Death By Growth

There is no easy way to say this, organizations don't scale well using traditional management practices. In fact, the returns on productivity for adding more people are actually sublinear; which means adding a person doesn't get you a full person's contribution. Just listen to what Geoffrey West, Distinguished Professor and Past President of the Sante Fe Institute has to say about it:

"After buying data on more than 23,000 publicly traded companies, Bettencourt and West discovered that corporate productivity, unlike urban productivity, was entirely sublinear. As the number of employees grows, the amount of profit per employee shrinks. West gets giddy when he shows me the linear regression charts. "Look at this bloody plot," he says. "It's ridiculous how well the points line up." The graph reflects the bleak reality of corporate growth, in which efficiencies of scale are almost always outweighed by the burdens of bureaucracy. "When a company starts out, it's all about the new idea," West says. "And then, if the company gets lucky, the idea takes off. Everybody is happy and rich. But then management starts worrying about the bottom line, and so all these people are hired to keep track of the paper clips. This is the beginning of the end."
The danger, West says, is that the inevitable decline in profit per employee makes large companies increasingly vulnerable to market volatility. Since the company now has to support an expensive staff -- overhead costs increase with size -- even a minor disturbance can lead to significant losses. As West puts it, "Companies are killed by their need to keep on getting bigger."


As the graphic, excerpted from a McKinsey study, illustrates exactly what West and Bettencourt found. As companies grow, their profit per employee drops. Yes, these are very large enterprises. Does this occur on a smaller scale? Our first-hand experience working with enterprises as small as 25 would indicate it does.

The next obvious question is how can you contain the "burdens of bureaucracy" so growth doesn't kill your organization? If so, how?

Something to consider as you grow your team or enterprise.

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