Complexity: Toward an empirical measure

Complexity is a significant concern to managers and can undermine operational performance if not managed well, or if managed well could be used to strategic advantage. However, the quantification of complexity is requisite to managing and exploiting it. To date, an easily employable quantitative measure has not been introduced. This has hampered the ability of researchers to conduct large empirical studies and to gain a fuller understanding of the impacts of complexity on organizations. This has in turn impeded the ability of researchers to inform managers about how to manage complexity. This article presents one such measure, the Generalized Complexity Index (GCI), and illustrates it using publicly available data from the cruise line industry. The GCI employs the product structure diagram to create a geometric structure from which the level of the three dimensions of complexity (multiplicity, diversity, and interconnectedness) can be computed. The GCI is a function of these three dimensions. A significant advantage of the GCI is that it can be applied at multiple levels of analysis including product, portfolio, and supply chain. Implications for business diversification research and marketing strategy are introduced and future research topics are identified.

► This paper presents a measure of complexity that can be used to quantify product, portfolio, and supply chain complexity. ► The measure is well suited to large scale empirical studies and could be incorporated into decision support tools. ► The measure facilitates an approach to determining optimal portfolio configurations.