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Size does matter

I wrote a blog a few years ago called ‘Too big to succeed’ which captured some of my thoughts about scale and particularly the National Health Service in England. The NHS is the world’s fifth largest employer, third if you discount the affiliates and franchises involved with McDonalds and Walmart. I suggested that as organisations grow, their ‘surface area to volume ratio’ changes. In other words, they become more focused on the internal relationships and structures necessary to preserve their function (and thus identity) and less focused on their relationship with their environment. Preservation of identity becomes the de facto purpose and the espoused purpose (making people better, serving burgers) gets subsumed into this.

This is a dangerous phenomena. For a global corporate it may be the point at which inevitable decline begins. For a governmental organisation, which cannot be allowed to fail (US Defence Department, Chinese Red Army, NHS), it may be the point at which its bureaucracy becomes all consuming and the relationship between cost and effectiveness moves into unhelpful relationship.

In the video that we link here, MIT Professor Cesar Hidalgo adds another perspective and some numbers. In his studies of network theory he has explored whether markets are meritocratic or topocratic. Put another way, do you succeed because of your talent or because of who you know? As networks grow in scale they move increasingly to topocracy. If everybody knows 150 people, the most according to some studies you can know (regardless of the number of twitter ‘followers’ you have) then by the time your organisation reaches 17000 people the dominant form is topocracy, then meritocracy is gone. The reality is most of us don’t ‘know’ 150 people so the number will be much lower. The old phrase ‘it isn’t what you know, it’s who you know’ now has a numerical underpinning.

For any large corporation or government body, this explains the phenomena we have all observed whereby the internal process takes over. Who you know begins to determine promotion not what you are good at. Our focus becomes ‘how will we manage this’ not ‘what will we do’. Internal quality rules, purchasing requirements, HR constraints shape our activity more than what is needed in the external environment of our customers. Internal costs grow and we resolve them by more of them same. The seeds of our own ineffectiveness are sown in our own internal dynamics.

When CEOs seek to grow their organisations, when activists seek to avoid the ‘break-up’ of the NHS, they might ask themselves, ‘what will be the unintended consequence of my actions?’ Will they be able to see this, or, now the preservation of identity has become the de facto purpose, will they be blind to their context and accelerate an inevitable decline?