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Today, the company I work for has merged with another one. Nearly 3000 employees. We had about 300 when I started.
In a global market we are very small, but in the sector I work in we are pretty big.
People can equate growing companies with worsening service, but there’s little evidence of a correlation between size and quality. The company with the highest customer satisfaction in the world has over 1.5 million employees, whilst a small community focused organisation in my sector was partly responsible for the death of over 70 people. My point is, values and ethical behaviour pay no attention to company size.
That said, the bigger the company the greater the chance of bureaucracy.
Fourteen years ago Gary Hamel wrote a hugely influential piece called First, Let’s Fire All the Managers.
It outlined the huge inefficiency tax that management layers over an organisation:
As an organisation grows you need more managers, so the costs of management rise in both absolute and relative terms.
Unchecked hierarchy increases the risk of large, calamitous decisions. As decisions get bigger, the ranks of those able to challenge the decision maker get smaller.
A multitiered management structure means more approval layers and slower response.
As you narrow an individual’s scope of authority, you shrink the incentive to dream, imagine, and contribute.
The power to kill or modify a new idea is often vested in a single person, whose parochial interests may skew decisions.
Traditional management structures reward success with ever more resources. That “reward” is often through giving someone a bigger team — either through additional headcount being added to your existing people, or just getting promoted and therefore having more direct reports.
The Relationship Between Resources and Productivity
The Ringelmann Effect is used to describe the inverse relationship between the number of a group of people and its productivity. Max Ringelmann was a professor of agricultural engineering who, in the late 19th Century, conducted a very simple experiment – he took piece of rope and asked two people to pull on either end: a simple tug of war.
Then he asked those same people to pull on the rope with the addition of a group. He observed that when people pulled with a group, they put in significantly less effort than when pulling on their own. So the more resources you add doesn’t always aid productivity, it can have the reverse effect.
This doesn’t always hold true as more recent research has found that individuals are less likely to decrease their individual effort within a group if they believe their individual effort is identifiable, or the group task has some personal relevance for the individual (i.e. is important), the group is more cohesive or tight-knit, and successful completion of a task depends on the effort of all group members. However , if people know their effort can drop without being easily identified and there are no negative consequences , they are likely to sit back and let others push ahead. This phenomenon is known as “Social Loafing”.
In small teams – there’s literally no avoidance of scrutiny. In large teams, though, there’s plenty of opportunity to keep your head down.
Often, people genuinely do think that if their team gets bigger, they can make things happen more quickly. Yet, Brooks’s law states: “Adding manpower to a late project makes it later”.
I have literally seen Brook’s law happen in real time, most notably with large transformation programmes as more expertise is brought in and more resources are consumed until the whole endeavour nearly grinds to a halt. Everyone knows this to be true , but the conventional response is to keep adding resource, when all the evidence suggests the opposite should be happening.
One of the problems with big teams is simply communication. The coordination cost of a big team increases with every new addition, and management becomes nothing more than “link management”.
The Harvard psychologist, Prof. J. Richard Hackman, found that as a group increases the management gets more complex. As he said “A colleague and I once did some research showing that as a team gets bigger, the number of links that need to be managed among members goes up at an accelerating, almost exponential rate. It’s managing the links between members that gets teams into trouble. My rule of thumb is no double digits.”
Small = Optimised for Innovation
Research suggests that smaller teams are more optimised for innovation. Indeed, as Dashun Wang and James A. Evans write for HBR, large teams can be better at development and deployment, but small teams are better at disruption. Their analysis of over 65 million patents uncovered a nearly universal pattern: whereas large teams tended to develop and further existing ideas and designs, their smaller counterparts tended to disrupt current ways of thinking with new ideas, inventions, and opportunities. In an metaphor that any CEO should hold onto they state that “large teams, like large movie studios, are more likely to generate sequels than new narratives.”
When you’re embedded in a traditional way of working it’s hard to imagine anything different. That’s why people see approaches such as those at Buurtzorg , Haier or even Timpsons, and say ‘that couldn’t work in our sector’.
Of course it could, they can’t imagine it working or simply don’t want to.
Fortunately, although we have become a lot bigger, the vision for the future organisation is to become place-based. If we are true to that vision it will mean working in ways that are completely at odds with today’s model. It will mean stripping away any vestige of bureaucracy and ceding power to decentralised teams.
Today we became a big company. The challenge now is to make it feel as small as possible.
Related: Is Centralization a False Promise? The Truth Behind the Trend