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Thursday, April 21, 2005

Can large companies be effectively reorganised

Yesterday I was discussing whether large companies can become so large and tangled in their own webs that they are irrevocably broken Business Process wise. Certainly there have been plenty of examples of large companies reorganising with great results, Tesco being a prime example having just released news of record earnings in the UK. However, is Tesco merely an example of a company that went from good to better? I would say; "Yes". Tesco was clearly not irrevocably broken in the first place.

I would think that there are many examples of large companies who are only able to stay in business because they are large. You could visualise these companies a huge lumbering dinosaurs. Just as it is impossible to reorganise a Diplodicus into a Cheetah it is impossible to reorganise a large broken company into a small efficient company. Perhaps that is the problem; large versus small. No matter what new management technque is used a large company will remain a large company until it jettisons much of its market share, employees, capital etc. A small company is inherantly more agile than a large company and more easily lends itself to self-reinvention.

In conclusion I would say that it is certainly possible for a large company to become so irrevocably broken that the only solution is to virtually dispand the company and start again from scratch. This begs the question; "Will the new, and smaller, version be able to maintain any competitive advantage once its one redeeming factor, its size, has been removed?".

The case for a large company is generally one of Imperfect Competition. The large company may exist in a Monopoly or, more likely, an Oligopoly. Since a market is never black or white as regards perfect competition or imperfect competition I would say that the demand curve in this scenario will certainly be kinked even in the case of the supposed Monopolistic company. An example of this is Microsoft who exist as a Monopoly for the Microsoft Operating System yet sell the operating system at various price points. Rather than being merely a simple case of price discrimination in could be argued that Microsoft has found it necessary to vary the price that they sell at due to other products which do not compete on price, namely Free Open Source Software (FOSS) operating system alternatives.

If this Monopolistic or Oligopolistic company were to recreate itself as a smaller company it would eliminate all of the benefits which it was able to enjoy in its previous position. The demand and supply curves would shift dramatically in the case of a Monopoly and in an Oligopoly a competitor may now find that it now has a virtual Monopoly. This leads me to wonder if it is logical for a large company to strive to reinvent itself completely. In the short term the consumer would undoubtedly benefit from lower prices in a more perfectly competitive market, however, in the long term, the lack of supernormal profit would mean that research and development would be more difficult for the more price competitive companies. In reality, however, products are rarely competely hetrogenous and so a market for the companies which I'm primarilly imagining would probably not compete solely on price and consequently R & D would just be one of many costs of doing business which all companies would have to bear.

In final conclusion, I think that clearly I've opened a Pandora's box on this one and am sure that I'll revisit this topic again as although the answer to the original question is a resounding "Yes" there are clearly many other questions now to be answered.

What do you think? Please leave a comment or email your question, which you'd like me to answer for free, to Ben Dash at


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