one cause of complexity. Corporate
leaders talk of the problems of dealing
with a constant stream of new
legislation, with less and less time for
effective preparation.
For companies in the Asia-Pacific region,
regulation remains a major cause
of complexity, but it is matched by
speed of innovation. Among the major
emerging economies – Brazil, Mexico,
Russia, South Africa, China and India
regulation is the number one cause
of complexity.
This suggests that while companies
in these countries will share some of
the concerns of their US and European
competitors over increased government
activity, more of their energies are
being spent working out how to stay
ahead of the new ideas, products and
competitors in their markets.
These results are entirely consistent
with the conclusions of a 2009 KPMG
survey, Never catch a falling knife,
which examined how companies
around the world reacted to recession.
It found that while European and North
American companies tended to see the
problems of recession as a matter for
governments, requiring more regulation
and oversight to solve them, companies
in other parts of the world saw
recession as an opportunity to review
practices and find a new path to growth.
Regulation is, however, a fast-developing
field. Several of the most impressive
economic success stories of the past
decade have been accompanied by
common complaints. Firstly, that legal
systems are not sufficiently reliable for
international trade, and secondly that
labor, product quality or health and safety
legislation is undeveloped in comparison
with international standards.
The survey indicates that a majority
of the Asia-Pacific and emerging
economies believe that speed of
innovation could become their biggest
cause of complexity in the next
two years. However, it is possible
that the demands of consumers
in other countries, combined with
increasing international cooperation
on financial regulation, tax legislation
and environmental issues, may drive
regulation to the top of their list.
ReguIation as a cataIyst for
improvement
Increasing regulation may appear
to present nothing but problems for
business, but regulation is created to
deal with specific problems. For many
businesses, the complexity that new
regulations generate can be used as a
catalyst to identify and focus on areas
of the operation that are not working
efficiently and therefore need close
attention.
This problem of inefficient operation
arises when different parts of the
business develop different perspectives
on what they are meant to achieve. They
start to move apart, working in isolation.
The imposition of an additional external
control may help an organization to re-
focus on its overall purpose, examining
what each part should be contributing
to that purpose, and reviewing the
common platforms needed for
managing risk and creating value.
Tax is a good example. As businesses
have globalized, they have sought tax-
efficient ways to expand. Governments
have responded with tax legislation
designed to protect the tax base –
whether through anti-avoidance laws
or the development of greater focus on
“Increasing regulation can
be a catalyst for companies
to focus on areas of their
business that could operate
more efficiently and create
greater value. The tax
function is a good example.
As businesses globalize,
they seek tax-efficient ways
to expand. At the same time
more tax authorities are
requesting evidence that
tax decisions are made
in accordance with clear
corporate governance
guidelines. This provides
the tax function with a need
and an opportunity to adopt
better processes, new
controls and improved use
of technology to feed their
increasing need for accurate
and up-to-date information.”
Loughlin Hickey, Global Head of Tax,
KPMG International
24 | Conf r ont i ng Compl exi t y
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
transaction based taxes and transfer
pricing. This has made the global tax
environment more complex and, as a
result, tax authorities have developed
new methods of audit, looking more
closely at the underlying financial and
data systems companies use, and their
approach to tax processes and controls.
At the same time, globalization has
meant businesses have come into
contact with more and increasingly
complex tax regulatory environments in
new and unfamiliar countries. This creates
additional risk that has to be managed.
This new range of pressures may also
generate a positive response, as tax
functions take the opportunity to argue
successfully for better processes, new
controls and improved use of technology
to feed their increasing need for accurate
and up-to-date information.
This additional complexity may even
provide opportunities to create value.
To take one very common example,
examining VAT processes in response
to increasing penalties may often reveal
inefficiencies of cash management
which, if corrected, will produce cash flow
benefits while improving compliance.
Forward-thinking tax functions are
using complexity to make a step change
in the way they position themselves
for the future and address their
particular challenges.
The rise of global regulation
The changing international policy on tax
is also a good example of the increase
in cross-border regulation that is driving
complexity for globalized businesses.
European companies already have some
experience of this through the rising
influence of EU directives in most areas
of business. But it is a phenomenon
that is expanding across the world as
governments improve their cooperation
on financial regulation, environmental
controls, health and safety issues,
security and many other areas.
Although this forces businesses into an
almost constant process of reviewing
and reorganizing their compliance
functions, there are signs in the survey
that respondents appreciate the
work that governments are doing to
harmonize regulation, and want it to
continue.
Complexity is clearly seen as an
issue for governments as well as
companies, and while 81 percent
agree that regulation needs to
be less complex, 89 percent said
that governments should work
together to achieve this goal.
This is not a simple task. One
respondent familiar with the work
of the EU pointed out that EU
directives are not law, and need to
be incorporated into the national
law of the member states before
they can be implemented.
“Because there are so many
different languages in the EU,” he
said, “each country seems to take
something different out of the
directive. This is a hugely complex
issue, and it has a major effect on
costs. In some countries, the cost
of these directives is paid by the
consumer. In some it is defined by
the government and in others it is
paid by industry. It is different in
each country, and very difficult.”
Conf r ont i ng Compl exi t y | 25
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
26 | PAYI NG THE BI LL
Management actions –
what works and what doesn’t
The companies polled for this survey
are taking complexity very seriously. The
effort required for large-scale business
reorganizations is huge. Nevertheless,
70 percent of respondents said that
they had done this in the past two
years to help deal with complexity,
and it remains a favored option for the
immediate future.
Reorganization is seen as the most
effective technique for managing
complexity, but only marginally and
this doesn’t include outsourcing. Only
42 percent said they had outsourced
functions to deal with complexity in the
past two years, and this was thought to
be very effective by only 34 percent.
Does lobbying ever work?
The least effective action was trying
to influence public policy, despite the
significant impact that regulation has
on increasing complexity. While direct
interaction with policymakers may not
be an easy task, businesses are an
important source of input and expertise
to government in helping to find more
efficient ways of doing business.
Business leaders may, therefore, need
to provide greater clarity of purpose
around their operations to help in
shaping policies and regulations that
contribute to economic well-being.
RationaI risk management
This clarity of purpose is also a necessary
foundation for the rationalization of risk
management (including compliance
risk) which many businesses now
believe is necessary. This is one of the
more challenging routes to reducing
complexity since it often involves
reducing the influence of people
who are responsible for ensuring
regulatory compliance in their part
of the organization.
To win support for rationalization, it
is important to have a clearly stated
business purpose that can be translated
into an equally clear and defendable
appetite for risk. Together with a good
set of figures outlining the cost of
compliance within a company (with the
corresponding return on investment), it
becomes substantially easier to make
the necessary arguments for change.
A US management school professor
summarized the benefits very clearly.
“If something is more complex, it is
just more risky. But when companies
go beyond that to actively manage
unnecessary complexity out of their
business processes… they benefit not
only from lower risk, but also higher
efficiency and agility.”
Avoid or embrace
The specific actions mentioned in this
report can clearly have an impact on
how complexity affects an organization.
Some of them, like improving
information management, are simply
best practice in operation. But even the
most effective measure is only thought
to work well by a minority of the people
polled, and a clear majority feels that
none of these options really helps to
manage or reduce complexity.
There is a view, which emerges from the
in-depth interviews with respondents
and also from KPMG’s experience, that
the only really effective way to manage
complexity is either to avoid it as far as
is possible or to embrace it.
Seeking simplicity
There are organizations in every sector
that have done well by keeping their
business models simple. They do
what they know, provide a valued set
of goods or services in an efficient
way, and avoid markets they don’t
understand.
These organizations deal with externally
imposed complexity as best they can,
but they place a huge premium on
internal simplicity and will go to some
lengths to preserve it. Many of the
reorganizations that KPMG has assisted
are designed to help simplify business
models that have moved too far from
the core.
One Irish strategy director captured this
approach. “I think first of all you have
to understand what is complex – you
have to identify it and break it down into
parts,” he said.
“You then have to have a business
strategy which will translate into a
tactical plan that breaks down and
simplifies processes. The end result is
simplification.”
His thoughts were echoed by a finance
director from India whose comment
was,“ Be as simple as possible in all
actions. Don’t try to make anything
complex, and be transparent.”
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Complexity as the stimulus
The alternative view is that complexity is
a necessary part of a vibrant and rapidly
developing market. It drives innovation
by presenting a constant stream of new
problems to solve. It highlights areas of
outdated thinking and forces businesses
to improve constantly.
This is a common view held by many
of the emerging economy businesses.
For these companies, cutting through
complexity to focus sharply on the
opportunities it presents is a major part
of their corporate strategy.
In Mexico, the view taken by one
consumer markets finance director was,
“It is the current situation that makes
you innovate, be more efficient and look
for strategies that allow the company to
achieve its objectives in the medium and
long term.”
These may not be comfortable
strategies, and they certainly require
a large personal commitment from
managers determined to keep up to
date with rapidly changing markets. But
the rewards are there. The advice from
one UK-based finance director was,
“Embrace it. A lot of people can get
overwhelmed by it. The key is to take
advantage of the opportunities, while
understanding the need to simplify
complexity and bring some clarity.”
Conclusion
If there was any doubt about the importance of complexity as a
real, day-to-day issue for modern businesses, this survey will have
dispelled it. Senior decision makers recognize complexity as a source
of additional risk, cost, management challenges and opportunities.
Perhaps the most challenging aspect of complexity is that it is not
static. This year, it may be that the after-effects of recession are
causing additional complexity. Next year they may give way to the
impact of regulations designed to avoid recessions in the future,
followed by a new technology that revolutionalizes the way business
is done, followed by a struggle to find the right people to manage that
technology and turn it to advantage.
Faced with this stream of issues, senior management has a
responsibility to respond with strategies to mitigate complexity
and take advantage of the opportunities it presents. This implies
institutionalizing the study of complexity, to identify the most
effective techniques for dealing with it and apply them throughout
the organization. Successful management teams will be looking
for ways to embed agility into their organizations, moving rapidly to
understand and meet the changing needs of their markets. They also
will need to develop powerful, yet flexible structures to manage the
demands of increasing regulation without stifling innovation.
There are some important differences emerging between
specific economic regions and groups at different stages in their
development. These will be reflected in the actions taken by
companies based in these areas. But it is striking how similar are the
concerns of companies throughout the world.
It is not so much the nature of the complexity a company faces that
will determine its success, it is the extent to which the company
can effectively analyze the situation and bring resources to bear. This
applies throughout the world, and strategies learned in one market or
one geography may well prove applicable in other markets.
It is not realistic to expect complexity to decline in an increasingly
sophisticated global economy. The most appropriate course is to seek
ways to understand it, to focus on the opportunities it presents, and
to turn challenges into engines for growth.
“Many of the more successful organizations have done
well by keeping their business models simple. It is a state of
mind, only doing things that you understand really well only –
doing what you know.”
Alan Buckle, Global Head of Advisory Services, KPMG International
Conf r ont i ng Compl exi t y | 27
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
Appendix I
Country Reports
Australia
Brazil
Canada
China
Denmark
France
Germany
India
Ireland
Italy
Japan
Mexico
Netherlands
Russia
Singapore
South Africa
South Korea
Spain
Sweden
Switzerland
UK
US
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Conf r ont i ng Compl exi t y | 29
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
Australia
Reflecting the global trend, most Australian firms have noticed
business complexity rising over the past two years. 18 percent
consider the increase to be very significant, with the majority,
56 percent, declaring it somewhat significant. Only five other
countries taking part in the survey registered a larger perceived
rise in complexity.
Market rules and regulation changes
are identified as by far the largest
driver of this trend, with 41 percent
of Australian firms favoring this
explanation. This is the second highest
percentage of any country in this
category after the UK’s 46 percent, and
considerably above the global average
of 26 percent.
Some factors which have strong
significance elsewhere in the world –
the economic environment/recession,
and increasing competition appear
to have had fewer ramifications for
Australian firms, being highlighted by
only 15 percent and 5 percent of firms,
respectively, compared with worldwide
averages of 23 percent and 17 percent.
The next two years seem likely to
herald great challenges for Australian
companies, with a net 44 percent of
respondents predicting an increase
in complexity. This is the highest
proportion in the world, even though
almost five times as many expect that
rise to be moderate, rather than
very significant.
Australian respondents blame
complexity on a range of factors.
Although more than three quarters
believe government oversight and
mergers/acquisitions play some role
(in both instances, the highest of any
country worldwide), neither are deemed
to be crucial. When asked to name just
the top two causes, only 10 percent
chose either of these categories.
Instead, regulation (52 percent),
information management (38 percent,
second only in the survey to Canada’s
40 percent) and operating in more
countries (32 percent, second only to
Sweden’s 38 percent) were considered
to be more significant.
The challenges associated with rising
complexity correspond to the overall
picture worldwide – increased costs
(92 percent) and the burden of having
more risks to manage (90 percent)
were by far the most common side
effects suggested. Conversely, only
58 percent of Australian firms (global
average 67 percent) considered that
rising complexity made it more difficult
to compete in the marketplace.
96%
Overall, 96 percent of
Australian firms
recognize that
managing complexity
efficiently is important
to their success.
30 | Conf r ont i ng Compl exi t y
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Up to 68 percent of Australian firms
see potential new opportunities arising
from the increase in complexity, with
some 74 percent citing opportunities to
gain competitive advantage over their
rivals. Making their businesses more
competitive, creating better strategies
and expanding into new markets
were also popular, each identified as
possibilities by 68 percent of firms
surveyed, closely aligned to the global
averages for these categories.
Over the next two years, the majority of
Australian businesspeople (57 percent)
agree that regulation will be the
major driver of increased complexity,
compared to the global average of
63 percent. Several factors predicted
to be significant triggers in other
countries, such as information
management, operating in more
countries and a more rapid pace of
innovation, are expected to be far
less relevant in Australia. In fact, just
26 percent of Australian firms, the
lowest in the survey, anticipate that the
speed of innovation will be significant,
compared to a global average of
60 percent.
In the past two years, Australian
companies have implemented an array
of tactics to help manage complexity. By
far the most common was improving
information management – at 84 percent,
matching the global average precisely.
However, whereas 70 percent of firms
worldwide attempted reorganizing
their businesses, only 62 percent of
Australian firms had taken this approach,
the third lowest in the survey after the
Netherlands (54 percent) and the US (60
percent). A far more common method
favored in Australia was conducting
mergers and acquisitions. Some 70
percent of firms reported doing this, the
highest in the survey by a considerable
margin, and well ahead of the global
average of 45 percent.
Over the next two years, mergers and
acquisitions will continue to play a
strong part in the Australian business
response to complexity – 56 percent
of Australian firms (the second highest
in the survey after Ireland’s 57 percent)
forecast more mergers and acquisitions.
Business reorganization will be equally
popular (56 percent), but improving
information management will continue
to dominate, cited by 63 percent, even
though that constitutes the fourth
lowest percentage in the survey and a
full 10 percent behind the global average
of 73 percent.
No decisions will be taken lightly.
Overall, 96 percent of Australian firms
recognize that managing complexity
efficiently is important to their success.
In line with every other country,
Australians strongly believe that
regulation needs to be streamlined
(90 percent) and that it is up to
governments to collaborate to make
this a reality (91 percent).
Aust r al i a | 31
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BraziI
Although Brazilian respondents to the survey noted an overall
increase in business complexity over the past two years
(62 percent), roughly in line with the US (63 percent), Japan and
Germany (both 61 percent), the severity of that change puts Brazil
at the top of the table for countries contributing to the study. Half
of the Brazilian firms surveyed reported that complexity increased
very significantly – a clear seven percent ahead of the country
with the next most dramatic complexity increase, China, where
a very significant increase was experienced by 43 percent of
respondents.
Of all the countries surveyed,
complexity in Brazilian businesses
has been driven less by the economic
environment and global recession
than anywhere else. Just 5 percent
of respondents in Brazil believe these
factors have contributed to driving
change, compared to a worldwide
average of 23 percent, and 28 percent
for the US. Instead, the increase in
complexity is attributed to two main
factors – market rules/regulation
changes (28 percent, just above
the global average) and increasing
competition. The latter may be
particularly significant – at 25 percent,
only firms in Mexico (27 percent), South
Korea (33 percent) and France and
Sweden (both 28 percent) rank it higher.
Brazilian companies may still have a lot
more adapting to do yet. A net
36 percent of respondents predicted
a future increase in complexity, behind
only South Africa (38 percent), China
(43 percent) and Australia (44 percent).
Although firms in Brazil generally
blame increasing regulation for current
complexity levels (36 percent), two
other factors contribute significantly:
the increased speed of innovation
(30 percent) and, most notably, mergers
and acquisitions (also 30 percent). The
perceived complexity of mergers and
acquisitions was the highest of any
country in the survey, well ahead of the
18 percent average, when firms were
asked to identify the greatest causes
of complexity.
In Brazil, complexity appears to cause
multiple problems. The need for new
skills is abundantly clear. Some
92 percent of respondents from Brazil
recognized this as a shortfall – the
highest of any country in the survey.
Almost as significant is the fear that
complexity makes it more difficult for
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firms to compete. Once again Brazil
scored higher in this category than
any other country, with 86 percent
of Brazilian firms identifying it as a
key issue. The follow-on effect on
companies’ strategic approaches is
telling, with a further 80 percent of
respondents – again, the survey’s
highest – acknowledging that
complexity means it is more difficult to
make management decisions.
Despite this, four-fifths of Brazilian
businesses see some potential
for creating opportunities from
complexity. Some 95 percent, a higher
proportion than anywhere else around
the world, see complexity as an
opportunity to make their companies
more efficient – far higher than the
global average of 70 percent. A further
88 percent of Brazilian firms taking
part in the study see the prospect of
creating new and better strategies,
and almost as many, 80 percent,
believe it offers opportunities to
expand into new markets.
Different factors are expected to drive
complexity in Brazil over the next two
years as these new opportunities evolve.
Innovation is expected to increase
in speed, according to 88 percent of
Brazilian businesspeople – the highest
worldwide. Some 79 percent of
Brazilian respondents also expect
information management to trigger
greater complexity – second only in
the survey to France’s 85 percent. Few
in Brazil, however, expect operating
in more countries to contribute to
complexity – at 17 percent, Brazil had
the lowest tally of anywhere in the
world in this category.
So far, Brazilian companies have
reacted to the challenges of
complexity broadly in line with the
rest of the world – focusing on
improving information management
and reorganizing elements of their
business. A significant number,
however – 76 percent, trailing
only India and China – have also
significantly changed their approach
to human resources.
The modified approach to human
resources will continue in Brazil over
the next two years, if the predictions
of 77 percent of respondents, the
highest in the study, are correct. Other
energies will be divided between
improving information management
(73 percent) and reorganizing the
business (65 percent).
Complexity is certainly a subject
Brazilian companies are taking
seriously. Almost all (94 percent) of
those quizzed believe that managing
complexity is fundamental to their
businesses thriving, and most of
those believe that attracting new skills
internally, coupled with governments
collaborating with each other to simplify
the regulatory environments, represent
important steps forward.
94%
Almost all respondents
believe that managing
complexity is fundamental
to business success.
Br azi l | 33
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
Canada
For many of the countries in this survey, complexity has been
generated by recession and by the actions taken both to deal with
its effects, and to prevent it happening again. So for those familiar
with the relatively strong performance of the Canadian economy,
it should come as no surprise that Canadian respondents take an
optimistic line on complexity.
Canada did feel the effect of recession,
but its recovery has been strong and,
in contrast with other economies, has
brought jobs with it (as of January
2011, Canada had recovered all the jobs
lost during the recession). So while
businesses in Canada have certainly
faced an increase in complexity over
the past two years, most Canadian
executives expect the pace to slow in
the near future.
ReguIatory compIexity
With 56 percent of respondents
reporting a net increase in the
complexity they currently face, only
one in ten expect this level to increase
over the next two years. This is a clear
contrast with Canada’s largest trading
partner and neighbour, the United
States, where more than one in three
respondents expect complexity to
increase in the same time frame.
While Canadians and Americans
generally agree about the reasons for
this increased complexity, Canadians
were more likely than either the US or
the global average to cite the current
regulatory framework as their most
significant current cause of complexity,
followed by information management.
56%
56 percent of respondents
reporting a net increase
in the complexity they
currently face.
Country %
Causes of complexity Global Canada US
Regulation 71 79 74
Information management 63 74 71
Government oversight 60 73 75
Speed of innovation 59 67 54
Tax policy 57 38 55
Operating in more countries 55 30 45
Doing mergers/acquisitions 50 36 43
Source: KPMG International, 2010
34 | Conf r ont i ng Compl exi t y
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Canadians also voiced strong
concerns about the potential for
regulation, in particular, to increase
complexity in the future. Among the
10 percent of Canadian respondents
who expect the level of complexity to
increase over the next two years, the
vast majority (84 percent) identified
regulation as the primary cause. The
Canadian political system is complex,
consisting of an active federal
government combined with a series
of strong provincial authorities, so
there are many layers of regulation
to contend with. However, strong
regulation of Canadian banks has been
credited with keeping them largely
out of the bad loans business which
has caused such difficulties elsewhere
in the world, thus contributing to the
strength of the Canadian recovery.
1
Nevertheless, given their experience of
regulation, it should come as no surprise
that 95 percent of Canadian respondents
agreed that governments needed
to work together to make the global
regulatory environment less complex.
Impact on operations
Canadians believe they are more
likely than most to be impacted by
complexity related to technology
and IT issues. Almost three quarters
of respondents cited increased
complexity stemming from information
management (only Brazilians were
more concerned in this area), and more
than two thirds indicated the increased
speed of innovation for a more
complex business environment
(versus 59 percent globally).
At the same time, when asked about
possible actions that may reduce
complexity, Canadian respondents
were more likely to focus on IT
solutions than their global counterparts.
Almost 90 percent claim to have
improved information management in
order to better manage complexity in
the past, and more than three quarters
of respondents expect to leverage
information management in the future.
Seven in ten Canadian executives said
they believed new opportunities would
open up for their company as a result
of increased business complexity, with
a clear focus on internal opportunities
rather than external. Responses were
split between opportunities to focus on
existing business strategy (81 percent)
and the need to create new and better
strategies (80 percent). Coming in a
close third was the need to make their
companies more efficient (77 percent).
Growth and gIobaIization
Canadians also seemed to be relatively
unconcerned about the complexity
of operating and expanding into new
markets. When asked if operating in
more countries has caused increased
complexity, 30 percent said yes,
versus a global average of
55 percent. Only 34 percent of
Canadian respondents cited operations
in new markets as the potential source
of future complexity, versus 46 percent
amongst their global peers.
This might appear inward-looking,
but it seems to be borne more of a
rising confidence in Canada’s existing
business strengths. There are more
and more opportunities appearing
within Canada as the economy powers
out of recession. At the same time,
the country’s established position
as a supplier of raw materials and
commodities to the world puts it in a
strong position both to reap the benefits
of recovery in other countries such as
China, and to profit from the high prices
that raw materials now command.
Overall, Canadian executives seem
to be taking a cautious approach to
dealing with increased complexity
by focusing on running their existing
businesses more efficiently.
Notwithstanding their high regulatory
burden, Canadian business people
appear to be among the most confident
in our survey in their ability to deal with
increased complexity in future.
1
Global Competitiveness Report 2010-2011, World Economic Forum
Canada | 35
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
China
As the emerging force in world trade and economic development,
China itself might be seen as a cause of complexity for the rest of
the world. However, within China the experience of complexity is
quite different from that of many other countries in our survey.
Complexity in China today is clearly
framed by the demands and pressures
created by rapid growth. As an emerging
market, complexity exists in terms of
availability of information, rapid evolution
(and indeed fragmentation) in sales and
distribution channels, cultural challenges,
barriers to entry and rapid innovation.
There are signs of change and increasing
complexity to come, in concerns over
rising prices, the impact of fierce
competition and the growing influence
of regulation.
Respondents in China report a rapid
increase in complexity over the past
two years. Just under half (43 percent)
say that complexity has increased very
significantly, and 41 percent have seen
at least some increase. With only
15 percent saying that complexity has
decreased or stayed the same, this puts
China second in the table measuring net
increase in complexity over this period,
just behind Italy.
But there is a clear contrast between
China and the countries of Western
Europe. Recession and its problems have
been a major cause of complexity for
only 32 percent of respondents in China,
compared with 63 percent of Italians.
Other significant causes for the Chinese
have been increased competition
(20 percent) and, unusually among the
countries surveyed, pricing pressures
(12 percent).
This suggests that Chinese organizations
are managing a quite different set of
commercial challenges from those
recorded by many European countries.
The Chinese experience is one of growth,
inflation, skills shortages and relatively
low levels of regulation, although
these are seen to be increasing. The
globalization of many companies and the
extended reach of regulations from other
jurisdictions mean companies often
have to manage multiple or overlapping
regulatory regimes as they plot their
strategy in this vast and growing market.
This picture is clear from the Chinese
responses to questions on what
constitute the largest causes of
complexity for businesses today. Most
respondents from other countries cited
regulation as their number one, but for
the Chinese, government oversight and
regulation came well down the list, after
information management (60 percent),
operating in more countries (59 percent)
and tax policy (56 percent).
For China, the most important cause
of complexity was increased speed
of innovation, chosen by 76 percent.
In such a rapidly developing market,
Chinese companies are able to adopt
new technologies very quickly, or even
leapfrog certain technologies entirely, in a
way that their Western counterparts may
struggle to match due to legacy issues
and existing infrastructure. While this
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can give China-based businesses a clear
advantage in global markets, it inevitably
increases the pace of competition
between businesses inside China.
Looking at the challenges presented by
complexity, respondents in China were
almost unanimous in choosing increased
cost (93 percent) and the need for new
skills (92 percent). The most popular
choice in the majority of other countries,
which was the need to manage more
risks, came only sixth on their scale
of priorities.
Future expectations of complexity told a
similar story. Respondents in China were
again high on the list of those expecting a
further increase in complexity in the next
two years, with 27 percent anticipating
a very significant further increase. But
the challenges are expected to come
mainly from further increases in the
speed of innovation (67 percent), with
only 34 percent anticipating an increase
in regulation, and 36 percent expecting
more government oversight.
Concerns about retaining enough people
with the necessary skills runs like a
thread through the Chinese responses.
Uniquely among the countries surveyed,
respondents ranked changes to
their approach to human resources
alongside improvements in information
management as key responses to
complexity, both chosen by 85 percent.
Looking ahead two years, human
resources issues are still expected
to be a major issue for 63 percent
of respondents, taking second
place after further improvements in
information management (66 percent),
and just ahead of possible business
reorganizations (60 percent). With
88 percent of respondents in China
agreeing that businesses will need
new skills to manage complexity in the
future, it’s clear that while much of the
world sees complexity as a problem
that might be solved by improvements
in use and understanding of information,
for many Chinese businesses this goes
hand-in-hand with a concerted effort to
improve the quality of their labor forces.
But these serious issues are not
deterring respondents in China from
exploring the new opportunities
presented by complexity. Nearly 8 in 10
(78 percent) agreed that complexity did
present opportunities (although
16 percent were not sure, a high figure
by global standards). The chance to
develop new and better strategies was
cited by 73 percent as an important
opportunity, followed by opening up of
new markets, chosen by 68 percent.
Significantly, only 33 percent said
complexity presented opportunities to
improve existing strategies, the lowest
score in this category of any country in
the survey.
Taken together, these results suggest
a strong Chinese focus on evolving
business models, confronting complexity
as companies explore new methods
and new markets. Strategies are being
driven by a rapid and accelerating pace of
innovation and constrained mainly by the
need to find the right people. There are
signs that the causes of complexity will
change in the future as China’s economy
reacts to the consequences of its own
success. But for now, the complexity
felt by Chinese respondents to our
survey is clearly shaped by its unique
and dramatic growth story.
For China, the most
important cause of
complexity is increasing
speed of innovation and
growth.
Chi na | 37
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Denmark
Despite the general global agreement that complexity has
increased and that its impact on business has been substantial,
there are some parts of the world where it is seen in a more
relaxed light. Denmark stands out, along with the Netherlands,
as a country where businesspeople take a moderate view of the
difficulties posed by complexity. There are areas of concern, but
not as many as we have seen elsewhere.
This is apparent in Danish views on
the movement in complexity over
the past two years. While 22 percent
say there has been a very significant
increase, and 32 percent a moderate
or small increase, fully 44 percent say
that complexity has stayed the same or
reduced, the highest figure recorded in
this category.
This gives Denmark a net figure of only
10 percent for respondents reporting an
increase in complexity since 2008, by
far the lowest recorded, alongside the
Netherlands. But, looking ahead two
years, Danish respondents do not expect
much to change, while those from Italy,
Ireland, Russia and the Netherlands
expect a net reduction in complexity.
Examining the declared causes of
complexity in these countries, it
appears that in several there are one or
two factors clearly identified as most
influential; for example, the effects of
recession in Italy and Ireland. So, as
these factors decline in strength, the
additional complexity they generate
might be expected to decline as well.
But in Denmark there is no outstanding
cause. Around half of Danish
respondents cited globalization,
information management, speed of
innovation and regulation as causes.
But none of these was thought to be
substantially more influential than the
rest, and since each is a normal feature
of business life in most of the countries
surveyed, it would make sense to
assume that they will continue into the
future, generating much the same levels
of complexity as are experienced today.
There was one factor that a majority
of Danish respondents did expect to
increase in influence. Tax policy was
cited by 60 percent as a leading future
cause of complexity, well ahead of
regulation and government oversight,
60%
Tax policy was cited
by 60 percent as a
leading future cause
of complexity.
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both at 47 percent. Coming from a
country well known for having among
the highest rates of value-added tax
and personal tax in the world, this is,
perhaps, not so surprising. But it does
demonstrate a continuing high level
of concern over tax rates, even among
people who might be expected to have
become accustomed to them.
A majority of Danish respondents
(60 percent) did see opportunities
in complexity, but there was less
enthusiasm for these opportunities
here than in any country except
Germany. Just over a fifth (22 percent)
said they saw no opportunities in
complexity, and 18 percent were not
sure, the highest figure recorded for
this response.
Looking at the challenges posed by
complexity, 84 percent pointed to
the increase in the number of risks
to be managed, and 70 percent said
that there was a clear need for new
skills. These responses are broadly in
line with those from other European
states, but, while relatively large
numbers of companies elsewhere have
responded to the need for new skills
by making changes to their human
resources functions, in Denmark
only 30 percent have chosen to do so
up to now, and only 23 percent plan
to do so in the future. The preferred
response to complexity from Danish
companies has been to reorganize all
or part of the business, chosen by 76
percent, followed by improvements in
information management. Denmark
was the only country not to choose
improved information management
as the principal means of dealing with
complexity today, but looking ahead
its importance is expected to increase.
Between now and 2013, 68 percent of
Danish respondents expect to focus on
better management of their information,
while just over half (52 percent) expect
to reorganize their businesses, merge
or acquire a new business, or invest in a
new country.
Among the very active and dynamic
responses to complexity recorded
in other states, especially in the
emerging and Asia-Pacific economies,
Danish responses may appear low
key. But the Danish are also carefully
balanced in their view of the causes
and opportunities associated with
complexity, and show caution on the
changes that may be necessary to
improve management of complexity in
the future.
Denmar k | 39
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France
Businesspeople in France seem to be taking increased complexity
in their stride. While not a single French respondent was willing
to say that complexity had decreased for them over the past two
years, only one in five said that the increase was very significant
and 56 percent classified it as ‘somewhat significant.’
A similar sentiment can be seen in the
French outlook for the future; none
would predict an increase of any real
significance, although just over half
felt that the level of complexity may
increase moderately. This could relate
to the fact that French respondents
were about 10 percent more likely than
their global peers to cite the recession
and increased competition as the
two top factors driving complexity
in the past (cited by 33 percent and
28 percent of French, respectively),
and respondents may expect these
challenges to become less acute in the
near future.
Regulatory compliance and market
controls also seem to be causing
increased complexity for French
businesspeople, with more than
half citing these as among the most
influential factors governing their
current level of complexity. In this
regard, only respondents in South Africa
(60 percent) and the UK (59 percent)
seem to show more concern.
While French responses were largely
consistent with global norms when
asked about the top challenges that
their companies are facing as a result of
increased complexity (83 percent said
increased risk and 74 percent cited the
need for new skills), they also displayed
a significant concern about complexity
making it more difficult to implement
change (cited by 74 percent of French
respondents versus 58 percent globally).
Conversely, respondents from France
were less inclined to be concerned
about the increased cost of complexity
(68 percent versus 78 percent globally)
or its impact on their ability to make
management decisions (42 percent
versus a global average of 58 percent).
But although French businesspeople
might seem relatively relaxed about
the challenges of complexity, at least
by global standards, they do tend to
be among the least optimistic about
the opportunities that complexity
may deliver to their companies. Only
two-thirds of respondents agreed
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that opportunities may be created,
and where gains were expected,
these tended to focus on increased
efficiency (85 percent), expansion into
new markets (76 percent), creating
competitive advantage (68 percent)
and creating new and better business
strategies (65 percent).
An overwhelming majority of French
respondents (85 percent) considered
information management to be their
top concern going forward, with
regulatory issues trailing in second
place at just over 75 percent. In this
regard, French respondents stand
out as the only group surveyed that
considered information management
to be the leading future cause of
complexity over the next two years.
This may prove to be prescient. Across
almost every country surveyed,
respondents overwhelmingly pointed
to information management as being
their top action to manage complexity,
both today and in the future. In France,
82 percent responded that information
management is a current tool for
managing complexity, and 77 percent
cited its potential use in the future,
which would reinforce the view that
added complexity in this area is on
the horizon.
Survey responses from France also
seem to indicate a pent-up desire to
expand into new international markets.
More than three quarters of the
respondents felt that increased global
complexity created opportunities
for their companies to expand; more
than half are considering investing in
new geographies as a way to address
complexity over the next two years;
and – when asked to consider future
causes of complexity – more than
60 percent believe that managing
operations in more countries will be
a leading issue. At the same time,
however, only 36 percent of French
respondents were able to point to any
recent foreign expansions, versus
almost 50 percent among their
global peers.
In summary, French businesspeople
do seem relatively at ease with the
increased pace of complexity. This
may be a result of a perceived level
of confidence that – having already
weathered the complexity of increased
regulation, fierce competition and
economic crisis – French businesses
are now taking measured but proactive
steps to manage complexity better in
the future, and to take advantage of the
opportunities it might bring.
85%
An overwhelming number
of French respondents
(85 percent) considered
information management
a top concern.
Fr ance | 41
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Germany
German businesspeople believe they have faced a dramatically
changing business environment over the past two years. Some
35 percent of survey respondents report that business complexity
has increased very significantly during this timeframe – the highest
of any European country. A similar number, 36 percent, report
that complexity has increased somewhat significantly. Tellingly, no
respondents reported a decrease in business complexity.
In line with the majority of countries,
market rules and regulation changes
were highlighted as major driving
forces behind the rise in complexity
by 35 percent of German respondents.
However, whereas most developed
economies also identified the recession
as a chief cause of greater complexity,
this was not the case in Germany,
where it was the choice of only
16 percent. A larger number, 18 percent,
believed globalization was a more
significant factor. Worldwide, no other
country viewed globalization as being
such an important driver of complexity.
Although a slender majority of German
firms expect a further rise in complexity
over the next two years, 41 percent
of German firms surveyed expect the
level of complexity to remain the same.
Only two other countries had a greater
proportion of respondents anticipating
no change – Ireland (48 percent) and
Mexico (42 percent).
Corresponding with the global pattern,
German businesspeople believe that
government regulation (49 percent) and
tax policies (31 percent) are the two
greatest factors causing complexity
in their businesses today. Further
reflecting the worldwide picture,
German respondents highlighted
managing increased risks as the
top challenge they faced due to the
increase in complexity. At 92 percent,
the proportion of German companies
identifying more risks as a core
challenge was the second highest
after Canada’s 94 percent. But other
challenges also occupy the minds of
German managers, with increased
costs and the need for new skills both
cited as key challenges by more than
threequarters of German respondents.
The outlook for creating new
opportunities from this shifting
landscape appears bleak compared
to the rest of the world. Only
53 percent of German firms quizzed
believe complexities create any new
opportunities – the lowest in the survey.
And 40 percent of German firms do not
believe complexity provides any new
opportunities at all.
93%
Some 93 percent
of German survey
respondents believe
that managing
complexity is integral
to business success.
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The expected source of potential
opportunities also sets Germany
apart from other countries. Of
those respondents who did identify
opportunities, many – 81 percent –
thought the creation of new products
was the most likely outlet – the highest
proportion of any country. A similar
proportion – 79 percent – believed
there was an opportunity to gain
a competitive advantage through
exploiting increased complexity.
Approximately three quarters of those
interviewed also viewed expansion
into new markets and new business
strategies as potential side effects.
Only 38 percent of German firms
expect the causes of complexity
to change over the next two years,
considerably less than most Far East,
Asian and developing economies, but
comparable to other European and
Scandinavian economies. Globally,
most companies believe regulation will
drive complexity, closely followed by
speed of innovation and information
management. Germany fits this
model perfectly, with 74 percent of
respondents citing regulation, and
61 percent each opting for speed
of innovation and information
management. Conversely, the
Germans appear to have more faith in
their regulators than their European
neighbours in the UK, France and
Ireland; only 39 percent of German
businesspeople surveyed believed
government oversight would contribute
to increasing complexity.
In tandem with the rest of the world,
firms in Germany focused primarily on
improving information management
and reorganizing their businesses
to tackle increasing complexity over
the past two years – with 89 percent
and 68 percent of German firms,
respectively, having undertaken these
processes. These tactics will continue
over the next two years as well, but a
large proportion of businesspeople in
Germany – 54 percent – also expect to
significantly modify their approach to
human resources. Within Europe, only
companies in France – 58 percent –
are placing a greater significance on
changing human resources.
The significance of changing levels of
complexity in the business environment
is widely recognized within German
firms. Some 93 percent acknowledge
that managing complexity is integral
to their businesses’ success. The
message is clear; while companies
can help themselves to navigate the
growing business complexities by
acquiring new skills, they believe that
governments should simplify regulation
wherever possible (92 percent),
and above all work alongside other
governments (94 percent) to streamline
the global regulatory landscape.
Ger many | 43
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India
Businesspeople in India, our survey findings indicate, have
mixed views on whether complexity has increased in the past
two years. While 38 percent of Indian respondents agreed that
their company’s level of complexity had increased (38 percent
agreed versus a global average of 28 percent), almost a quarter of
respondents disagreed. The latter stated that complexity for their
business had either stayed the same (14 percent) or somewhat
decreased (10 percent) over this period.
Nevertheless, a majority of respondents
believe that complexity translates into
opportunities for their businesses,
focusing on improving existing business
strategies, enhancing efficiency, and
possibly gaining competitive advantage.
When asked to identify what have
been the main causes of complexity
over the past two years, one in four
Indian respondents identified the
impact of increased competition as
the leading factor. Other key factors
included high customer expectations
(16 percent), globalization (13 percent)
and changes in regulation (13 percent).
Interestingly, less than 10 percent cited
the recent economic recession, versus
23 percent globally.
As for the causes of complexity
today, a large number of respondents
cited information management and
the increased speed of innovation.
However, when asked to identify the
top two factors, more respondents
selected regulation (36 percent) and
government oversight (32 percent)
than any other causes. In fact, Indian
respondents unanimously agreed
that governments needed to work
together to make the global regulatory
environment less complex.
Looking ahead, a majority of
businesspeople surveyed believe
that complexity will increase in India
over the next two years, although
roughly 30 percent believed that
complexity would either decrease or
stay the same in that timeframe.
More than 80 percent of Indian
businesspeople surveyed expect
that increased complexity will affect
their cost of doing business. But
respondents from India were among
the least likely to cite difficulties in
making management decisions
(36 percent versus a global average
of 58 percent) or challenges in making
deals and transactions (32 percent
as opposed to 58 percent globally)
as possible outcomes of increased
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complexity, which may indicate a
growing confidence in dealing with
international transactions.
On the other hand, a majority of
respondents said that complexity
would create new opportunities for
their companies in a number of ways.
Nine out of 10 suggested they would
focus on their existing business
strategy; 87 percent expected to
find new or more ways to make their
company more efficient; 85 percent
thought they could gain competitive
advantage as a result of complexity;
and an equal number expected to find
opportunities in creating new and
better strategies.
It is also noteworthy that, with
the exception of Mexico, Indian
respondents were the most likely
to expect to find opportunities to
expand into new markets as a result
of complexity, with 82 percent citing
this as a potential outcome.
Respondents in India were also the
most likely of all countries surveyed
to presuppose a change in the root
causes of complexity over the next
two years, with almost 70 percent
foreseeing change, versus less than
50 percent globally. More than seven
in 10 respondents suggested that the
increased speed of innovation would
create future challenges, and 65 percent
cited an increased burden of regulation
(other than tax).
In order to respond to complexity in the
past, Indian respondents were almost
unanimous (94 percent) in saying that
their company had improved their
use of information management. It
should come as no surprise, then, that
information management (84 percent)
and HR policies (71 percent) topped
the list of potential actions that Indian
businesspeople expect to take in the
future to counteract growing levels
of complexity. Additionally, while six
out of 10 respondents said they have
invested in new geographies in the
past as a response to complexity,
only 42 percent say they will do this
in the future. Business reorganization
emerges as a more popular strategy,
with almost 75 percent believing this to
be a potential action for their company
going forward.
Overall, the survey results show that,
in the majority of business sectors,
Indian companies continue to grapple
with growing complexity in three key
areas: information management –
although almost all respondents
agreed improvements had been
made – regulatory oversight and human
resources. While growth into foreign
markets may have been a defining
factor for Indian companies in the past,
internally-focused strategies are now
likely to take center stage over the next
two years.
Indian respondents
expect to find
opportunities to expand
into new markets as a
result of complexity.
I ndi a | 45
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Ireland
For the majority of Irish businesspeople, complexity has increased
over the past two years. More than two-thirds of Irish respondents
said they had either seen a ‘very significant’ or ‘somewhat
significant’ increase during that time frame. But with more than
a quarter of respondents indicating that their level of complexity
had stayed the same, there is obviously some variation across
industries and sectors in the Irish economy.
In identifying the possible reasons for
the overall increase in complexity, Irish
respondents were more likely than
any other national group to cite the
effects of the economic recession. But
given the impact of the credit crisis on
their business environment and the
sovereign debt concerns that followed,
this should hardly come as a surprise.
Irish respondents were much more
positive about the level of complexity
that they might face in the future, with
more than half suggesting that it would
either decrease or stay the same,
and only 10 percent predicting a very
significant increase over the next two
years. Of the 22 countries surveyed,
only Italian respondents displayed
more optimism.
As Irish-based businesses look to future
trends, the causes of complexity seem
to have shifted from the economy to
regulation and oversight. Almost half
of respondents from Ireland identified
non-tax regulation as one of their top
two leading causes for complexity
today, and just less than a third selected
government oversight.
And while more than eight in 10 Irish
respondents suggest that non-tax
regulation will likely be a cause of
complexity in the future (the highest
proportion outside of Canada), they
seem more likely to see tax policy
as a potential source of complexity
(77 percent) than ongoing government
oversight (at 64 percent). It is worth
noting that – with the exception of
France and Brazil – Irish businesspeople
were also the most likely to expect
to see complexities stemming from
information management in the future.
For approximately three quarters
of Irish respondents, increased
complexity has created a number of
new challenges for their businesses:
As one of the world’s most
globalized economies, Irish
respondents expect to see
positive opportunities
from complexity.
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they now face more risks to manage
(cited by 78 percent), they are
having more difficulty competing
(also at 78 percent), and 74 percent
acknowledge the need for new skills.
While risks such as increased cost,
difficulties in making management
decisions and increased time horizons
for deals and transactions (at 66
percent, 66 percent and 70 percent,
respectively) were not among the
top choices, the Irish did tend to
display more concern than their global
counterparts in these areas.
As one of the most globalized economies
in the world, Irish respondents were
very likely to see a potential for
opportunities to be created for their
business as a result of complexity. With
86 percent taking this view, the Irish
seem far more positive than most other
European countries, such as the UK
(71 percent), Italy, Switzerland or the
Netherlands (each at 70 percent) and
Germany (at 53 percent).
In identifying the potential opportunities
that may present themselves, Irish
businesspeople tended to focus
on either making their companies
more efficient (88 percent) or gaining
competitive advantage (81 percent).
Just over 70 percent said that they
would focus on their strategy, either
existing or future.
Irish respondents were also among
the most likely (90 percent) of all global
businesspeople to indicate that they
had leveraged some form of improved
information management in order to
address the impact of complexity on
their business, and almost 80 percent
said that they had taken on some level
of business reorganization in response
to complexity.
Interestingly, while almost three
quarters of Irish surveyed thought that
they might take different or additional
actions over the next two years, almost
90 percent still chose improvements in
information management, and almost
80 percent continued to prefer some
form of business reorganization.
Overall, the findings show that the
Irish are dealing with moderate to
high levels of complexity today,
but generally expect many of the
challenges to fall away over the next
two years, making room for new
challenges and opportunities.
I r el and | 47
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Italy
Among Italian respondents to the complexity survey, experiences
and expectations of complexity seem to be driven mainly by
the effects of the global recession, rather than any longer-term
change in the commercial environment.
Two-thirds, (66 percent) of respondents
to the survey said they had seen a
moderately significant increase in
complexity in the past two years, and
for most of these people the largest
cause of this increase was either the
recession or crises in their markets.
Relatively few people (only 12 percent)
were prepared to say that these factors
had caused a very significant increase
in complexity. But the fact that so
many people had experienced some
increase in the difficulties associated
with running their businesses, and
no-one believed that complexity had
decreased, meant that Italy recorded
the largest net increase in complexity
over the past two years of any country
in the survey.
Looking ahead, however, expectations
of future increases in complexity are
lower in Italy than in any other country
surveyed. Only two percent were
prepared to predict a significant future
increase, and a majority (54 percent)
thought that levels of complexity would
either stay the same or fall. This positive
mindset may be at least partially
influenced by the constitution of a new
ministry by the current government to
simplify bureaucracy in the public sector.
This tends to reinforce the idea that
much of the recent Italian experience
of complexity is driven by recession.
If this is true, then we might expect
that businesspeople would look
forward to a decline in complexity as
markets and economies recover. That
is what the responses show. There is
a similar pattern in the responses from
people in Ireland, where 43 percent
of respondents put past increases
in complexity down to the effects of
recession, and 56 percent say that
in the next two years complexity will
either decrease or stay the same.
Looking at today’s causes of complexity
for Italian businesses, actions by
government feature strongly, with
general regulation cited as a leading
cause by 68 percent, government
oversight by 66 percent and tax policy
the choice of 62 percent. Speed of
innovation, which is a leading cause of
complexity for businesses in many of
the emerging economies like China and
Brazil, comes relatively low down the
list in Italy, chosen by only 48 percent.
This focus on the role of government,
perhaps solicited, as mentioned
above, by the activities of the recently
constituted ministry, appears again
in the more general comments from
Italian respondents. They were almost
unanimous in their support for the
proposition that regulation needs to
be less complex, an idea supported by
96 percent. Managing complexity was
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seen as important to the company’s
success by 88 percent, and the same
proportion agreed that governments
should work together to make the global
regulatory environment less complex.
Despite the evident desire for action by
government, complexity was also seen
by 70 percent of Italian respondents
as a source of opportunity for
companies. This is clearly a significant
proportion, but it is below the global
average of 74 percent, suggesting
that businesspeople in several other
countries are more likely to welcome
complexity for the opportunities
it brings.
Relatively few Italian respondents
thought that these opportunities
would include creating new products
(31 percent) or refocusing the existing
business strategy (34 percent). More
popular were the less-specific options
of gaining competitive advantage or
making the company more efficient,
both favored by 57 percent.
In common with most other
respondents across the globe, the key
action that Italian businesspeople are
taking to help deal with complexity is to
focus on improving their management
of information. As a means of
understanding better what is happening
in large and diverse organizations,
perhaps dealing with information
systems that may not be compatible,
this is clearly a sensible approach.
Half of the Italian respondents expect
improving management of information
to remain their focus for the next two
years. Others are looking at business
reorganizations (44 percent), or
investments in new geographies
44 percent).
In summary, Italian respondents to
this survey seem to take a relatively
relaxed view of the effect of complexity
on their businesses. It is seen largely
as a product of recession and of
the regulatory actions taken by
governments to deal with the effects of
recession. There is an expectation that
as the recession recedes, so will these
causes of complexity.
The survey results appear to support
the scenario that the recession may in
fact have stimulated Italian enterprises
to restructure and research new and
efficient means of operating. Their
relatively positive outlook expresses
an awareness that complexity is an
opportunity in terms of globalization.
The results also highlight how
the perception of complexity is
mainly related to the regulatory and
bureaucratic limitations typical of the
Italian context. In this perspective the
process of modernization in the public
sector and a rigorous simplification
of regulatory requirements could
mark a decisive passage through to
the recovery of the country’s overall
competitive status.
In fact, while complexity can generate
opportunities, these are seen less as
chances for innovation and new thinking
that are claimed by respondents from
some of the emerging economies, and
more as opportunities to develop and
improve what is already in place.
As markets and
economies recover,
business people in
Italy expect a decline in
complexity.
I t al y | 49
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Japan
Almost three quarters of the Japanese respondents (73 percent)
believe that business complexity has increased in the past two
years, while only four percent believe complexity has decreased.
However, among Far Eastern countries, Japanese firms reported
a less-pronounced increase in business complexity than any
of their neighbours, at 61 percent. Singapore, South Korea and
China registered 64 percent, 68 percent and 69 percent net
increases, respectively.
In stark contrast to most European
countries and developed economies
such as North America and Australia,
the dominant cause of complexity in
Japan appears not to be the burden of
regulation, reported by just 18 percent
of respondents. Instead, the economic
environment and recession shoulder
most of the blame for increased
complexity, at 31 percent. Pricing
pressure was also identified by
10 percent – the third highest rate for
this option after China (12 percent)
and Russia (14 percent).
Looking ahead over the next two years,
businesspeople in Japan anticipate
a further rise in business complexity
with 59 percent expecting it to be
somewhat or very significant. Only
three percent believe the rise will be
minimal. With 34 percent expecting a
net future increase in complexity, Japan
exceeds any European or Scandinavian
country, putting it on a par with
Singapore and India and lagging behind
only America, Brazil, South Africa, China
and Australia.
Contrary to the global picture, where
regulation is blamed for causing most
complexity in business today, Japanese
firms are experiencing pressures from
other areas. Information management
(34 percent), tax policies (33 percent)
and the increased speed of innovation
were highlighted as crucial drivers in
the survey.
As with the vast majority of countries
included in the study, having more risks
to manage registered highly in Japan,
cited by 86 percent of respondents.
But even more notable, 90 percent of
those questioned saw greater issues in
both increased costs and the need for
new skills.
Aside from the risks, almost four in
five Japanese respondents agreed that
complexity can generate opportunities.
69%
More than two-thirds of
Japanese respondents
(69 percent) believe
that increasing speed
of innovation will be
the primary driver of
complexity in the
near future.
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Reflecting the global pattern, the
most commonly perceived benefit
is the chance to gain a competitive
advantage over rivals (68 percent).
Making businesses more efficient and
expanding into new markets also rated
highly, at 67 percent each – although in
terms of expansion, China (68 percent),
Singapore (80 percent), South Korea
(72 percent) and India (82 percent)
were all even more optimistic.
While complexity is widely expected
to accelerate over the next two years
in Japan, the causes are expected to
shift. More than two-thirds of Japanese
respondents (69 percent) believe that
increasing speed of innovation will be
the primary driver of complexity in the
near future. Globally, regulation changes
(excluding tax) are expected to have
the biggest impact, but in Japan only
58 percent consider this to be a major
issue. In this respect, Japan reflects
the picture in China, where innovation
is also expected to power complexity
changes, and regulation changes are
similarly downplayed (34 percent).
To adapt to changing complexity,
Japanese companies have closely
followed the worldwide approach of
improving information management
(86 percent) and reorganizing their
businesses (73 percent). Unlike China,
however, Japanese businesspeople
have placed far less emphasis on
changing their approach to human
resources (85 percent in China, as
opposed to 69 percent in Japan) and
outsourcing functions (64 percent in
China, but only 56 percent in Japan).
More changes are underway. Only
one in five Japanese respondents do
not expect their businesses to take
different actions to address complexity
over the coming two years. Like the
majority of countries, attention will
be focused on reorganizing all or part
of their operations (65 percent) and
improving information management
(62 percent).
Certainly, the scale of the complexity
issue is taken very seriously by
Japanese companies. When asked
whether it was one of the biggest
challenges facing their particular firm,
84 percent of Japanese respondents
agreed – the second highest in the
study, after China. Recognition of
the need for new skills internally is
dominant (92 percent), along with the
belief from more than four out of five
Japanese businesses that regulations
should be simplified (81 percent) and
governments should cooperate to
create a less bureaucratic business
environment (82 percent).
Japan | 51
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Mexico
Although the majority of respondents from Mexico felt that
business complexity had increased over the past two years,
12 percent suggested that overall complexity had actually
decreased, four times the global average. And even though three
of four Mexican respondents had reported experiencing either a
very ‘significant or somewhat significant’ increase in complexity
recently, they still suggest that they are seeing less than any other
surveyed country outside of Europe.
As for the main factors causing this
increase in complexity, respondents
from Mexico were split between
the impact of the recent economic
recession and the effect of increasing
competition in their markets.
When it came to predictions for the
future pace of complexity, however,
Mexican respondents stood out as
being moderately optimistic, with
48 percent suggesting it would either
decrease or stay the same, versus a
global average of 39 percent.
Throughout the survey, tax policy stood
out as a key issue influencing the level
of complexity in Mexico. Almost eight
in 10 respondents cited tax policy as a
main cause of their existing complexity;
an equal amount believed it would
continue to be an issue into the future.
As a result, Mexican businesspeople
report finding themselves facing three
main challenges: an increased burden
of risk to manage (89 percent), the need
to acquire new skills (80 percent) and
more difficulties when going out into
the market to compete (also 80 percent).
It is worth noting that only one in five
Mexican survey respondents identified
challenges related to conducting deals
and transactions, the lowest number
among surveyed countries, and almost
40 percent below the global average.
In response, 84 percent of Mexican
businesses reported using improved
information management to reduce –
or at least better manage – complexity,
and almost eight in 10 pointed to some
sort of business reorganization to
achieve more straightforward
business operations.
Respondents from Mexico were
among the most optimistic in the
survey. Almost 90 percent felt
that complexity would create new
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opportunities for their business in the
future. This compares favorably with
their largest regional neighbour Brazil
(at 80 percent), their largest trading
partner the US (at 74 percent), and
especially with European pessimists
such as Germany (at 53 percent).
The majority of opportunities identified
by Mexican respondents tended to be
inward-looking. Almost unanimously
(98 percent), respondents suggested
they would focus on creating new and
better strategies for their companies
as a result of complexity, once again a
far higher proportion than their global
peers, who more often expected
to focus on gaining competitive
advantage. More than 90 percent of
Mexican respondents also expect
to find opportunities to make their
company more efficient.
Nevertheless, 86 percent of Mexican
businesspeople suggested that they
may find opportunities to expand into
new markets as a result of complexity.
While only 16 percent cited their
foreign operations as a factor in creating
complexity in the past, 70 percent say
that it will likely be a cause, and possibly
a welcome cause, in the future.
Four out of five Mexican respondents
also said that they expect to feel
increasing pressure from complexities
related to the pace of innovation,
second only to the continued
challenges represented by tax policy.
Going forward, businesspeople in
Mexico believe that they may take
on new or additional activities to
address the complexity they expect
to face over the next two years. A
large number (85 percent) continue
to cite information management as
an area that they intend to improve
on, but more than three quarters also
suggest they may reorganize all or
part of their businesses. Strategies
that seemed more externally focused,
such as investing in new countries or
conducting mergers and acquisitions,
were at the bottom of the list, with
less than half of respondents selecting
these as options for the future.
The view of complexity taken by
Mexican respondents is a curious
mixture of concern over the problems
they are dealing with today and
anticipation of the opportunities to
come. There is certainly a feeling of
energy among these people, and a
sense of optimism that the next phase
in the development of world trade,
while it might bring more complexity,
will also bring Mexico more prosperity.
Tax policy stood out as a
key issue influencing the
level of complexity
in Mexico.
Mexi co | 53
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
Netherlands
By the standards of the rest of the world, respondents from the
Netherlands seem relatively untroubled by issues of complexity.
Just under half (44 percent) thought that complexity had stayed
the same or decreased in the past two years, while 54 percent
thought that there had been an increase. This places the Dutch
alongside the Danish at the bottom of the list for past increases in
complexity.
But unlike the Danish, Dutch
respondents were one of only four
groups in the survey where a majority
expected a fall in complexity over the
next two years – the others being
respondents from Russia, Ireland
and Italy.
For the Irish and Italians, much
complexity is caused now by the
effects of recession. So as markets
recover, they might expect complexity
to reduce. Among the Dutch, however,
recession was a current cause of
complexity for only 11 percent. More
important was regulation (chosen as a
key cause of complexity by 64 percent),
issues over information management
(chosen by 58 percent), the difficulties
of operating in more than one country
(54 percent) and increased speed of
innovation (50 percent).
This indicates that the causes are
widespread, and it is interesting to
look at how each of them contributes
to Dutch expectations of future
complexity, to see where the expected
reduction will come from.
Looking ahead two years, regulation
is expected to increase its influence,
with the percentage citing it as a major
cause of complexity rising from 64 to
70. But it will no longer be the largest
single cause. That place is taken by the
increasing speed of innovation, cited
now by 50 percent, but as a future
cause by 75 percent.
This places the Netherlands firmly
alongside China, India, Brazil and
Mexico in the expectation that
innovation will be the key commercial
driving force, and sets it apart from
many of the European and North
American economies where regulation
is expected to lead.
Causes of complexity expected to
fall in influence include information
management, which drops slightly from
58 percent to 55 percent, and operating
in more than one country, which falls
from 54 percent to 40 percent. But
70%
Looking ahead two years,
70 percent believe
regulation will be a
major cause of
complexity.
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the major reductions in anticipated
complexity come in government
oversight, which falls from 42 percent
to 20 percent, and tax policy, which
is cited as a cause of complexity now
by 36 percent, but is expected to be a
future cause by only 20 percent.
The idea of government oversight
is close to that of regulation, so it is
possible that some of the anticipated
increase in the effect of regulation is
down to some of the more informal
methods of oversight used today,
becoming formalized as new laws
tomorrow.
The reduction in concern over the effect
of tax policy is more difficult to explain,
but it could be down to confidence in
the efforts currently being made by the
Dutch tax authorities to adopt a non-
confrontational, trust-based approach to
tax, which is being actively promoted
by the Organization for Economic
Co-operation and Development (OECD).
The most popular action among Dutch
respondents to deal with the effects
of complexity was working to improve
information management. This leads
the list of priorities now, chosen by
84 percent, and also for the future,
chosen by 69 percent as a focus for the
next two years.
Although 70 percent did see
opportunities in complexity, particularly
in terms of building competitive
advantage, improving efficiency and
finding new markets, a surprising
28 percent said there were no
opportunities to be exploited. This
places the Dutch in joint second place
with the Swiss in their scepticism about
the potential value of complexity. The
most sceptical country is Germany,
where 40 percent saw no benefits
to be had.
The responses from the Netherlands
to the survey show a certain optimism
about future prospects. The complexity
anticipated by an increase in regulation
is more than offset by expected
changes in tax policy, and increased
speed of innovation seems to be
viewed more as a source of opportunity
than as a problem. Most interesting of
all, operating in more than one country
is actually expected to become easier
in the future. For an internationally-
minded trading nation, that must be
very good news indeed.
Net her l ands | 55
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
Russia
As part of the BRIC group of countries, Russians often find
themselves being compared to the emerging markets of Brazil,
India and China. But when it comes to the issues of business
complexity, Russians are decidedly more like their regional
neighbours in Europe than they are like the BRIC economies.
Only one in five Russian businesspeople
indicated that business complexity
had increased ‘very significantly’ over
the past two years, about the same
proportion as in France, Denmark and
the Netherlands. Brazil, China and India,
however, topped the list in this regard,
with anywhere from a third to a half of
local respondents saying they had seen
very significant increases.
Looking ahead, only six percent of
Russians expected to see a very
significant increase in complexity,
versus about a quarter of Chinese and
Brazilian respondents, and a third of
Indian ones. Again, these results are
more in line with European nations
such as Italy (two percent) or Sweden
(four percent).
Whereas Russians most commonly
agreed with other European nations
when identifying non-tax regulation
as one of the most prevalent causes
of complexity in their current business
environment, Chinese, Indian
and Brazilian respondents were
more likely to point to information
management or the increased speed
of innovation.
However, Russian respondents stand
out in this particular area as being
significantly less concerned than their
global peers; Russians were the least
likely to anticipate complexity coming
from information management (40
percent versus a global norm of 63) or
from the increased speed of innovation
(34 percent as opposed to 59 percent).
They were also half as likely as their
global counterparts to cite complexities
stemming from operations in foreign
countries.
Looking to future causes, however,
the pattern begins to change. While
80 percent of Russian respondents
thought that non-tax regulation would
continue to be one of the root causes
of complexity over the next two years,
two-thirds expected to be concerned
about complexities stemming from
tax policy, government oversight and
information management. Only slightly
less of a concern was the increased
speed of innovation, at 60 percent.
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Almost unanimously (92 percent),
Russian businesspeople felt that
increased complexity had resulted
in more risks for their company to
manage, whereas Indian and Chinese
respondents tended to cite increased
cost, and Brazilians overwhelmingly
focused on the need for new skills. Only
one third of respondents (34 percent)
from Russia felt that they were seeing
difficulties in implementing change,
and just slightly more (36 percent)
admitted having difficulties in making
managing decisions as a direct result of
complexity. In both cases, the Russian
result was much lower than the
global average.
Businesspeople in Russia tended to
be more optimistic than most other
Europeans about the potential for
complexity to create opportunities
for their business. Almost 85 percent
of Russians suggested opportunities
might be on the horizon, versus Italy
and Netherlands at 70 percent, and
Germany at a pessimistic 53 percent.
Almost three quarters of Russian
respondents suggested said that
complexity would primarily help them
do the following four things: create
new products (79 percent), expand
into new markets (76 percent), make
their company more efficient
(76 percent), and create new and better
strategies (74 percent).
To manage complexity, Russian
businesspeople favored two distinct
strategies that have driven their
responses in the past: improved
information management (74 percent)
and business reorganization (72 percent).
Far less common were actions related to
the outsourcing of functions, changes
to HR approaches or investments in
foreign markets, with just over half of
Russians surveyed indicating that they
had used these strategies in the past.
Looking to the next two years, while
information management continued
to be the top choice of 72 percent of
Russians, the desire to conduct further
business reorganization had clearly
dissipated and was selected by less
than half of Russians as a possible
future action.
Our findings suggest that – while
the growth trajectory and economic
potential of Russia may be more
like those of the BRIC countries –
the complexities that Russian
businesspeople face (and the
opportunities and solutions that they
expect to take advantage of) tend to
place them with the more mature
economies of Europe. Nevertheless,
Russian businesspeople do not seem
to see complexity as a major bar to
reorganization, and they welcome the
opportunities it presents.
Businesspeople in Russia
tend to be more optimistic
about the potential for
complexity to create
opportunities.
Russi a | 57
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
Singapore
Survey respondents in Singapore overwhelmingly believe that
business complexity has increased over the past two years. With
a 64 percent net increase in the perception of complexity, only
the South Africans, South Koreans, Chinese and Italians reported
a more pronounced rise. Some 50 percent of Singapore firms
believe the increase has been somewhat significant, while a
further 22 percent think it has been very significant.
Singapore businesspeople are split
on the reasons for the increase in
complexity. The economic environment/
recession is considered at least partly
to blame by 23 percent. Market rules
and regulation changes, and increasing
competition, are also strong factors
(both 18 percent), although rules and
regulations are thought to be less of an
issue than in most other countries – the
global average is 26 percent.
There is little hope of business complexity
easing in Singapore over the next two
years. Two thirds of firms believe there will
be some sort of increase, ranging from
minimal to very significant. Conversely,
only 32 percent expect complexity to ease
or remain the same.
Although a large majority of Singapore
firms, 82 percent, believe that operating
in more countries contributes to
business complexity, when asked to
define only the most relevant factors,
operating in more countries registers
only 4 percent. Instead, by far the
most significant cause is believed to
be government oversight (48 percent).
Tax policy, at 34 percent, is also a
major trigger for complexity, although
the burden of regulation (excluding
tax) appears far less of an issue than
elsewhere – highlighted by only
26 percent of Singapore respondents,
compared to a global average of
42 percent.
Matching the picture worldwide,
businesses in Singapore identify two
major risks associated with increased
complexity – increased costs
(84 percent), and more risks to
manage (80 percent). Although the
need for new skills to offset these
challenges is recognized by 68 percent
of respondents, it appears to be a less
significant issue here than in other
Asia-Pacific (China – 92 percent,
Japan – 90 percent and South Korea –
82 percent).
Four out of five Singapore
businesspeople believe
complexity provides
expansion opportunities
in new markets.
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Offsetting these risks, some 82 percent
of Singapore respondents believe
complexity creates new opportunities
– the highest of the Asia-Pacific
economies. Four out of five Singapore
businesspeople believe that complexity
provides an opportunity to expand
into new markets, while 68 percent
thought it would allow them to build a
competitive advantage or create new
business strategies.
The management requirements
imposed by operating in more
countries are expected to cause further
complexity over the coming two years,
identified by 57 percent of respondents
(global average, 46 percent). However,
even more believe the biggest cause
of rising future complexity will be
Singapore’s tax policies (64 percent).
Beyond the taxation element, general
regulation is not thought to be especially
troubling, noted by just 46 percent of
Singapore firms – considerably less
than most European countries and
North America. The global average
for regulation as a key future cause of
complexity is 63 percent.
Corroborating the actions taken by the
majority of other countries worldwide,
businesses in Singapore have focused
on two primary areas for improving
how they manage complexity – better
information management (90 percent)
and reorganizing all or parts of their
business (68 percent). A large proportion
(64 percent, against a global average of
just 49 percent) have attempted to tackle
complexity by investing in new countries
or geographies, although far fewer than
the global average (30 percent against
45 percent) undertook mergers and
acquisitions.
Tactics to address complexity will
differ among Singapore businesses
over the next two years. Although
improving information management
is the most common method cited,
at 38 percent it is much less than the
global average of 73 percent, matched
only by Spain. Some Singapore firms
will try influencing public policies or
reorganizing their businesses (both
29 percent), although these again lag
behind the worldwide averages of
40 percent and 59 percent, respectively.
Very few Singapore businesses will
attempt to combat complexity with
mergers and acquisitions (15 percent)
or by changing their approach to human
resources (18 percent).
Si ngapor e | 59
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
South Africa
Business complexity has increased in South Africa over the
past two years – that’s the view of 84 percent of companies
surveyed. Most (78 percent) believe the rise in complexity has
been significant. Only six percent are inclined to say the rise has
been minimal.
The perceived reasons for this increase
correspond in general to the wider
global picture. The most common cause
cited is market rules and regulation
changes, identified by 29 percent,
followed by the economic environment
and recession, at 26 percent, closely
matching the global averages of
26 percent and 23 percent, respectively.
Complexity in South Africa is widely
expected to rise further over the next
two years. Whereas only 8 percent
of firms quizzed anticipate a simpler
business environment, 68 percent
foresee more complexity, with the
majority of those – 56 percent –
predicting a significant increase.
Regulation shoulders much of the
blame for the rise in complexity,
identified as one of the two dominant
causes by 60 percent of firms – the
highest in the survey. Government
oversight comes a distant second with
32 percent, but this is considerably
higher than the global average of
21 percent, and joint third in the
survey behind Italy and Singapore.
However, tax policy is hardly
considered a factor at all, considered
an issue by just 4 percent of South
African businesspeople, compared to
the global average for this category of
26 percent.
Like elsewhere around the world,
increased costs (86 percent) and having
more risks to manage (81 percent)
were considered the two main
challenges associated with complexity
in business today. However, diverging
from the global pattern, delays in
sealing deals and transactions was
raised as an issue by 80 percent of
respondents, considerably more than
the average of 58 percent, and joint
highest in the survey, alongside China.
South African respondents were
bullish that complexity can create new
opportunities, with some 82 percent
seeing the potential for exploiting
complexity to their advantage. Of those,
88 percent – second only to Sweden –
believe they have the opportunity to
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gain a competitive advantage. A large
proportion, 80 percent (global average
58 percent), argue that it can help focus
existing business strategies.
Looking ahead, South African firms
strongly believe that regulation will be
one of the major causes of increased
complexity over the next two years.
With 79 percent subscribing to this
view, this trails behind Canada and
Ireland but far exceeds the global
average of 63 percent. Tax policy, on
the other hand, is considered far less
relevant in South Africa, raised by just
36 percent of respondents, against
the global average of 52 percent.
Mergers and acquisitions and operating
in more countries are likely to be far
more prominent drivers of complexity,
each cited by 64 percent of South
African firms quizzed, the second
highest proportions worldwide in their
respective categories.
The last two years appear to have been
a time of great change for many South
African companies, with 82 percent –
more than any other country in the
survey – reporting reorganizations of
all or part of their businesses to help
manage complexity. In line with the rest
of the world, even more (88 percent)
concentrated on improving information
management. Only a fraction changed
their approach to human resources,
some 36 percent, less than half the
proportion opting for this method in
China, India and Brazil (85 percent,
80 percent and 76 percent, respectively).
More than anywhere else, South
African companies expect different
or additional measures over the next
two years to overcome complexity.
Improving information management
will be undertaken by 87 percent of
firms, while 68 percent will reorganize
all or part of their businesses. A globally
disproportionate figure – 61 percent as
opposed to an average of 42 percent –
will try investing in new countries or
geographies, suggesting a gradual
widening of business focus for South
African businesses.
South African firms are unanimous that
managing complexity is important to
their company’s success. Almost as
strong are the beliefs that businesses
will need to attract new skills to
face issues arising from complexity
(94 percent), and that governments
should work together to simplify the
regulatory process (96 percent).
Complexity in South
Africa is widely expected
to rise further, largely due
to regulation.
Sout h Af r i ca | 61
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South Korea
South Korean respondents have reported a deepening level of
complexity in their business dealings over the past two years.
84 percent of South Korean businesspeople say complexity has
increased very or somewhat significantly during this period. The
remainder say the situation has been stable and none believe that
complexity levels have fallen.
The perceived reasons for this rise
in complexity differ from the general
picture worldwide. Although market
rules/regulation changes and economic
environment/recession are deemed in
some way accountable (21 percent and
17 percent, respectively, against global
averages of 26 percent and 23 percent),
the most commonly cited factor in
South Korea is increasing competition
(33 percent). India is the only other
country in the survey to take this view.
Looking ahead, whereas most
countries are expecting a further
increase in complexity over the next
two years, the picture in South Korea is
slightly different. Here, there is an equal
split between companies anticipating
an additional rise in complexity and
those who are expecting a levelling off
or even a decrease.
In terms of key factors causing
complexity, South Korea mirrors the
global trend, splitting the attribution
between regulation (42 percent)
and tax (32 percent). Regulation in
particular seems to be an even more
significant factor in South Korea than in
its Asia-Pacific neighbours, Singapore
(26 percent), Japan (30 percent) and
China (33 percent).
Several challenges are identified
by South Korean firms as side effects
of complexity. The three major
challenges – more risks to manage
(90 percent), the need for new skills
(82 percent) and increased costs
(74 percent), align neatly with the
global picture. But relatively few
businesspeople in South Korea say that
complexity makes it more difficult to
compete – only 58 percent, as opposed
to a worldwide average of 67 percent.
Almost four-fifths of South Korean firms
see opportunities as well as challenges
in complexity. Principally, 85 percent
of respondents believe there is an
opportunity for gaining a competitive
advantage – considerably higher than
the global average of 73 percent, and
74%
Looking ahead two
years, mergers and
acquisitions are
expected to contribute
to further complexity.
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far outstripping the weightings in this
category for China (51 percent), Japan
(68 percent) or Singapore (68 percent).
A high proportion of companies
also see the chance to make their
businesses more efficient and create
new or better strategies – 74 percent
and 77 percent, respectively.
Turning the clock forward two years, a
dominant 74 percent of respondents in
South Korea predict that mergers and
acquisitions will contribute towards
further complexity. This is the highest
vote for this cause in the survey, pointing
to a very active M&A market in this part
of the world in the next two years. Tax
policy and information management –
57 percent each – are also expected to
be key contributors towards additional
complexity in business.
In harmony with the vast majority of
other countries in the survey, South
Korean firms have concentrated
on two key tactics to counteract
increasing complexity so far; improving
information management (88 percent)
and reorganizing all or part of the
business (74 percent). Over the next
two years, and in line with the global
trend, the same two methods are
expected to be further employed to
help control complexity (improving
information management – 81 percent;
reorganizing all or part of the business –
65 percent), with attempts to influence
public policy and modifying approaches
to human resources (50 percent each)
also playing a part.
All of the South Korean firms surveyed
believe that governments should work
together to make the global regulatory
environment less complex. The South
Koreans seem to place a far greater
emphasis on international cooperation
than companies elsewhere in their
region. This collaborative approach was
advocated by only 73 percent of Chinese
firms, 82 percent of Japanese firms and
88 percent of firms in Singapore.
Like the vast majority of countries,
however, South Korean businesspeople
believe strongly that managing
complexity is important to their
companies’ success (94 percent), that
businesses will need to acquire new
skills to address complexity (92 percent)
and that overall regulation needs to be
streamlined (92 percent).
Sout h Kor ea | 63
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Spain
Despite the effect that the global recession has had on the Spanish
economy, from the results of this survey Spanish businesses seem
determined to work through the complexities generated by their
current crisis and plan to expand into international markets over
the next few years. In fact, according to Spanish respondents,
international expansion is a popular method for relieving
organizational complexity.
Overall, Spanish respondents report
seeing a net increase in complexity
over the past two years, with more than
a third calling it ‘very significant’ and
another third defining it as ‘somewhat
significant.’ Only two percent claim
to have met a net decrease in their
business complexity over the
same timeframe.
Much of this complexity comes from
the global market difficulties of the past
few years. Given the sovereign debt
and economic stability considerations
that were current as this survey was
conducted, it is to be expected that
Spanish respondents were more likely
than their global counterparts to cite the
economic recession and market crisis
as the primary drivers of complexity
over the recent past.
Spanish businesspeople said that
their current complexities are largely
government related, with 42 percent
citing tax policy as one of their top two
causes, and 34 percent identifying
other regulatory complexities.
While businesspeople in Spain agreed
with the majority of nations polled
that complexity was increasing the
number of risks they have to manage,
they were more likely than any other
European country to cite difficulties in
competing as a direct result. However,
Spanish businesspeople seemed to
be less worried than many others
about the increased cost of complexity
(cited by less than half of Spanish
respondents versus a global average of
almost 80 percent), and any difficulties
managing change (with 42 percent
selecting this option versus the global
norm of 58 percent).
Looking ahead, however, businesspeople
from Spain were split when predicting
the future trajectory for complexity in
their business; 52 percent suggested
some form of increase, while
48 percent suggested either a net
decrease or overall stability.
Spanish respondents are more
optimistic than most when it comes to
the potential for opportunities that may
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result from complexity. In this regard,
Spanish businesspeople diverge from
the global norm in two ways: they are
almost two-thirds less likely to see
opportunities in the creation of new
business strategies (28 percent, as
opposed to 72 percent globally) and
almost equally unlikely to presuppose
opportunities through focusing on their
existing strategy (20 percent, versus a
global average of 58 percent).
Rather, Spanish respondents to our
survey clearly indicated an expectation
that they will expand into international
markets; almost seven in 10 suggested
that opportunities may present
themselves in foreign expansion,
far more than any other potential
opportunity. They were more likely
to say that they would invest in new
markets as a strategy for addressing
complexity in the future, and – possibly
as a result – when asked what the
future causes of complexity might
be for their company over the next
two years, almost half of Spanish
respondents cited complexities related
to operating in more countries.
According to respondents from
Spain, tax policy will continue to be
a cause of complexity in the future,
and – to a lesser extent – the ongoing
influence of changing regulation. And
while respondents overwhelmingly
(86 percent) pointed to advances in
information management as a key
action their company had taken to
address complexity in the past, less
than half of them suggested that it was
a strategy that they were likely to adopt
in the future.
On this point, Spanish respondents
also diverged significantly from the
global norm, as almost 75 percent
of respondents cited information
management as a potential future
strategy (versus Spain’s 38 percent).
Interestingly, only 15 percent of
Spanish respondents suggested they
might explore changes in their approach
to HR (versus almost half of the global
response), and not a single Spanish
respondent said they would consider
trying to influence regulation or public
policy, whereas 40 percent of global
respondents said they would.
The findings of this survey strongly
suggest that Spanish businesspeople
believe themselves to be in the process
of working through the complexities
that they face, especially tax and
regulatory concerns. But they are
confident that they will work through
these problems, and are looking
forward to an easing in complexity as
the effects of the recession recede, and
to the opportunities that they see on
the horizon through foreign and
market expansion.
Spanish respondents
are more optimistic than
most about potential
opportunities resulting
from complexity.
Spai n | 65
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Sweden
Swedish responses to the Complexity Survey tended to agree
with the global averages achieved across the 22 countries
surveyed. Swedes generally felt that complexity had increased
in their businesses over the past two years; with 28 percent
claiming that their level of complexity had increased ‘very
significantly,’ and 44 percent categorizing it as ‘somewhat
significant.’ However, it is worth noting that almost three in
10 respondents said they felt that the level of complexity
had stayed the same.
According to Swedish respondents,
there are two main factors driving their
increase in complexity: the first, cited
by 31 percent, was related to changes
in regulation, market rules and controls.
Only slightly less of a factor, at 28
percent, was the impact of increasing
competition.
Very few Swedish businesspeople
expect to see a ‘very significant’
increase in the level of complexity over
the next two years, but more than
half (56 percent) suggested it might
be ‘somewhat significant.’ Only two
percent thought it might decrease.
In identifying the top two factors that
currently cause business complexity,
Swedes again agreed with the majority
of global respondents, with almost
40 percent citing non-tax regulations.
But second to this, 38 percent of
Swedish businesspeople indicated
that they had also met complexity by
operating in more countries, more
than twice as many as the global
average. On the other hand, Swedes
were much less likely than their global
peers to indicate that either tax policy
or information management had been
much of an issue, with only 10 percent
identifying each of these factors, versus
approximately 25 percent globally.
Once again, Swedish businesspeople
agreed with their global counterparts
in identifying an increased burden of
risk as a challenge directly resulting
from complexity, as well as the need to
acquire new skills. And while not a top
issue, over 70 percent of Swedes did
admit that they also had faced difficulties
in making management decisions as a
result of complexity, higher than the
58 percent global average.
The Swedes were, however, more
optimistic than many other countries
in seeing opportunities that could
Swedish businesspeople
are most optimistic about
gaining competitive
advantage as a result of
increased complexity.
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be created by complexity. Indeed,
they were – by far – the most likely to
suggest that they might be able to gain
competitive advantage, with 93 percent
identifying this as a potential outcome.
And while the opportunities presented
through creating new products and
designing new strategies came a
distant second (at 75 percent and
78 percent, respectively), these were
still above the global average.
Respondents from Sweden did not
tend to believe that the root causes of
complexity would change substantially
over the next two years, which was
consistent with most European nations
surveyed. Of those that did, most
(69 percent) believed that those causes
would largely be related to non-tax
regulation. Conversely, the factors
least cited by the Swedish were
government oversight and tax policies
(both at 25 percent).
Turning to actions taken to deal with
complexity, Swedish businesspeople
seem to have focused on improving
information management and
reorganizing part, or all, of their
businesses. And while almost three
quarters of respondents cited both
of these actions, more than half said
they had also conducted M&As, and a
similar number pointed to investments
in new countries or geographies.
Looking ahead, more than half of
Swedish businesspeople surveyed
felt that their companies may take
different actions in the future to
manage complexity. In this regard,
almost nine out of 10 respondents
from Sweden identified improving
their information management as a top
priority, the highest proportion of all
countries surveyed, and well above the
global average of 73 percent. A distant
second, at 61 percent of respondents,
was further business reorganization.
So while Swedish businesspeople
tended to agree with their global
counterparts overall, they are acutely
aware of the impact that non-tax
regulation and expansion into other
markets may have on their overall level
of complexity. And if these findings
are any indication, we can expect the
Swedes to be investing heavily in their
information management systems in
the near future.
Sweden | 67
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SwitzerIand
Businesspeople in Switzerland believe that they have faced some
increases in complexity over the past two years, but very few
(16 percent) are willing to categorize them as ‘very significant.’ And
while the Swiss agree with the majority of their peers that changes
in controls, rules and regulations have caused increased complexity
over the past two years, they are twice as likely as any other country
to cite technological advancement as another source.
The Swiss were also keen to identify
government oversight as one of their
current causes of complexity, though it
should be noted that three separate, yet
inter-related, factors were cited almost
equally often: government oversight
(70 percent), regulation (72 percent) and
tax policy (68 percent).
It should come as no surprise that more
than 85 percent of Swiss respondents
agreed with statements that call for
less complex regulation and increased
cooperation between governments
to create a more straightforward
regulatory environment.
As a result of increased complexity
overall, the majority of Swiss
respondents (84 percent) felt that they
were currently facing an increased
burden of risk, and around two-thirds
admit facing challenges through
increased costs (64 percent), difficulty
competing (68 percent) or the need for
new skills (66 percent).
Looking ahead, Swiss respondents
seem to be less inclined to presuppose
any serious increase in complexity over
the next two years, and a considerable
number – 42 percent – do not expect
any change to occur in the level of
complexity at all.
The Swiss were slightly less optimistic
about the opportunities that may
result from increased complexity,
however, and while 70 percent agreed
that opportunities would arise, this is
below the global average at 74 percent.
Of those that did see opportunities,
the majority (86 percent) identified
competitive advantages as a potential
gain, with seven in 10 expecting to see
opportunities arise through the creation
of new products or the development of
new and better strategies.
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Less than a third of Swiss respondents
felt that the root causes of complexity
would change over the next two years,
versus almost half of their global
counterparts who believe that it will. But
when asked what the future causes of
complexity may be, almost 70 percent
of Swiss respondents again cited
increased government oversight as
their primary concern – the only nation
to do so. Slightly less of a focus was
regulation, at 63 percent.
With the exception of Singapore, Swiss
respondents are also the most likely
to cite investment in new countries or
geographies as an action that has
in the past helped to improve their
management of complexity. However,
more respondents cited improved
information management (74 percent)
and business reorganization
(68 percent), than foreign expansion
(62 percent).
Looking ahead, exactly half of
Swiss respondents expected their
companies to take a different set
of actions to address complexity in
the future, though this number is
low in comparison to the 59 percent
global average. Eight in 10 foresaw
improvements in their information
management, and 64 percent felt that
further reorganization might be in order.
Foreign expansion, by comparison,
was selected by less than half the
respondents as a potential strategy for
addressing complexity in the future.
The survey results suggest that
businesspeople in Switzerland seem
to be more comfortable with the pace
of complexity than many of their global
counterparts, and – on the whole – feel
that their current strategies and actions
for managing complexity are on the right
track. Most, it seems, will be focusing
their attention on IT and information
management solutions over the next
two years – with the expectation of
solving some of the complexities
that are facing them, particularly from
continued regulatory changes and
government oversight.
50%
Exactly half of Swiss
respondents expect to
take different actions
to address complexity
in the future.
Swi t zer l and | 69
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UK
Although a large majority of UK businesspeople report an increase
in business complexity over the past two years, the magnitude of
that complexity is one of the lowest in the survey.
Nearly eight in 10 respondents believe
it is now more complicated to do
business than two years ago, but just
18 percent believe the increase has
been very significant. The majority,
61 percent, believe the increase
has been somewhat significant or
minimal. Only in Switzerland and Italy
did fewer respondents identify a very
significant increase.
The overriding reasons for the increase
in the complexity of conducting
business on British shores are
clear. Market rules and changes in
regulation were identified as among
the top two causes by 46 percent
of UK businesspeople – the highest
single response from any country
within this category. This is particularly
high compared to results from the Far
East, where few respondents (China,
8 percent, Japan, 18 percent, South
Korea, 21 per cent) believe regulation
and rules are among the top factors
driving complexity.
Almost a quarter of UK respondents
(23 percent) also highlight the
recession as a key factor behind the
rise in complexity.
Looking ahead over the next two years,
only 12 percent of UK respondents
are predicting a very significant
further increase in complexity. This
is roughly in line with the UK’s
European counterparts, but less
than half the percentage recorded
for markets further afield such as
China, Japan and Brazil, and much
less than the 34 percent recorded
in India. A much larger proportion of
UK businesspeople are anticipating
a moderately significant increase in
complexity (34 percent), or even that
the situation will remain the same
(30 percent).
Uniquely among European countries,
UK respondents identified higher costs
as the biggest challenge they face due
to increased complexity (86 percent).
This is in line with more geographically
distant economies such as South
Africa, China, India, Japan, Singapore
and Australia – the other countries
where higher costs were highlighted
as the major challenge. Having a
greater number of risks to manage (74
percent) and the need for new skills
(70 percent) are also major challenges
Uniquely among European
countries, UK respondents
cite higher costs as their
biggest challenge.
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associated with greater business
complexity in the UK.
More than seven in 10 UK respondents
believe that new opportunities can be
created as a result of rising business
complexity. 86 percent see the
potential for new and better strategies
to emerge – globally, only Mexico
(98 percent) and Brazil (88 percent)
argue this more strongly. UK
businesses are also confident that
gaining competitive advantages
and focusing on existing business
strategies (83 percent each) will
emerge as opportunities resulting from
increased complexity. Only 55 percent
think the creation of new products is a
likely side effect of complexity, one of
the lowest in the survey, exhibiting far
less confidence than countries such as
Germany and Russia, where four-fifths
of respondents who see opportunities
arising cite the chance to make
new products.
In line with the reasons given for the
rise in complexity over the past two
years, UK businesspeople believe
that government regulation will be
the strongest driver of increased
complexity in future. Some three
quarters of the respondents
(76 percent) declared that regulation
would be the primary cause of
rising complexity. Sixty nine percent
highlighted the prospect of operating
in more countries as causing future
complexity – disproportionately high
compared to the global average of 46
percent, and second only to Mexico
(70 percent).
Most UK companies (81 percent) have
focused on improving their information
management in response to rising
complexity. Reorganizing the business
has been on the agenda for seven out
of 10 UK companies. In contrast, only
30 percent of UK firms have changed
their approach to human resources –
the lowest total worldwide outside of
Scandinavia.
This trend will continue over the next
two years, with improving information
management (82 percent) and business
reorganization (71 percent) identified
as the core tactics for dealing with the
changes. This is an issue UK companies
are clearly taking seriously – with
95 percent recognizing managing
complexity as important to their
ongoing success.
UK | 71
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US
US respondents strongly believe that business has increased
in complexity over the past two years. A total of 77 percent
of respondents argue that complexity has increased ‘very or
somewhat significantly’, while only one in 20 thinks business is
simpler than before.
Firms overwhelmingly cite two
factors to account for this increasing
complexity. Of those surveyed,
37 percent believe market rules and
regulation changes have played a part –
second only to the UK’s 46 percent. The
economic environment and recession
was also identified as a key reason by
28 percent of businesses, 5 percent
higher than the global average.
Increasing competition and pressures
from globalization, at 10 percent and
2 percent respectively, are deemed far
less significant factors for Americans
than in most other countries worldwide.
When looking ahead over the next two
years, complexity is generally expected
to increase further. Sixty three percent
of respondents predict that complexity
will increase very or somewhat
significantly. Less than one in 10
forecast a simplified business
landscape.
In line with most other places in
the world, regulation is held largely
accountable for complexity in
business today, with 43 percent of US
businesses identifying it as one of the
two key reasons. Far fewer think tax
policy is contributing to the complexity
issue (20 percent – 6 percent below the
global average).
Information management appears to
be more vexing, being highlighted as
one of the top two complexity triggers
by 34 percent of US firms, trailing only
Canada and Australia on the global
scene. Corresponding with the general
picture worldwide, having more risks
to manage (90 percent) and increased
costs (86 percent) were the major
challenges created by rising complexity.
Approximately three quarters of the
US businesspeople questioned see
potential opportunities in this increased
complexity, primarily in creating new
and better business strategies (73
percent) and making their companies
more efficient (68 percent). And
65 percent believe that complexity
can help them gain a competitive
advantage over rivals, reflecting a
fundamental optimism about business
opportunity.
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Over the next two years, just over half
of US firms expect the driving forces
behind rising complexity to change, with
regulation (72 percent) and government
oversight (65 percent, third behind
Mexico and Sweden) continuing as the
main causes. Although operating in
more countries and conducting mergers
and acquisitions were highlighted by
33 percent and 31 percent of US
respondents, respectively, both these
factors are predicted to have less
significance in the US than on the global
stage, where they were highlighted
by 46 percent and 43 percent,
respectively, perhaps due to successful
historical experience with mergers and
acquisitions.
In terms of challenges presented
by complexity, 90 percent of
respondents in the US see a
straightforward increase in the
number of risks that need to be
managed. In response, they have
focused on two areas to improve the
way they handle complexity;
80 percent have improved information
management, while 60 percent
have reorganized all or part of their
businesses. Far fewer firms than
the global average (38 percent, as
opposed to 49 percent) have made
investing in new countries part of
their response.
A high percentage, 71 percent, of
US businesspeople are anticipating
different strategies over the next two
years to tackle complexity. Far fewer
(39 percent) will be concentrating
on reorganizing their businesses,
and slightly fewer (70 percent) will
be further improving information
management.
Meanwhile, 44 percent will attempt
to influence regulation or public policy.
Investing in new countries (25 percent,
compared to a global average of
42 percent, the lowest in the survey)
and carrying out mergers and
acquisitions (27 percent, compared
to a global average of 43 percent, the
second lowest in the survey after
Singapore’s 15 percent) appear to be
comparatively unpopular plans.
Despite only one in four American
firms contemplating expanding into
new countries to combat complexity,
93 percent believe that governments
need to work together to make the
global regulatory environment more
streamlined. And a similarly high
proportion (94 percent) concur that
managing complexity is integral to the
success of their business.
93%
93 percent believe that
governments need to
work together to make
the global regulatory
environment more
streamlined.
US | 73
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Publication name: Confronting Complexity: Research Findings and Insights
Publication number: 110307
Publication date: May 2011