inefficiencies in large organization

I could have found two working environments that were more extreme, but it wouldn’t have been easy. Moving from 400K employees at IBM to the original 4 employees of an angel-funded startup was certainly an adjustment. But besides my own shock, I became fascinated with other people’s thoughts on why I was so “lucky” to be working with a startup:  I could be my own boss. I could set my own hours. I could work on what I wanted to work on. There would be less politics. ((See “allure (and the fallacy) of startup life“)).

However, the one difference that was never mentioned (and I found most striking) was the level of efficiency in the different organizations. I once heard Lou Gerstner, former CEO of IBM, describe leading a large corporation “like captaining an an oil tanker. The ship has a lot of momentum; turning took a very long time.” In contrast, startups made lightning fast decisions and changed everything from their resources to their business model on a day-to-day basis. And when laid out, this makes a lot of sense. Startups require fewer people to align and even “big” decisions have a relatively (and absolutely) smaller risk and impact to the company.

So, I began to wonder, as an organization grows in size, is it possible for it to maintain efficiency? Or is it inherent and inevitable that an organization will become more inefficient as its size, in terms of people, revenue etc? Does it scale linearly?

Certainly large organizations are subject to (some would say burdened by) regulations, especially public institutions. One must inform investors or share holders when certain business decisions are made, some which even require waiting until a board of directors convenes. Overhead in order to report financials certainly adds an additional resource burden. Changing culture in a startup requires a few beers at a bar, while changing the mindset and embedded history of a large organization can take months, if not years.

With more employees, communication and processes required to create alignment of goals and consistency of execution contribute to the lack of ability of an organization to make decisions and react quickly to changes. With more people, comes a greater possibility of ideas and solutions to problems. But also more opinions to decide between and build consensus with.

I have seen large organizations try to become more efficient. But in the end, and beyond all the above reasons, it is actually inefficient to remove the inefficiencies. It requires more resources, time and cost to investigate and understand the issues and create the processes for improvement than just to leave the inefficiency in place. So perhaps it is actually economic efficiency at work all along…

 

 

 

Startup life was fast paced, big decisions (or at least big relative to the size of the company) were made quickly. People were hired, re-tasked and/or fired on a regular basis.

In contrast, large companies move slowly, have a hard time making decisions

In these