Monday, September 13, 2010

Does Size Matter?

Is There a "Best" Size for a Company?

I had coffee with a colleague awhile back and we got into a discussion on whether there is a "best" size for an organization.  Small companies are fast and flexible but often lack the capital needed to grow.  Although large companies tend to be slow and unable to deal with change effectively, they have the capital and geographic reach that small companies lack.  A large company also has the ability to crush or acquire a smaller competitor that is seen as a threat, if the threat is recognized early enough.

An interesting observation about this subject is, as a company grows, it tends to become slower and less able to do many of the things that made it successful in the first place.  Additional layers of management and more formalized systems can slow the decision-making process to the point where it becomes unable to respond quickly to changes in its environment.  Another common characteristic of companies as they grow is a tendency to become more risk averse in an effort to meet conservative financial targets or protect share price.

Does it Matter?

So what is the optimum size for a company?  Does it depend on industry?  There are obviously some industries like consumer electronics where, no matter how large a company is, it can't survive without the ability to quickly adapt to, or drive, changes in the market.

These are interesting questions to debate, but I wonder if they really have answers.  What if an organization can remain fast and flexible as it grows?  Think about how successful a company could be if it could continue to be as fast and flexible as it was when it was small and growing.  There are not many examples of large, fast-moving companies, but that does not mean that it is not possible (or important).

A Matter of Survival?

Like most aspects of leadership, it's an issue of focus.  When leaders of an organization determine that speed and flexibility are competitive issues, they will give it the focus they need to make them happen.

I believe that success in the years ahead will require the ability to drive and adapt to changes quickly and effectively.  The world is changing at such a rapid pace that the organizations that are unable to adapt will not be competitive.  Developing the capability will require addressing areas like speed of new product development, flexibility of processes, implementing and upgrading information systems, etc.

Increasing speed and flexibility for many organizations will require transformation.  For too long, we have become obsessed with the idea of growth as the focus of a business.  Investors tend to lose confidence in companies that experience slowing growth [refer to Fortune magazine articles on Google and 100 Fastest-Growing Companies] which can cause problems when, in an attempt to appease the financial community, a company shifts its focus toward growth through acquisitions that are not necessarily strategic or sensible.

If the focus is on developing the ability to drive change through innovation, and respond to change by increasing flexibility, the growth can occur organically through increased competitiveness.  Although organic growth in revenues does not tend to match the growth that can occur through acquisition, it can be much more profitable and less destructive to the company and its culture.

Innovation and speed do not need to be limited only to companies like Samsung, Apple, and Facebook.  Every company has the ability to improve flexibility and adapt to changes in its environment.  Size does not need to be a deterrent to change.  It is a company's characteristics and capabilities, not its size, that determines its flexibility.  All it takes is recognizing the need, being sensitive to the friction created as the company grows, and continually addressing the elements that interfere with the ability to change.

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