The document explores the challenges of managing informational complexity within organizations, emphasizing that excessive complexity can lead to low profit margins and productivity. It identifies three key variables affecting complexity: volume of information, number of communicative relations, and frequency of interactions. Solutions proposed include modularizing product designs, optimizing organizational structures, and balancing between linear and iterative processes to enhance efficiency while addressing the inherent complexity of products and processes.

1. Managing informational complexity
Koen Rutten
ruttenk@gmail.com
https://nl.linkedin.com/in/koen-rutten-a06a51b0

2. Challenges
• Low profit margin due to structurally
excessive costs
Business model
• Low productivity due to overabundance
of coordinative/ managerial tasks
Organisational
• Excess of communicative flows
INFORMATIONAL
COMPLEXITY
WHY?
WHY?
Profit Margin =
(Revenue -
Cost)/
Revenue
Productivity =
Development/
(Management +
Coordination)

3. • The organisation is an informational nexus
The organisation is a nexus of roles, associated tasks and relationships
between them. Each of these roles and tasks requires technical and
process-related information
Information and organisation(1)
How should we manage informational complexity? (Simon 1962)
i1a i2a
i1b i2b
i3a i4a
13b i4b
Task 1 Task 2
Role 1
1. The volume of information within the organisation
• Informational complexity is determined by three variables
2. The number of communicative relations between
organisational actors
3.The frequency/ iterations of interaction between
organisational actors
Complexity = vol x rel x freq
1. 2. 3.
volume relations frequency
i. ii.
These variables and the interactions between them can quickly cause informational complexity to become unmanageable. This prompts
a fundamental question for organisations:
Role 2

4. Information and organisation (2)
• Informational complexity is a derivative of product, organisation and process PRODUCT
ORGANISATION PROCESS
INFORMATIONAL
COMPLEXITY
1.Product design determines the volume of requisite technical
information
2. The organisational arrangement of roles and tasks determines the
number of communicative relationships between actors
3. Production (and attendant managerial) processes determine the
frequency and iteration of interaction between organisational actors
• In order to answer the foregoing question, we first need to understand the drivers of informational complexity and its
constituent variables (volume, relations, frequency)
• As such, the goal of the organisation is to simplify product design, organisational structure and the process of production to
the greatest extent possible
Focus here ought to be on ‘to the greatest extent possible’; since a certain degree of complexity is inherent to product, organisation and process and necessary for
their proper functioning. Determining the optimal configuration is a process of trial-and-error.
This process starts with determining the primary cause of complexity:
product (i.e. volume), organisational structure (i.e. relations) or process
(i.e. frequency)
Complexiteit = vol x rel x freq

5. Reducing informational complexity:
Product
• Product: Modularisation and “information hiding”
Every product is an aggregate of components, which in turn may consists of smaller
elements. Breaking up a product design in relatively self-contained and independently
functioning modules, i.e. modularisation, reduces informational complexity through:
i1a i2a i1a
i1b i2b i1b
Task 1 Task 2
Product
Component 1
i2a
i2b
Component 2
Modularisation
1. Reutilisation of modules in several products
If component 1 of product A is also utilised in product B, there is no increase in
informational complexity
When a product is divided in modules, and design and production of these modules is
assigned to separate teams, only information about module 1 that is pertinent to the
functioning of module 2 needs to transferred. In this way, both the number of necessary
communicative relations and the volume of information can is decreased.
2. “Information hiding”
Information hiding
• Modularisation has advantages that are non-related to informational complexity too
1. Scale-economies
A module’s marginal costs decrease with each application of the module.
2. Learning curves
Improvements on the design of the module will benefit future applications thereof

6. • Organisation: The centralised U-form and decentralised M-form
We can distinguish between two organisational archetypes:
2. The multidivisional or M-form is characterised by the grouping of complementary tasks;
team 1 produces both components ‘a’ and ‘b’ for product 1, team 2 produces both
components for product 2. The m-form requires a greater number of communicative
relations, but can is more efficient in accommodating product differences and change,
since changes are implemented at the team level, rather throughout the whole
organisation. Such compartmentalisation also encourages local experimentation.
1. The unitary or U-form is characterised by the grouping of similar tasks; team 1 produces
component ‘a’ for both product 1 and 2 (f.e. databases), team 2 produces component b for
both products (f.e. backends). The U-form economises on communicative relations as the lead
manager is solely responsible for the coordination of the tasks of team 1 and 2 (Qian, Roland,
Xu 2003).
c1b
c2b
Team Lead
c1a
c2a
Team lead
Components
Coordination
Lead Manager
c2a
c2b
Coordination
Team Lead
c1a
c1b
Coordination
Team lead
Components
Lead Manager
U-FORM ORGANISATIONS: EFFICIENT COORDINATION
M-FORM ORGANISATIONS: EFFICIENT ADAPTATION
The principles of the U and M-form organisation can be combined so as to arrive as a
most-efficient organisational form. The requisite number of coordinative relations can be
determined by asking:
What components and tasks are generic and which
are specific to any particular product?
• Generic tasks can be allotted to unitary-form teams, whereas
specific tasks should be executed by multidivisional-form teams
a
b
Generic tasks
c1c
c2c
Specific tasks
U-FORM
M-FORM
M en U-FORM
Combined
Reducing informational complexity

7. Reducing informational complexity: Process
• Process:
THE LINEAR PROCESS: EFFICIENT COORDINATION
In the linear process, product design, production and testing follow each other in straightforward fashion. This approach
minimises the frequency of interaction between the actors responsible for each of the phases in the production process, and
as such reduces informational complexity. This does however require that functional requirements and technical
specifications are fully known when commencing production.
Design
Production
Assembly
Testing/ Evaluation
(each bold line
represents a
communication stream)
THE ITERATIVE PROCESS: COPING WITH UNCERTAINTY
In the iterative process, design, production, assembly and testing are executed in parallel or in tandem. Incremental
evaluation of technical and functional aspects allows for the introduction of improvements without requiring comprehensive
adjustments to the overall product. This is extremely useful when product requirements and technical specifications cannot
be fully defined during the design phase. Iteration does increase the frequency of interaction, resulting in a commensurate
increase in informational complexity.
Design
Production
Assembly
Testing/
Evaluation
Production
Design Assembly
Testing/
Evaluation

8. Recap
• Excessive informational complexity can quickly cause
managerial overload and drive up internal costs
• Informational complexity is a function of the volume of
information, communicative relations, and the frequency
of interaction within the organisation
Informational
complexity
Organisational
efficiency
Returns
Complexity = vol x rel x freq
• The volume of information that needs to be diffused
throughout the organisation depends chiefly on product
design. Modularisation can reduce the required volume
of information
Product
• The number of communicative relations is primarily
dependent on organisational structure. Centralisation of
generic tasks can lower the nummer of required relations
Modularisation
Can the product be divided in semi-independent modules?
Volume
Organisation CentralisationRelations
What tasks/ functionalities are shared by several products?
• The frequency of interaction depends first and
foremost on the number of iterations within the
production process. By eliminating uncertainties during
is the design phase, the requisite number of iterations
can be scaled back.
Process LinearisationFrequency
Is it possible to define technical and functional requirements in
advance?
• Ultimately, good product design, organisation, and processes find a balance between responsiveness to
clients’ demands for flexibility and customisation and uncertainty on the one hand, and efficient
coordination on the other.

9. • Product design follows organisational structure (and vice versa)
(see “Conway’s Law”, Conway 1968; also the “Mirror Hypothesis”, Baldwin, Colfer 2016)
TEAM 1a
TEAM 1b
MGMNT
1
Module
1a
Module
1b
Product
1
TEAM 2a
TEAM 2b
MGMNT
2
Module
2a
Module
2b
Product
2
Conway’s Law/ Mirroring Hypothesis
Appendix:
Product, Organisation and Process: Interactions
(1)
The distribution of knowledge across roles, as well as the communication between those roles (be it in teams, vertical )De distributie van kennis in
individuen en alsmede de communicatie tussen individuen (in teams, vertical reporting lines etc.) is organisationally determined. Frequent and rich
communication allows individuals to share complex information, sporadic and sparse communication constrains the transfer of complex information
Therefore, technical modules and ‘faultlines’ within the product design tend to mirror organisational structure.

10. Appendix:
Product, Organisation and Process: Interactions
(2)
• Complementarity between organisation and process
Because the M-form pairs complementary tasks rather than similar tasks, it is better suited to iteration. Conversely, the U-form dovetails well with the
linear processes, since it avoids the duplication of coordinative streams within the various teams. Stated differently, the M-form and iterative process,
and U-form and linear process are complementary. Two elements are said to be complementary when the presence of one decreases the costs or
increases the gains associated with the other (see Milgrom & Roberts 1992).