20 September 2005

Large and Small Organisations

Very good piece by Arnold Kling on the differences between large and small organisations.

If large organizations are dehumanizing, then why do they exist? Brad DeLong says that my assessment of large organizations must be incorrect, or else we would not have Wal-Mart.

A point Kling doesn't make about Wal-Mart is that it is a fairly young organisation. It was in the 1970s that it became a really large organisation, and in the 1980s that it became spectacularly huge. As I have pointed out previously, it is over time that the bad effects of states and other large organisations accumulate. After thirty years, Wal-Mart is a very effective organisation, but one would expect the problems to start soon. The massive state-managed economy Britain instituted in the 1940s started falling apart in the 1970s, and the Soviet organisation set up through the 1920s and 30s probably peaked in effectiveness in the early 60s. Small organisations can stay effective indefinitely.

This piece by Paul Graham is also relevant - describing the Venture Capital / takeover cycle as a way of getting more of the best of both worlds.

2 comments:

Neil Craig said...

I agree entirely with the example of the Soviets - common political wisdom is now that it doesn't work which it certainly didn't in the end but did for several decades.

(I will admit to having been a supporter of central planning up till the mid 70s & a free marketeer now)

paul@anomaly.com said...

I think the truth is more complex (isn't it always?)

Large organisations fail when they forget how to behave flexibly and react in ways that come more easily to small ones, i.e. when they begin to rely on the necessary evil of internal process (understandably given the added complexity their size makes them face) as a replacement for common sense and instinct.

Strong inspiring leadership, avoidance of monolithic structure, the willingness to break into smaller units when needed, and the acceptance that there will be high points and low points along the way (with the inbuilt ability to accept and learn from failure) can avoid the problem. Arguably good examples might be Hollywood studios, Virgin, BBC and some political organisations/institutions that endure over decades and even centuries despite highs and lows. Even China's version of 'flexible' communism could be argued to be working within its own criteria.

And remember, too, that for every successful small organisation (which itself will have plenty of highs and lows, just less scrutinised ones) there are countless hundreds that fail without ever being noticed.

The key is not size, but attitude and the capacity to adapt to new situations.