Is this the end of large companies ?

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(Competitive) advantages of big companies

Large companies used to be created by aggregating smaller ones and making economies of scale. Because of that, large companies tended to be more efficient than smaller ones, that is the incemental costs of producing something is very small compared to the unit cost.

Support functions

For example, the HR department who can serve 100 employees certainly can serve 110 for almost the same cost. Accounting services cost growths slower that the number of account transactions processed, so for example if you merge two companies, certainly the costs of HR and accounting per unit produced will be less in the merged companies than in the smaller ones.

Better at supply ?

There's also the idea that big companies have more bargaining power than small ones and thus can buy for cheaper, but I don't buy (!) too much that one. I've seen on several occasions medium sized companies that where able to get better prices than bigger ones on smaller volumes, just because they negotiated more aggressively with their suppliers.

Inefficiencies in big companies

The complexity of the company "nervous system"

However big companies do have a problem of efficiency, in my opinion, and this is one of management. The bigger the company, the more people there are in there and the more difficult it is to have a global, synthesized view of what is going on. Instead of seeing what's going on with their own eyes, the top management see it through several layers of reporting, each layer distorting the message a bit.

In the other direction, the bigger the organization, the more difficult it is to propagate messages, and the more difficult it is to align everyone on the strategic goals.

Also the bigger the company, the less smart the average employee. This may sound sad, but there's no escape to it. If you must hire 10 engineers, you may get absolute top mavericks. But if you have to hire one hundred, one thousand, at some point you'll have to lower your standard, because just not everyone is as good as the next person. Combined that with a large company, where it is difficult for the top management to know what is going on in remote departments, for one service to know what are the needs of the next one and the constraints of the other one, and you will waste whatever skills you've been able to gather.

The small company


But is this true any more ?

We're in a world where

  1. Almost anything is available in small quantities at low cost (HR services, accounting, supplying, etc...)
  2. More and more ut is possible to manufacture in small quantities at a competitive price, for example 3d printing, externalized manufacturing of PCBs, production of chips in relatively small quantities.
  3. And computing power, both hardware and

In these conditions, the competitive advantage you get by scaling up the business may be thinner and thinner.

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