The New Challenge of Business: Bigger Is Not Better

Investors, even sophisticated ones, have lost much of their trust in the future growth potential of big business, as reflected in the declines in the stock market. CEO's are suspect, as are their accounting firms, boards and lawyers. But according to an article in Fast Company by Keith Hammonds that summarizes the thinking of many expert management researchers, the problem is much broader.

"Big companies are broken. Nearly a century old, the modern business organization is nearing the end of its useful life. And the strategies that are being adopted by the leaders of these companies -- even the honest ones -- seldom get at the real issues."

Size may be useful in addressing complex issues across a global range but, according to Hammonds, "...bigger doesn't make a company better at serving customers. Bigger isn't more rewarding to work for. Bigger doesn't innovate. Bigger, per se, isn't better. Better is better. Instead of resigning ourselves to a business world populated with plodding giants, why not imagine something more constructive?"

There are several significant approaches to getting back on track.

The first requires innovation and the ability to leave existing technology behind - counter to giant corporations' typical mode of operating on ideas that have been reliable in the past. The article uses Lucent Technologies' Bell Laboratories as an example. Rajiv Laroia, who managed the company's communications research division, discovered a new way to deliver data more quickly and economically. But, because the company was insistent on using proven technology, the idea could have died there. Instead, Laroia and his team started their own company which is now doing well.

Gary Hamel, noted strategist and coauthor of Competing for the Future (Harvard Business School Press, 1994), proposes that forming an open market for ideas, capital and talent within the company is the best way to encourage constant innovation and perpetual renewal in an organization. He suggests distributing the capability for innovation to every employee in every area of the business.

The second method is the ability to compete through information. In The Strategy Machine: Building Your Business One Idea at a Time (HarperBusiness, 2002), consultant Larry Downes says that a strategy based on information is the cornerstone of competitive advantage.

"The Internet and other technologies are lowering transaction costs in the market, reducing the optimal size for most business organizations: 'The focus of corporate strategy has been on maximizing physical assets. More trucks, more factories, more people. Now the focus of asset management and asset exploitation should be on data...organize your company, your strategy, and your execution around information.'"

According to Downes, a strategy machine feeds off of market research, transaction data, and business information. Investments in information-based strategies produce new information products and services which, in turn, generate more ideas and the next round of investment decisions.

The third approach is distributed capitalism. Caring about customers may be the ultimate driver of success regardless of size.

"...most big companies are focused inward. Their resources are directed toward producing goods and services and bringing them to market and on preserving their own structures and machinery."

According to Harvard Business School Professor Shoshana Zuboff and her husband James Maxmin, former CEO of Laura Ashley (The Support Economy: Why Corporations Are Failing Individuals and the Next Episode of Capitalism Viking Penguin, 2000), organizations have become more remote and indifferent. That is not keeping pace with individuals who are empowered by greater access to experiences and information. Individuals who feel they have more control want organizations to provide tangible support - something most are unable to do.

Hammond concludes that, "The new competitors are 'federated support networks,' dynamic and fluid organizations that provide consumers with varying levels of deep support, along with unique aggregations of products and services. Deep support means that federations assume total responsibility and accountability for the consumption experience. It is, in fact, the new metaproduct; relationships are merely occasions of deep support...

"The current 'ethical storm' will pass, but the bigger problem with corporate America won't. Incremental strategies, regulatory patches, or a rebound in the economy can't solve this one."