Remember Seinfeld? If you don’t, you’re either too young to drive or you didn’t have a TV from 1989 to 1998. Ah Seinfeld… we laughed, we cried (because we were laughing). It forever changed our approach to puffy shirts, the name “Newman” and how we look at soup. Festivus anyone? Yet who knew Seinfeld could teach innovators so much about complexity and its hidden cost?
Okay, maybe that’s a stretch… but hear me out. With just four main characters (Jerry, George, Elaine and Kramer) the show ran for nine years and 180 episodes. This – from a show explicitly about “nothing.” It’s worth marveling at how such a simple structure led to so much variation. While good for a sitcom, the same math can wreak havoc on organizations trying to innovate.
To illustrate the point, let’s do some counting. How many unique relationships were amongst Seinfeld’s four main characters? Did you guess 11? Six pairings, four three-way relationships and one quad (everyone’s relationship as a whole). Every group of relationships matters. For example, Jerry had one-to-one relationships with Elaine and George. Jerry and Elaine (as a couple) also had a relationship with George. Remember when all three were going to the movies but Jerry had to back out. It got weird. George and Elaine had never gone out together without Jerry. It was a combination they hadn’t tried before. A new dynamic. It could get awkward, especially if they went to Rochelle, Rochelle, a young girl’s strange, erotic journey from Milan to Minsk.
Add a fifth person (baseball legend Keith Hernandez) and the 11 unique relationships jump to 26. By the time you get to 15 people the number of relationships explodes to 32,752. What’s the deal?
This subversive math helps explain why large integrated businesses have so much trouble innovating. By “integrated” I’m describing organizations that tie their businesses together under the same, unified, core processes (human resources, finance, sales, marketing, brand, procurement, etc.). Integrated firms are contrasted with “modular” firms that organize businesses in highly autonomous structures with separate processes for each group.
Integrated firms are victimized by “Seinfeld math.” Just like adding a new character to Seinfeld, when integrated firms add new businesses their organizational complexity spirals out of control faster than they realize. For example, due to their integration each business unit can be called upon at any moment to coordinate and harmonize “synergy” with other businesses under the masthead. Relationships must be managed. Starting a new hardware business? You may need to coordinate with (or at least placate) the folks in software, R&D, the legacy hardware group and the enterprise group. That’s five groups – 26 unique relationships. Large integrated companies can have dozens or even hundreds of product and service groups that can pop up and demand coordination at any moment. Ever wonder why you have so many meetings just to “coordinate”? Meetings to coordinate future coordination? It takes time and money to manage this mess. It forces processes to be rigid. It slows things down. A massive unintended consequence is a stifling of innovation. Some call it creeping bureaucracy. I’ve called it Seinfeld math. It’s the cost of complexity.
There are destructive symptoms. For example when growth is needed, the battle cry of the day is for “innovation” and “diversification.” Integrated firms start adding new innovative businesses. Then, as complexity balloons, somebody eventually shouts “stop the madness.” The company is a rat’s nest. There’s a retreat back to fewer “core businesses,” causing new growth initiatives to get cut under the banner of short-term necessity. They’re seen as distractions. A few years pass. Growth stalls (in part because growth investments got the ax a few years prior). Once again the business funds more innovative businesses. It expands. Complexity re-rises to fever pitch. It cuts back. Expansion. Contraction. The vicious cycle repeats itself every five to seven years. Sound familiar?
If the cost of complexity is so obviously harmful to innovative growth, why don’t large integrated businesses change? Why don’t they become more modular? Modularity follows different math – a different scaling law – where added businesses create mild linear increases in complexity (rather than wild exponential increases)?
One culprit is traditional financial planning. People see the pennies they’d save by integrating everything under the same systems. Why have duplicate sales teams? Human resources? Finance? etc. Organizations loathe redundancy. This can blind them to the off -balance-sheet cost of complexity and how it more than outweighs any pennies saved by consolidating.
While significant, this complexity is admittedly just one piece in a much bigger innovation puzzle. Yet if you’re trying to grow a large innovative business it’s critical to understand these basics. The next time you decide to shoehorn a bunch of diverse innovative businesses into one integrated, consolidated system of processes and capabilities, take a page from George Costanza – always do the opposite. Know enough about complexity to keep things simple. The rest is yadda, yadda, yadda.