The Problem with size

In big companies, bureaucratic inertia and loss of clarity start to outweigh advantages such as sheer purchasing muscle. David Sadtler points out the elephant in the room.

Does corporate size necessarily confer an advantage in business? With some highly focused exceptions, very large companies eventually lose their effectiveness and performance deteriorates. Even those exceptions usually have 'bigness' challenges. The causes are clear, as are the decisions that produced the problem, and the disadvantages that eventually become apparent. Remedies include spin-offs, demerger, breakup, unbundling, and the abandonment of efforts to become ever larger. The new CEO at Ford, Alan Mulally, is doing this now: let's hope he's not too late. The objective of any downsizing should be the focused business portfolio with a convincing strategic rationale.

This is frustrating news for all successful businesses and their managers. Your very success in building a large enterprise through superior competitive performance can eventually be your undoing. Ultimately, just faring well in the known competitive battles won't be enough. You'll want to grow. Ever bigger. And that's when the problems start.

Managers in big companies often complain that decision-making is too slow in their organisations, especially when competing with smaller upstarts that can move more quickly. Recently, one student from an American conglomerate told me: 'In our organisation it takes four months for capital investment project approval. Often, the situation described in the proposal changes during the process and we get involved in a seemingly endless cycle of explanation, further questioning, and so forth. My operating colleagues see it as a major source of competitive disadvantage.'

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