The Hidden Cost of Operational Complexity in Growing Industrial and Construction SMEs

By Liliana Domingues

In 2024, operational diagnostics across European industrial and construction SMEs revealed a sobering pattern: between 10% and 25% of operating margin is routinely lost to internal complexity and not to labour shortages, raw materials, and not even to energy costs. ¹

At the same time, the World Economic Forum’s Global Risk Report 2026   paints an external picture that is equally stark. Geoeconomic confrontation now ranks as the most likely and most severe global risk over the next two years, with more than half of surveyed leaders expecting the world to be “turbulent or stormy.”⁵ Economic shocks have surged in likelihood, societal polarisation is intensifying, and long-term environmental risks remain dominant even as they are crowded out by immediate geopolitical anxiety.

For European SMEs, these two realities are converging. Internal complexity is colliding with external turbulence, turning what was once a manageable inefficiency into a structural threat to competitiveness.

This is not a cyclical problem. It is a systemic one.

Growth Strategy vs. Systems Strategy: A Distinction That Now Matters (more than ever)

Most leadership teams we work are fluent in growth strategy. They know where they want to expand new markets, new products, new capabilities. Far fewer have articulated a systems strategy, which determines how the organisation must be designed to execute that growth reliably under pressure.

The distinction matters more today than at any point in the past decade.

• Growth strategy answers where to play.

• Systems strategy answers how performance is sustained as complexity increases.

In stable environments, gaps between the two can be absorbed through effort. In turbulent environments, marked by geopolitical fragmentation, technological acceleration, and climate pressure, those gaps become fault lines.

The WEF warns that addressing individual risks in isolation may offer short-term relief but fails to build long-term resilience if underlying structural forces are left untouched. ⁵ Operational complexity is one such force, which is largely internal, often invisible, and increasingly decisive.

How Complexity Manifests on the Factory Floor and on Site

Operational complexity rarely announces itself. It accumulates quietly, layer by layer, as organisations scale.

In industrial and construction SMEs, it typically appears in three forms:

• Fragmentation: Processes, data, and responsibilities spread across functions, sites, and tools that no longer align.

  
  

• Opacity: Leaders lose line of sight between decisions and outcomes; performance issues are explained after the fact.

  
  

• Latency: Decision-making slows as approvals, handovers, and corrections multiply.

Technological acceleration intensifies this pattern. Digital tools are introduced faster than operating models adapt. AI pilots run ahead of data quality. Reporting obligations expand without redesigning how information flows.

What begins as sophistication becomes drag.

McKinsey estimates that organisational complexity can reduce productivity by up to 25% in mid-sized industrial firms, largely through rework, coordination losses, and decision delays. ¹

In construction, where variability is inherent, the effect is amplified: each additional interface increases the probability of delay, cost overrun, or safety incident.

 

Europe’s Triple Pressure Now Amplified by Global Risk

European SMEs face complexity in a “pressure cooker.” They operate under a structural cost and compliance burden that is now being amplified by global risk dynamics.

Energy

Industrial electricity prices in the EU in 2023–2024 were two to three times higher than in the United States, and significantly above those in China. ² For energy-intensive operations, this is no longer a variable cost, it is a strategic constraint.

Compliance

The European Commission estimates that SMEs spend up to ten times more per employee on regulatory compliance than large firms. ³ Environmental permitting, safety, and ESG reporting are mandatory (for many companies) and they introduce non-negotiable complexity.

ESG and Climate

Environmental risks (extreme weather, biodiversity loss, ecosystem change) remain the top three most severe long-term global risks in the WEF outlook. ⁵ Yet in the short term, they are being crowded out by geopolitical and economic fears, increasing the risk that sustainability is deprioritised operationally while obligations remain.

The result is a squeeze: higher costs, heavier compliance, and less room for error, just as geoeconomic confrontation fragments supply chains and weakens multilateral coordination.

Table 1: European SME Operating Reality vs Global Competitors

Dimension	Europe (SMEs)	USA	China
Energy Costs	High (2–3× US)	Low	Low
Compliance Burden	High	Moderate	Centralised
ESG Requirements	Mandatory & complex	Market-driven	State-driven
Operational Slack	Low	Moderate	High
Margin Buffer	Thin	Thicker	State-supported

Case Evidence: Where Systems Fall Behind Growth

An Irish Food Manufacturer: Control Without Coherence

A mid-sized Irish food manufacturer expanded turnover by more than 40% over four years, adding product lines and export markets. Operational diagnostics revealed over 120 control points across quality, planning, sustainability, and production, many of which are redundant and few are integrated.

The impact was measurable:

• Changeover losses exceeded industry benchmarks by 18%

• Yield variability increased despite stable demand

• Supervisory time shifted from improvement to firefighting

No single process was broken. The system was misaligned.

A Portuguese Construction Contractor: Reporting Overload, Decision Delay

A multi-site construction SME had invested heavily in certifications and digital project tools. Site managers spent up to 30% of their time on reporting, yet procurement decisions were routinely delayed.

Controls multiplied, but operational control weakened. Once reporting, planning, and cost management were reconnected into a single operational rhythm, rework fell by double digits and site-level decisions accelerated.

An Irish Industrial SME: Sustainability as System Lever

Facing rising energy costs and ESG obligations, one industrial SME treated sustainability as a reporting burden. A system redesign linked energy consumption directly to production planning and maintenance.

Within six months:

• Energy intensity fell by approximately 12%

• Unplanned downtime decreased

• ESG reporting shifted from manual consolidation to operational signal

Sustainability did not add complexity; in fact, it had removed it.

Root Causes: Why Complexity Becomes Dangerous in Turbulent Conditions

Complexity becomes costly when three conditions coincide:

1.    Fragmentation breaks coordination just as supply chains become more fragile.

2.    Opacity obscures early warning signals when economic shocks accelerate.

3.    Latency delays decisions precisely when speed matters most.

The WEF identifies inequality as the most interconnected global risk, amplifying everything from political instability to weak climate action. ⁵ Within organisations, a similar dynamic applies when capability and decision authority are unevenly distributed, complexity compounds vulnerability.

The operational excellence myths, such as “work harder,” “add controls,” “deploy another tool”, fail under these conditions. What is required is system redesign and not incremental optimisation.

Competitive Context: Why Others Appear Faster

US and Chinese competitors operate with structural advantages:

• Lower energy costs

• More centralised or lighter compliance regimes

• Operating models designed around throughput and scale

Chinese manufacturers invest heavily in end-to-end operational integration because scale demands it. US mid-sized firms apply stricter economic thresholds to technology adoption. Their moto: if it does not pay back quickly, it does not persist.

European SMEs are expected to absorb complexity and compete globally. This requires a different discipline: systems strategy that builds resilience, not just efficiency.

Operational excellence is no longer about best practices. It is about whether systems can absorb complexity under sustained turbulence.

A Disciplined Response: Reframing Systems Strategy

A resilient systems strategy for industrial and construction SMEs rests on four principles:

• System Clarity: A clear line of sight from strategic intent to site-level execution.

• Process Integration: ESG, quality, planning, and operations designed as one system.

• Decision Velocity: Decisions made at the right level, without unnecessary latency.

• Resilient Capability: Improvement embedded in the organisation, not dependent on heroes.

This is the logic underpinning AMARNA Vida’s service Efficient+, which leverages a disciplined methodology for restoring coherence where growth and turbulence have outpaced design.

Why This Matters Now

The WEF warns that the global risk landscape is entering a phase where structural forces reinforce each other rather than cancel out. ⁵ Technological acceleration outpaces governance. Climate pressures intensify even as attention fragments. Geoeconomic rivalry weakens cooperation.

For European industrial and construction SMEs, operational complexity is no longer an internal inconvenience. It is a strategic liability.

Clarity is no longer a nice-to-have. In turbulent conditions, it becomes a competitive advantage.

A Strategic Next Step

When growth feels harder than it should, the issue is rarely effort. It is usually the system.

The most effective response is not to optimise faster, but to understand where complexity is eroding value and redesign accordingly. As the WEF cautions, addressing individual risks without tackling structural forces offers only temporary relief.

The organisations that will endure this decade are those that align growth strategy with systems strategy, before turbulence makes the cost unavoidable.

Conclusion

Operational complexity is no longer a secondary operational issue for industrial and construction SMEs. In the current global context, marked by geoeconomic confrontation, accelerating technological change, and intensifying climate pressure, it has become a strategic risk.

For European SMEs in particular, the margin for error has narrowed. Higher energy costs, heavier compliance burdens, and mandatory ESG requirements are structural realities, not temporary disruptions. Organisations that fail to address the internal complexity that amplifies these pressures risk eroding competitiveness, exhausting leadership teams, and constraining their own growth, often without a clear understanding of why performance feels increasingly fragile.

Those that act decisively take a different path. By treating operational efficiency as a system design challenge, not a cost-cutting exercise, they unlock more than short-term gains. They build resilience into their operations, restore decision velocity, and create the clarity required to navigate volatile markets with confidence. Just as importantly, they reduce the hidden friction that frustrates teams and diverts leadership attention from strategic priorities.

The way forward is disciplined. It requires confronting complexity honestly, redesigning how systems interact, integrating sustainability and technology with operational purpose, and embedding accountability where execution happens. Organisations that master this discipline do not just stabilise today’s operations; they create the conditions for scalable growth, innovation, and leadership resilience under sustained turbulence.

Now is the moment to move from aspiration to action. In an environment the World Economic Forum itself describes as “turbulent or stormy,” the companies that succeed will be those willing to rethink how their systems truly work—and to embed operational coherence into the fabric of their strategy.

👉 In our next articles, we will explore why inefficiency has become one of the most underestimated risks facing Irish industry, and how forward-looking businesses are turning it into a source of durable competitive advantage.

Cheering you on as you build clarity, resilience, and execution strength,

Liliana Domingues

Founder and CEO @ AMARNA Vida

References

1 McKinsey & Company, Calculating complexity: Maximizing the value of customization, 2023. Access here

2 Eurostat / International Energy Agency, Industrial Energy Price Data, 2023–2024

Energy prices and costs in Europe - European Commission (Eurostat data & analysis). Access here

3  European Commission, SME Performance Review (Annual Report on European SMEs 2023/2024),EU Publications Office. Access here

4  OECD, Compendium of Productivity Indicators 2023. Access here

5  World Economic Forum’s Global Risk Report 2026. Access here