Posted on August 14, 2015 @ 07:54:00 AM by Paul Meagher
I am a third of the way through Ernst Schumacher's classic book Small is Beautiful.
Enrst makes the point that, in business, gigantism is generally considered a goal or a good thing. We all want to grow and become big. As a corrective to this idolatry of bigness, Ernst argues that we should spend some time thinking about why big might be bad, and small might be good.
The question of "how big" a business is or should be is a relative judgement. There is no absolute business scale of smallness, only a comparative scale where we judge how big one business is relative to another along some dimension or set of dimensions.
On the issue of why smallness might be beautiful (i.e., good) he points out that many of the biggest companies of his day created subsidiary companies, smaller autonomous units, so that the company
could be managed better. When I read this I was reminded of the
recent announcement by Google that they would be restructuring under the umbrella of a company called Alphabet. According to Larry Page, "the whole point is that Alphabet companies
should have independence and develop their own brands".
I think it is useful to question whether gigantism is the goal of business. Google is of course huge under any size metric, but for it to function effectively they feel the need to split the company up into smaller units that have independence and can develop their own brands. The same
principle might apply for "smaller" companies that can decide if proceeding as one entity that becomes bigger is the proper way to go, or whether splitting things up into smaller companies with their own mandate, branding and independence is the way to go. You enjoy better portfolio effects when you split up companies like this and it is a good way to mitigate overall risk for the whole enterprise.
Schumacher makes many arguments in favor of smallness. This is only one of them.