Fred Brooks famously wrote about accidental vs. essential complexity in his seminal essay No Silver Bullet. If you’ve not read it, I think you owe it to yourself to borrow someone’s copy of the Mythical Man Month and check it out. I believe No Silver Bullet provides a corollary to business and corporate quarterly earnings.
Briefly, Brooks asserts that accidental complexity is the “how” part of programming, such as how we manage memory, parse text, or use editors to write code. Garbage collected languages help manage memory, excellent libraries have emerged to help us parse text (like RegEx), and IDEs get better every single year with support for code completion, intellisense, refactoring tools, and even support for dynamic languages!
Each of these improvements, while welcome, only address the construction process of building software. None of the examples mentioned help attack the “essential” complexity of solving the problem at hand. No amount of tooling will help organizations better understand the problem, increase quality, improve poor designs, or otherwise reduce the complexity of the problem itself. Software construction — the act of actually writing software — is a small fraction of the cost and schedule, while requirements analysis, specification, design, and thorough testing for software fidelity represent the large majority of cost and time when building a product. No tools exist to slay this werewolf. Writing software is hard.
I’d like to posit that business governance is no different. Within a business, there are accidental and essential problems to solve. Both affect the bottom line, but the former will not provide an order of magnitude growth and the latter will always be a hard problem to solve. Wall Street likes to see companies constantly growing to justify any premium or P/E ratio given to the stock.
Accidental complexities in a business are the expenses incurred by normal operations. Payroll is the largest expense an employer has. Facilities and maintenance is another substantial portion of expenses, as is the cost of goods sold for those manufacturing products.
Organizations can increase quarterly earnings by tackling each of these accidental complexities. A business can find the optimal headcount to keep payroll costs as low as possible. Companies can tap into new green building techniques that put gardens on rooftops which help keep the building cooler, thus reducing the business’ energy costs (with a win/win scenario of helping the environment). A business can find a new paper supplier to reduce the cost of stationery or switch to new technologies to remove the paper trail entirely. Programs like Six Sigma help a business achieve higher quality on manufactured goods, reduce costs, and operate at higher levels of efficiency. Highly effective COOs are worth their weight in gold, but there is a fundamental limitation to each of these examples. All of them tackle accidental complexity, and none of them address the essential problem of growing the business itself.
There is no single expense reduction, no single improvement to operations that will grow a business by an order of magnitude, thus making it accidental complexity. Quarterly earnings improvements provide a temporary boost to the company’s stock price, but is quickly forgotten by Wall Street as they look to the next quarter.
Some companies achieve astronomical top line growth for periods of time. Their stocks may double, triple, or even quadruple in value in a year or two. These are exceptional growth rates for exceptional companies. They are not the norm, nor do they represent an order of magnitude in growth. Eventually, all growth companies slow down as the market changes from a growth industry to a mature one. Just take a look at Microsoft. They post excellent numbers every quarter with consistently growing earnings that are predicted, telegraphed, and boring to analysts. It’s a big, mature company in a huge, mature industry. Today, Microsoft struggles in every market they enter that’s not part of their desktop/office business.
The hard problem of growing a business remains. There is no silver bullet.