What? One year already!

Yes, I haven't blogged for more than a year. Gosh... I must have been busy!

Well, yes, I was busy. And before blogging about My Corporate America again, I'd like to update you on my endeavours in what has been a year plenty of sadness, joy, excitement, and change.

When I wrote "To Big to Succeed" in January 2010 I was in the middle of what ended up being a one-of-a-kind experience: the closure of the plant where I worked in Massachusetts. You can imagine the drama surrounding this situation: announcement on Jan 12th 2010, 50 people impacted by a plant closing (give or take). You can envision them interviewing with competitors in the morning and with the parent business in the afternoon, or frenetically inquiring about benefits, writing resumes, looking for referrals in  Linkedin. You get the picture. But here is what made this experience unique; With this kind of restructuring -- I said to myself -- there must be an opportunity to create value that ultimately benefits the employees, the parent company, investors! I followed through, consulted with my company execs, external advisors, created business plans and reached-out to private equity investors. I can't say more... other than it was very exiting and it did not work. I learned tons. Short-cut to the end of the story: I ended up staying with GE Healthcare, and I now run the Surgical Navigation Segment from Salt Lake City. Good thing that I don't need to rename my blog!

At the same time, 2010 was the saddest year of my life. My father passed away January the 19th of 2010. He was 68. So I went to Chile; The family was reunited; We buried his remains in two places: the Chilean coast and the Andean village of Bariloche in Argentina. It was his will. I feel good about him resting in two of the most beautiful, scenic places I know. I realize only now that it took me a year to get over this, and it was not until I returned to Chile earlier this year that I made peace with destiny.

Back to the US, 2010. I had to take care of moving to Salt Lake City. I sold my house in Wakefield MA, and bought one in Salt Lake City, UT. Put the kids in school and daycare, made new friends, started new activities with my wife and  discovered the region. Wow, I was impressed. Incredible outdoors, great weather, and the city has enough stuff going on to be fun.

Work has been extremely interesting too... and now that I finally settled, I feel I have so much to blog about. Stay tuned!

Too Big To Succeed?

Size matters, big companies can enjoy economies of scale. The logic is simple: the more a company produces, the more fixed costs can be spread across units of production, decreasing costs on a per unit basis. How much does Coca-Cola spend in advertising? Surprisingly not much... a dime a bottle? Size matters, I'm sure you get the point.

Yet, in working for a very big company for years, I have seen first hand some limitations that can significantly penalize them. Despite bailouts and policy that appears to be big-corporate friendly, smaller businesses will have an evolutionary advantage in the long run. Stay with me for a minute!

Big organizations are inefficient. You need more layers of management and supervisors, more trainers, more policies, more communication, more controllers, more of everything. You can visualize this by imagining a pyramid: the larger the base, the much larger are the amount of cubes needed to federate the base under a single apex. Big organizations create their own wasteful work. Two examples:
1) Training. I've been part of the deployment team for a major ERP update (it was the second in three years). Needless to say that we really didn't need a new one (but someone elsewhere in the company did). How would you convince a group of people who don't need change to embrace it? Have some trainers and change-leaders from within. So off I went for a train the trainer session at the headquarters. Let me summarize: You deploy an ERP change that is not wanted nor needed, through people that don't know anything about ERP and need to be trained to train! Brilliant!
2) Communication. I saw a good presentation from a communication specialist about how, in an era when employees are bombarded with communication, the role of direct managers is to re-communicate what is important (yes, again... but differently!) and help employees filter the rest. Guess who's sending all this communication in need of re-factoring? Well, all those additional managers we talked about, the CEO, the success cheerers, the reply-to-all-ers, the initiative leaders, the training leaders, the change agents...
Don't get me wrong, both examples show good management practices. The problem is that they are the right thing to do... in a big organization. And it is sadly wasteful. I'd be interested in hearing  your own examples... leave a comment!

Another big problem is decision making. When the company is big because you have big capital expenses, fine. Your can produce more beer at a cheaper unitary cost: buy bigger tanks, advertise in major sport events. But when the company is big because of product scope then you have to be very careful. Are you saving costs? Yes, some: the support functions of the value chain (IT, HR, Management...), if you are lucky you have common distribution, more savings. But there is a catch: decision making and trade-offs. Let's suppose you have three  product lines A, B, C. Who's to decide what's best for product A? The manager of A! Great, here we go with one manager for each product line. Wait a minute, what if A can cannibalize some sales from product B? Ok, let's put managers A, B and C under Big Manager. Big Manager will take care of A vs. B. Now A, B and C all need R&D resources... how will we allocate them? Have a manager of R&D that negotiates with manager A, B and C to allocate the resources depending on what Big Manager says the priorities are. Hold, product C needs investment now and promises to give excellent returns when product A and B will be obsolete. Big Manager said it was priority 3. Lets do some internal politics... I stop here for sanity, but trust me, I could go on! My point is the following: maximizing  shareholder return in big companies is not easy and, most often than not, management will end-up with sub-optimal solutions.

Above paragraphs are just a fact: there are advantages and disadvantages in being big. There is an optimum between economies of scale and diseconomies of scale called ideal firm size, and the balance depends on the cost structure, organization efficiency and synergies in the product portfolio of the company.  I said earlier that small businesses will have an evolutionary advantage. Why is this optimum leaning towards smaller-sized companies now, what is changing?

The basic answer is that new technologies are creating better ways to deploy the support functions: They can be outsourced, require minimal capital expenses, and are more flexible than they used to be. Some scenarios: You need an assistant but don't have enough work even for a part-timer? No problem, hire a "Virtual assistant". Pay per hour, no fixed costs, 100% scalable. Neat!
All right... what about IT? We talked about all this IT waste earlier, is something changing? Yes, you don't need IT anymore! Leave IT to the pros, live in the cloud: Your CRM? Use salesforce.com; ERP? That's sexy, use an open-source solution in Amazon's cloud: Compiere in EC2. Call-center? Easy, rent some cheap call-center space and resources in India. Also, don't forget to hire your customers: have a website where your users can efficiently help each-other. R&D? Use open innovation, post your R&D challenges here! Marketing? Use super-targeted ads through Google or Viral marketing with Facebook!
By now I hope you see what I see... technology is changing the big vs. small company balance, and it should favour small companies.

A few tips?
Tip #1 - I would advice everyone that shapes organizations to be mindful in balancing control with independent decision making and size with organizational hidden costs.
Tip #2 - Avoid creating organization structures assuming that they'll take good care of the problems you see. Problems are solved by people, organizations are suppose to help. Actively gage how people are acting. Are they creating value or just being the caricature of their role?

Readings: The World Is Flat by Thomas L. Friedman. Yet another good book left unfinished, chapter 2 was good enough to inspire this blog.

What have I done myself? Not much yet, for now I have a large share of Small Cap in my 401k!

Disclaimer: Everything I write in this blog expresses my opinion and not my employer's. Examples used are only intended to illustrate my opinion and are not intended to be judgemental of good or bad management practices. Use my tips at your own risk! Comments are uncensored and represent the view of who posts, not mine. To the best of my knowledge, the images used are copyright free. The Mammoth image in this post  is licensed under the Creative Commons Attribution ShareAlike 2.0.)