The Hidden Cost of Organizational Complexity and How to Fix It

The Root Causes

Understanding what drives organizational complexity is essential for reducing it. In many companies, internal complexity grows gradually through decisions made with good intentions, but without discipline.

Leaders introduce new tools, processes, and structures, but rarely remove outdated ones. Over time, this creates friction, delays, and inefficiencies. Four root causes explain why organizational complexity continues to expand:

Misaligned Incentives

Many leaders are rewarded for launching new initiatives, adopting technologies, and creating new departments. For instance, a study by Deloitte found that 48% of leaders are seen as driving change and innovation, and just 44% are recognized for building talent for competitive advantage and simplification initiatives.

Progress is measured through visible activity (such as new systems or programs) rather than operational clarity. This encourages leaders to “add” rather than streamline. As a result, organizational complexity increases, even when simplification would create more impact.

Underestimated Complexity of New Initiatives

Executives often underestimate how much additional burden each new initiative adds. What may seem like a minor change (such as introducing a new report or software tool) can trigger a cascade of unintended consequences, including additional approvals, more complex reporting structures, and increased coordination demands across departments.

Each added layer consumes valuable time and focus. According to McKinsey & Company, organizations that undergo transformation efforts typically capture only 67% of the intended financial benefits, in part due to hidden complexities and inefficiencies introduced during execution. As the number of interdependent processes grows, execution slows down, and teams gradually lose focus on core priorities, ultimately undermining the very performance gains the initiatives were meant to achieve.

Risk Aversion in Decision-Making

Eliminating internal processes or tools often feels riskier than maintaining them. Approving a new system may seem safer than being held accountable for removing something perceived as essential. This mindset fosters inertia. Even when employees recognize that a tool or workflow is obsolete, they may hesitate to act. Fear of negative consequences hinders simplification. Over time, this risk-averse behavior becomes embedded in the company culture, leading to increased complexity.

Research indicates that risk aversion can impair decision-making. A study published in Frontiers in Psychology found that greater risk aversion is associated with poorer decision-making. This suggests that risk-averse tendencies can lead to suboptimal decisions, potentially reinforcing inefficient processes within organizations.

Furthermore, a report by Marsh McLennan highlights that 40% of business leaders and 41% of corporate development professionals believe that risk aversion undermines transaction success. This underscores how a culture of risk avoidance can impede organizational progress and adaptability.

Self-Marketing Through Addition

Leaders often gain recognition by launching new projects that produce visible outputs. New systems, processes, or task forces serve as tangible proof of impact. Challenging the value of an existing structure rarely creates the same visibility. Career advancement often favors those who add complexity, not those who reduce it. This creates a cycle where internal structures grow, even if they no longer support business goals.

Research indicates that organizational complexity can hinder growth. A study by Harvard Business Review found that as companies expand, they frequently become more complex, leading to slower decision-making and reduced agility. This complexity can result in a "stall-out," where growth stagnates despite previous success. The study emphasizes the importance of simplifying structures to maintain momentum and align with business objectives.

To counteract this, organizations should recognize and reward efforts aimed at simplification. By valuing the elimination of outdated processes and the reduction of unnecessary complexity, companies can foster a culture that prioritizes efficiency and adaptability over mere expansion.

5 Steps to Reduce Organizational Complexity

Solving organizational complexity requires a structured and disciplined approach. Adding more tools and processes often feels like progress, but without deletion, it only increases internal friction. The following five steps help companies reverse complexity and build a simpler, faster operating model.

Step 1: Create Radical Transparency

Start with a complexity audit. Map out meetings, reports, systems, and approval flows to understand where time is being lost. Use real data from time tracking and employee feedback to reveal hidden inefficiencies. Deloitte reports that companies conducting regular process reviews improve productivity by up to 20%. Transparency gives leaders a baseline to make simplification decisions.

Step 2: Eliminate the Unnecessary

Adopt a zero-based mindset. Treat every internal process, meeting, and report as optional until justified. Instead of asking what to add, focus on what to remove. Amazon uses small, focused teams to avoid coordination overload. This mindset helps reduce organizational complexity and improves speed and ownership.

Step 3: Automate Repetitive Work

Identify repetitive, low-value tasks and replace them with automation where possible. Gartner shows that workflow automation can raise productivity by up to 25% when deployed effectively. Streamlining approvals, reporting, and scheduling allows teams to focus on work that requires judgment and creativity, not administrative repetition.

Step 4: Prioritize with Discipline

Teach leaders to say “no” as often as they say “yes.” Many organizations promote based on output volume instead of value delivered. Shift performance criteria to reward simplification, not expansion. Berkshire Hathaway’s minimal headquarters reflects this culture, focus, and discipline over scale and noise.

Step 5: Institutionalize Simplicity

Simplicity must be sustained, not treated as a one-time effort. Build internal processes to track additions and conduct regular “complexity health checks.” Companies like Toyota integrate this thinking through the continuous removal of waste. Long-term reduction of organizational complexity depends on repeatable habits, not one-off projects.

Lessons from Industry Leaders

Organizational complexity is not a new challenge, but companies that reduce it consistently outperform their peers. Several well-known examples illustrate what it looks like to simplify at scale:

How Leading Companies Simplify to Win

Apple
When Steve Jobs returned to Apple in 1997, he eliminated 70% of the company’s products and projects. By removing excess and focusing on core strengths, Apple laid the foundation for its growth over the next two decades.

Google
After acquiring Android, Google avoided unnecessary bureaucracy. It preserved the autonomy of key teams, which helped Android scale quickly and become the world’s dominant mobile OS.

Netflix
Netflix’s “Freedom and Responsibility” culture emphasizes autonomy over rules. By deliberately avoiding new policies unless necessary, the company keeps innovation flowing and bureaucracy low.

Spotify
Spotify uses small, cross-functional teams (“squads”) to reduce dependencies and move fast. This structure removes bottlenecks and cuts down the time required for decision-making.

My Experience at Consultport: Simplicity Drives Client Results

In my past transformation and organizational design projects at Consultport, I’ve seen firsthand how complexity silently erodes performance. In one case, a global manufacturing client was running 200+ internal initiatives, but only 12% were actively delivering value as they contribute to strategic goals.

By conducting a thorough audit and applying a zero-based approach, we helped them eliminate over 40 redundant workflows and consolidate five overlapping reporting tools. Within five months, project delivery speed improved by 30%, and employee satisfaction scores rose across teams.

Many executives underestimate how much time and cost are locked inside redundant systems. But when they see the impact of removing friction (faster decisions, more focused teams, fewer missed opportunities), they rarely go back to the old way of working.