Some years ago, I wrote a book titled Big Brands. Big Trouble. One chapter was “The Bigger They Are, the Harder to Manage.”
When you start to study the subject of getting big, you can quickly come up with a stunning amount of research and analysis that seriously questions whether bigger is better. By the time I was finished, I began to wonder what in the world these CEOs were thinking about as they got trapped in the land of mergermania.
In a detailed study, two economists produced a 400-page analysis that confronts the quintessential myth of corporate culture: that industrial giants in an organizational bigness are the handmaidens of economic efficiency. In a 1986 book entitled, Bigness Complex, they argue that the preoccupation with bigness is at the heart of the United States’ economic decline.
A little hindsight shows that they miscalled our “economic decline.” Quite the opposite occurred as we roared off into an amazing economic expansion. They also missed that these big companies have been falling apart on their own, and we don’t need any government policy to keep bad bigness things from happening. And they missed the small company explosion in high-tech land that helped propel our expansion.
After an intense amount of original and observed research, the authors concluded that conglomerate bigness seldom enhances, and more typically undermines, efficiency in production.
It’s no wonder that big business has been replacing huge manufacturing complexes with new, smaller plants. Companies discovered that their people can’t manage their way out of the problems created by size and complexity.
Economists do touch on the difficulties of organizing big companies, but to me, the best analysis of managing size came from a British anthropologist named Robin Dunbar. In an excellent book entitled The Tipping Point, Malcolm Gladwell introduces us to Dunbar, whose work revolved around what he called social capacity, or how big a group we can run with and feel comfortable. His observation is that humans socialize in the largest group of primates because we are the only animals with brains large enough to handle the complexities of that social arrangement. His observation was that the figure of 150 seems to have a genuinely social relationship that goes with knowing who they are and how they relate to us.
Mr. Gladwell extracts from Dunbar’s work the following observation that gets to the heart of being too big:
“At a bigger size you have to impose complicated hierarchies, rules and regulations and formal measures to try to command loyalty and cohesion. But below 150, Dunbar argues, it is possible to achieve these same goals informally. At this size, orders can be implemented and unruly behavior controlled on the basis of personal loyalties and direct man-to-man contacts. With larger groups, this becomes impossible.”
Getting big by merger can also be big trouble.
At the turn of the 20th century, a great number of corporate giants were created: General Electric (a combination of eight firms controlling 90% of the market); DuPont (64 firms controlling 70%); Nabisco (27 firms, 70%); Otis Elevator; International Paper (24 firms, 60%).
But those good old days are over. The past 30 years are strewn with failures: The 1970s’ conglomerates often failed to produce promised profits, and the 1980s’ buyouts often reduced efficiency and saddled companies with more debt than they could repay. And merging distinct corporations sometimes takes longer than expected which only gives our friends on Wall Street high anxiety. They call it a clash of corporate cultures.
All that written and ignored, let me end with a personal story about “Big”. Many years ago, I started my marketing career at General Electric. One of my first marketing problems was trying to launch the “turn-key power plant.” The concept was to sell the utility the entire plant since only GE made all the components. It never flew. The utility wanted to put the pieces together themselves and select the components they thought were best.
Next up was the “GE Kitchen.” The strategy was to go to the lady of the house with all the necessary appliances since only GE made them all. It never flew. The lady wanted to put the kitchen together herself and select the appliances she thought were best. Two lessons learned.
Both lessons pointed to the underlying problem of being too big. Your customers just won’t be impressed. They want the best of the breed and everything for everybody isn’t much of an argument. In fact, it’s the opposite. Common sense tells customers that you can’t be the best at everything.
Game over, big guys.
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