Dealing with the complexity gap

The world is becoming more volatile, more uncertain and more complicated. That makes life tough for CEOs trying to navigate this complexity, many of whom don't believe that either they or their organisations are equipped to deal with it.

How to respond to an increasingly complex, volatile and uncertain world is the primary challenge facing today's CEOs, according to a report from IBM's Institute for Business Value. And with all this uncertainty comes ambiguity - something a surprising number of CEOs feel ill-equipped to handle.

The report, which interviewed more than 1,500 CEOs from companies of all sizes across 60 countries, says that CEOs are confronted with a "complexity gap" that poses a bigger challenge than any factor measured in eight years of CEO research.

Eight out of 10 of the CEOs interviewed expect their environment to grow significantly more complex over the next few years, but fewer than half believe they know how to deal with it.

Many echoed the sentiments of one Energy and Utilities CEO in the United States who said, "Most people are looking backward, wishing it was still like it always was."

At the heart of this complexity is the growing interconnectedness of economies, enterprises, societies and governments, plus an increasingly volatile economic climate. Technology is exacerbating this, creating a world that is massively interconnected.

For organisations, this complexity mean that business models, ways of working and long-held assumptions can rapidly evaporate. But at the same time, identifying areas of future growth is not easy in an environment characterised by a huge number of discrete markets, proliferating product and service categories and ever-narrower customer segments.

In previously research - both from IBM and other organisations - CEOs have consistently identified change as their most pressing challenge. But the it appears that many believe that incremental change is no longer sufficient in a world that is operating in fundamentally different ways. They have to address what customers now care about and fundamentally reassess how value is generated.

CEOs believe this is nothing less than a revolution that demands a new type of leader. But the Key characteristic of this leader comes as something of a surprise. Because while they need to able to reinvent customer relationships and build new levels of organisational dexterity, the most important leadership competency identified by CEOs is "creativity".

In fact, asked to prioritise the three most important leadership qualities in the new economic environment, creativity was selected as being the most important by six out of 10 of the CEOs interviewed, ahead of integrity (cited by just over half) and global thinking (cited by one third).

So why creativity? Because creative leaders can embrace "disruption" and are able to reinvent their organisation to engage more effectively with today's customers, partners and employees.

Creative leaders are prepared to make more radical changes to their business models, take more calculated risks, find new ideas, and keep innovating in how they lead and communicate.

According to the report, those CEOs who are already capitalising on complexity are adopting new channels to engage and stay in tune with customers. They are making customer intimacy their number-one priority and integrating customers into their core processes.

They are also managing complexity on behalf of their organisations, customers and partners by simplifying their operations and products while increasing dexterity to change the way they work, access resources and enter markets around the world.

All of which poses as many questions as it answers. Most organisations, particularly large ones, are not nimble or entrepreneurial. They are slow to make decisions and actively discourage individuals who disrupt the status quo or who are prepared to question business models and cosy institutionalised thinking.

So where will this new generation of "disruptive leaders" come from? How will they overturn cultures characterised by caution and corporate inertia?

As far as the report is concerned, the answer is a simple matter of expediency. CEOs and their management teams must change or die.

"For CEOs and their organizations, avoiding complexity is not an option," it says, "the choice comes in how they respond to it. Will they allow complexity to become a stifling force that slows responsiveness, overwhelms employees and customers, or threatens profits? Or do they have the creative leadership, customer relationships and operating dexterity to turn it into a true advantage?"