Does Size Matter?

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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.

Fast and Flexible

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As we climb out of the worst economic downturn since the Great Depression, it's looking like success will come to those companies that are more flexible and can adapt to change more quickly than competitors.  Although this has always been a competitive advantage for companies, it is quickly becoming a necessity for survival in the years ahead.

The problem this poses for many organizations is related to the fact that, as a company grows it tends to become slower and more resistant to change.  With growth comes more people, more formalized policies and systems, and additional layers of management that all contribute to a slowdown in decision-making and interfere with the ability to do much of anything quickly.

Begin by Recognizing the Need

The problem for many companies is that they don't realize how slow they've become or that the lack of speed is affecting the ability to compete.  Listed below are a number of activities where moving quicker can greatly improve competitiveness.  When looking at these activities from strictly a financial perspective, it becomes clear that they actually cost the company when not addressed.  Once an investment is made in a particular process - whether related to new product development, manufacturing, etc. - the company loses money everyday that the investment does not produce income.

• New product development
• Shipping products to customers
• Building construction
• Servicing customers
• Integrating an acquisition
• Expansion into new markets
• Implementing a new ERP system

It is important to keep in mind that success in business requires more than speed.  Quality of product or service must be continually improved along with improving cycle times. There are very few markets where customers will accept substandard quality even when the product or service is delivered quickly.

How?

In order to become more flexible and adaptive, companies must study their processes, systems, and cultures continually to identify where the delays and breakdowns occur.

On the process side of the equation, reducing cycle time requires mapping the value stream and identifying where the delays, breakdowns, and quality problems occur.  This assumes, of course, that there is, in fact, a standard process.  It is not uncommon for companies to have a variety of ways to perform similar tasks.  Sometimes referred to as the "it depends" rule, improving the process first requires defining a standard approach for how the work is to be done - and making sure everyone follows the standard - before attempting to make improvements.

Working on the process issues to reduce cycle time tends to be the easy part of improvement.  The culture must also be addressed to determine how open people are to changing processes, how effective communication is within the company, and basically why people do the things they do.

Removing the barriers that interfere with a company's ability to react quickly to changing market conditions will create a more flexible and adaptive - and profitable - company.  The key is to keep speed and flexibility in the forefront of people's minds until it makes its way into the company's operating philosophy.

Success in this endeavor can put you in an elite group of companies that manage to remain fast and flexible regardless of how large they become.

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