The observation
Organisational complexity has an accounting problem before it has an operational one: most of what it costs never appears on the ledger that is supposed to show it. Research on organisational growth has long identified a pattern in which the mechanisms that solve one stage of complexity become, at a later stage, the source of a new one — a finding formalised by Larry Greiner in his influential account of how organisations evolve through periods of growth punctuated by crises of leadership, autonomy, control and coordination. A study of more than 250 companies by Donald Sull and colleagues found that organisations of any size rarely fail because of misaligned strategy in the conventional sense. Fewer than one in ten managers reported being able to rely on colleagues in other functions and units all of the time. The bottleneck was not direction. It was coordination — and coordination cost is one of the clearest fingerprints of accumulating complexity.
This matters because complexity’s cost structure is deferred by design. A reporting cycle — typically a quarter, sometimes a month — captures activity that happened inside it. It does not capture the consequences of that activity when those consequences take longer to surface than the cycle itself lasts. Deferred maintenance looks identical to a clean balance sheet until the maintenance can no longer be deferred. Revenue pulled forward from a future quarter looks identical to genuine growth until the future quarter arrives short. None of this requires concealment. Each individual decision can be rational, visible and defensible at the moment it is made — and still leave a debt that a later reporting period is left to discover, at which point it is usually described as a performance problem rather than what it actually is: the delayed invoice for complexity that was never priced in the first place.
Why it happens
The core mechanism is a mismatch between the measurement period and the consequence period. Organisations measure in periods short enough to be manageable — quarters, months, sprints — because shorter periods are legible and comparable. But complexity does not resolve on a fixed schedule. A decision to under-resource a function, simplify a process past the point of safety, or accept a shortcut under pressure can take two quarters, four quarters, or considerably longer to surface as a measurable consequence. In the interval, the organisation is, by every visible number, doing fine. The apparent stability is not false. It is simply incomplete, because the accounting window is shorter than the causal window.
A second contributing factor is that complexity is additive in ways that are individually invisible. Each new product line, reporting relationship, system integration, or geography adds a small amount of coordination load. No single addition looks like the one that tips the organisation from manageable to strained — which is precisely why leadership teams struggle to identify a moment when complexity became a problem worth addressing. There typically isn’t one. There is instead a threshold crossed gradually, discovered only when the accumulated coordination cost finally produces a visible failure: a decision made three times by three different people unaware of each other, a customer handled inconsistently by two teams that never compare notes, a target met in a way that quietly damaged something the target was never designed to protect.
A third factor is asymmetric incentive: the person who avoids a future problem by refusing an attractive shortcut today rarely gets credit for the problem that never happened, while the person who takes the shortcut gets full credit for this quarter’s results. Over time, the incentive structure trains the organisation toward the choice that looks good now and costs later — not through any individual acting in bad faith, but through many individuals responding sensibly to the signals actually in front of them.
What it looks like in practice
Consider an organisation where a business unit closes a strong quarter. Revenue is up, targets are met, and the unit is held up internally as a model. Two quarters later, the same unit reports a severe one, and a review traces the cause back to decisions made during the strong quarter — pulling revenue forward from later periods, deferring maintenance that was due, delaying a round of hiring that would have added short-term cost. None of these decisions was hidden. Each was a reasonable response to the incentives the unit was operating under at the time. What was missing was not honesty or diligence; it was a way of seeing, inside the strong quarter, that some of its strength had been borrowed from quarters that had not yet arrived.
This pattern shows up in different forms depending on where an organisation sits. In a fast-growing company, complexity’s cost is most visible in coordination — the same decision made independently by two teams that no longer talk to each other by default, because the organisation has grown past the size where informal awareness covers the gaps. In an organisation carrying legacy systems or processes, it shows up as maintenance quietly deferred, each deferral individually defensible, collectively a liability nobody has sized. In a matrixed or multi-site organisation, it shows up as a number that looks strong from one functional view and weak from another, with no single report bringing both views together.
What tends to unite these presentations is that the organisation’s own reporting structure is part of the problem. The report that would reveal the borrowing — a view that connects this period’s results to the periods they drew from — usually does not exist, because nobody designed the reporting cycle to answer that question. The reporting cycle was designed to answer a simpler one: how did we do this period? That is a legitimate question. It is simply not the same question as whether this period’s answer was paid for honestly.
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Questions worth considering
- What could be borrowed from a future reporting period without appearing anywhere in this period’s figures — and has anyone in the organisation actually checked?
- Where does the organisation’s reporting cycle end before the consequence cycle of a decision does, and who would notice first if that gap were being used?
- Which of this period’s strongest results would look different if measured over double the time horizon?
This perspective is part of Performance.
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