The size of things to come
1996-12-24
When it comes to companies, big is usually better. Or is it? While different
models prevail, economies of scale are one of the favourite reasons for making
a business bigger. Towards the end of the eighties large companies seemed
untouchable and predictions were widespread that by the end of the century,
industries such as electronics, banking, publishing and advertising, would be
controlled by a few very large companies. This prediction is rapidly being
turned on its head. Let's look at some of the trends.
Downsizing, upsizing, rightsizing
Corporate America and Europe have spent the last ten years re-engineering
their companies. Management consultants have made a tidy fortune advising
companies on strategies that will make them leaner, meaner and more
manageable.
The basic problem seems to be that as organisations mature, just like their
human counterparts, they tend to acquire layers of fat. Growing companies
continually struggle with this phenomenon and it is not uncommon for an
organisation to break itself into pieces in order to manage itself better.
AT&T, the international telecommunications giant, is in the process of
splitting its business into three autonomous operating units. In South Africa
Gencor started an unbundling exercise 2 years ago by selling off their
interests in subsidiaries so that it could focus on core business.
Technology and the internet
Sheer size made it possible for large organisations to dominate their markets.
With the advent of more sophisticated technology this domination has become
increasingly more difficult. Small lean organisations are able to compete
effectively by deploying ever-improving technology quicker and more
effectively than their larger counterparts. Big companies seem to get bogged
down in project teams and documentation while small companies are following
Nike's advice and "Just doing it!".
The internet is now also playing a notable role in this David and Goliath
battle. Because barriers to entry are very low, small companies are able to
utilise the internet just as effectively as companies with major budgets.
It is often the small companies that seize the opportunities while the more
conservative corporates are still making up their mind. Small companies, while
lacking the benefits of economies of scale and the muscle provided by large
amounts of capital, are able to compete by being innovative and keeping
overheads down to a minimum. Technology, it seems, is the great equaliser.
Many small businesses are started by executives who leave their corporate
environments with large severance packages, loads of experience and a
determination to succeed on their own. Having been exposed to the benefits of
technology, these entrepreneurs spend their money on the hardware and software
with which they are familiar.
Robin Sternbergh, head of IBM's worldwide small and mid-size sales and
service, observes that companies with fewer than 50 employees comprise the
fastest-growing market segment. Annual sales to this segment are increasing at
14% a year.
The small business community is growing at unprecedented rates and some major
companies are sitting up and taking notice. American Express recently
announced a new credit card with a $20,000 limit, which is the centrepiece of
a focus on businesses with fewer than 100 employees. Other services will
include new credit options, lease financing, and financial management
services.
Why are corporations taking small business seriously? "Small business is the
third-largest economy in the world, after the US and Japan" says Steve Alesio,
president of American Express Small Business Services.
The Future
As the global market place grows in size and complexity, it has become
increasingly important to find a niche and focus on it to succeed. Large
companies spread into numerous business areas will find it difficult to
compete with small companies focusing on just one niche market. The need to
offer a one-stop solution is, however, still a big selling point for any
business.
In the past, this was the domain of the large diversified company but going
forward the "one-stop shop" may well be networks of small companies who run
autonomously but work in alliance with partners offering complimentary
services.