Diversity and Complexity

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I just enjoyed coffee with a friend who has recently been appointed CEO of a business with diverse sources of revenue. He was excited by the new challenge, but was puzzled as to why the business systems were so much more complex than in his prior business.

The reason, it turned out, was quite simple.

My friend's prior business had similar revenue, but all from a single source. This meant that the whole business could run on one core system. Any investments in that system would benefit the entire business and achieve greater economies of scale.

In his new position, he was collecting revenue from a three diverse sources. While these businesses were able to share services for Accounting, HR and IT, the technology investment was spread thin since each business required a separate system. And the need to integrate these systems to exploit synergies added further complexity.

My advice was that, from a technology investment perspective, he consider each revenue source to be it's own, smaller business. A simple way to measure this diversity is to apply industry standard classifications to your own business ( they are typically applied your customers to measure diversity of markets served). In my friend's case, these were Services, Medical Wholesaler and Software Publisher.

I had my friend complete the exercise below before we finished our coffee. Next up, we're going to use the results as a basis for his technology strategy.

Understand your Complexity

Try this for your own business:

  1. Distinguish your separate lines of business and assign a classification to each line using one of the industry classification standards, such as NAICS or NACE*.
  2. Based on the revenue generated by each line, consider what your systems budget should be for each business.
  3. Put a value on the synergies between each business line to identify valuable integrations.

If you would like to discuss how this exercise can further inform your technology strategy, please reach out to me at graham@primeFusion.ca and we can spend a few minutes on your specific circumstances.

*You can find details of NAICS at www.naics.com/search/ and NACE at ec.europa.eu/eurostat/.