Too Big to Manage? When Less Is More, 2040’s Ideas and Innovations Newsletter, Issue 92
Issue 92, January 26, 2023
“We’re too big to fail.” Try that one out on Elon Musk or Mark Zuckerberg. If there were ever two visionaries with an overabundance of hubris, they’re the ones. Although the concept of “too big to fail” technically refers to an organization that is so important to a financial system that a government would not allow it to go bankrupt due to the seriousness of the economic repercussions (Wiki), one could argue that what we are experiencing in the tech sector right now can also refer to the egos and perceptions of self-importance of tech leaders. Economist Alan Greenspan, has said of overlarge organizations, “If they’re too big to fail, they’re too big.” And if the tech sector is faltering, chances are it is because it has become too big to manage, is spending most of its time and effort focused internally to manage the complexity it has created, has too big an imprint on the global economy and is vulnerable to implosion from the inside out.
And that leads us to the topic of this week’s newsletter, when less is more.
Small Is Beautiful
Let’s start with a brief history lesson. As Wiki reports, “Small Is Beautiful: A Study of Economics As If People Mattered is a collection of essays published in 1973 by German-born British economist E. F. Schumacher. The title came from a principle espoused by Schumacher’s teacher Leopold Kohr (1909–1994) advancing small, appropriate technologies, policies, and polities as a superior alternative to the mainstream ethos of ‘bigger is better.’”
Brittanica adds, “In “Small Is Beautiful, Schumacher argued that capitalism brought higher living standards at the cost of deteriorating culture. His belief that natural resources should be conserved led him to conclude that bigness—in particular, large industries and large cities—would lead to the depletion of those resources.” It would seem self-evident that uncontrolled growth has a negative impact on both the natural and human worlds. And note that Schumacher wrote this essay 50 years ago.
There is a corollary to Schumacher’s idea: Less Is More. This one, interestingly, comes from iconic Bauhaus architect Mies van der Rohe. The philosophy is related to designing something simple yet has more meaning and beauty. If we haven’t lost you up to this point, our thesis is that organizations (particularly public companies) are blinded by short-term growth, scaling fast and furiously, and measuring success by size. We believe that quality trumps quantity, balance with both the natural and human worlds is essential, and size matters — but it needs to be appropriate and not growth to please shareholders at any cost.
Small Is Not Little
Here’s another thought that caught our attention: You will probably outlive most big companies. McKinsey stated 17 years ago that 75% of the companies quoted on the S&P 500 will disappear by 2027. Why is this? As we have written, the bigger you are, the more complex your infrastructure and therefore the more vulnerable you are. IMD think tank author Professor Stephane Garelli adds, “Large companies need a continuous input, more management energy just to exist. The larger the company, the more energy it needs, and therefore large companies spend more time managing themselves than they have time and energy for managing their stakeholders.”
Dhafer Hasan, career coach, expands on how less can be more, “Innovation is required to find the shortcut to same or even better results. But this does not sound like spending less energy, in the contrary, it requires a lot of thinking and doing to reach this level and adapt this approach.” The required tools? Critical thinking in context of market orientation. More on that in our book The Truth About Transformation, chock full of business tips and strategies.
Practical Application
John Early, author of Lean Book of Lean says that less is more when “doing the absolute minimum necessary to get the desired result.” The challenge is identifying the absolute minimum necessary. We counsel our clients that to achieve that level of efficiency it requires an absolute understanding of the human factor involved in meeting that goal. And for all the moving parts to work holistically, it requires sound organizational tactics. On the human side, it requires experience, knowledge, and skills. And experience is gained by trial and error, experimenting, and analyzing data – and time, which s today’s most valuable currency.
An example of doing the maximum that bogs down an organization is disguised in a form of employee empowerment. As Inc. reports, “Google gives a great deal of autonomy and decision-making power to its employees and allowed the company to grow rapidly in different areas at once. But as it has grown larger, it’s made it difficult for Google to move swiftly in response to opportunities or threats. The same problem plagues many companies.”
The Move to Small
Garelli writes that as the life expectancy of companies drops, ours is increasing. We have reported that since the beginning of the century, 50% of the children born in advanced economies can expect to live up to 100 years old. Therefore, the retirement age will increase, and benchmarks (like middle age crisis) will be redefined in terms of timing. Next gens will work longer and have portfolio careers, perfecting their individual skills and taking them from job to job instead of having a career with one company … forever. Remote and hybrid work models have already impacted the smaller physical footprint of companies, leaving the excess real estate as a headache for organizations, local governments, and urban landlords. Small businesses that survived and local leaders are now struggling to redefine business spaces and districts.
Garelli adds, “People will increasingly become partners rather than full-time employees. They will manage a range of business relationships and not need a traditional office inside a company. When companies or jobs disappear faster (think of the recent layoffs at Google, Meta, Microsoft, Twitter, Lyft, Goldman Sachs, Salesforce, Washington Post, The Wall Street Journal, et. al.) these talented out-of-work individuals will become even more self-centered and self-reliant, creating their own careers, not depending on institutions or organizations. Or in a retaliatory moment, they will get better paying jobs or start up enterprises to compete with their former employers.
Let’s consider for moment what is happening with big tech – the perfect example of Big Is Not Beautiful. The over consumption of time and energy in growing and managing these organizations resulted in being overly optimistic that growth is unlimited. As the reality of market limitations set in, their ivory towers started to crumble and they were faced with the reality that no company, regardless of importance, status or size is immune from hubris. What also came to pass is that the government and policy finally caught up recognizing that the Wild Wild West of innovation has consequences. The once-protected insular tech world that was predicated on the principles of growth and world economic dominance has cracked.
Diversification and Expansion
So, what happens when the organization is pressed by its board and investors to level up, grow exponentially and establish a bigger footprint?