The ambivalent effect of complexity on firm performance: A study of the global service provider industry

Abstract: We investigate specific contingencies that produce opposing effects of complexity on firm performance. We distinguish configuration complexity as a property of interdependencies connecting organizational tasks, and task complexity as a property of interdependencies within organizational tasks. Using rich data on the global service provider industry, we argue that service providers with geographically dispersed service operations (configuration complexity) negatively influence service margins through rising coordination costs, while highly complex services (task complexity) positively influence margins through information asymmetry vis-à-vis clients. Besides explicating specific performance contingencies of complexity, we suggest that treating complexity as an aggregate variable lead to underspecified and incorrect conclusions. Moreover, we show how different process properties moderate the effects of complexity, and eventually serve as strategic mechanisms to increase performance