When Less Is More
Issue 92, January 26, 2023
“We’re too big to fail.” Try that one out on Elon Musk or Mark Zuckerberg. If there were ever two visionaries with an overabundance of hubris, they’re the ones. Although the concept of “too big to fail” technically refers to an organization that is so important to a financial system that a government would not allow it to go bankrupt due to the seriousness of the economic repercussions (Wiki), one could argue that what we are experiencing in the tech sector right now can also refer to the egos and perceptions of self-importance of tech leaders. Economist Alan Greenspan, has said of overlarge organizations, “If they’re too big to fail, they’re too big.” And if the tech sector is faltering, chances are it is because it has become too big to manage, is spending most of its time and effort focused internally to manage the complexity it has created, has too big an imprint on the global economy and is vulnerable to implosion from the inside out.
And that leads us to the topic of this week’s newsletter, when less is more.
Small Is Beautiful
Let’s start with a brief history lesson. As Wiki reports, “Small Is Beautiful: A Study of Economics As If People Mattered is a collection of essays published in 1973 by German-born British economist E. F. Schumacher. The title came from a principle espoused by Schumacher’s teacher Leopold Kohr (1909–1994) advancing small, appropriate technologies, policies, and polities as a superior alternative to the mainstream ethos of ‘bigger is better.’”
Brittanica adds, “In “Small Is Beautiful, Schumacher argued that capitalism brought higher living standards at the cost of deteriorating culture. His belief that natural resources should be conserved led him to conclude that bigness—in particular, large industries and large cities—would lead to the depletion of those resources.” It would seem self-evident that uncontrolled growth has a negative impact on both the natural and human worlds. And note that Schumacher wrote this essay 50 years ago.
There is a corollary to Schumacher’s idea: Less Is More. This one, interestingly, comes from iconic Bauhaus architect Mies van der Rohe. The philosophy is related to designing something simple yet has more meaning and beauty. If we haven’t lost you up to this point, our thesis is that organizations (particularly public companies) are blinded by short-term growth, scaling fast and furiously, and measuring success by size. We believe that quality trumps quantity, balance with both the natural and human worlds is essential, and size matters — but it needs to be appropriate and not growth to please shareholders at any cost.
Small Is Not Little
Here’s another thought that caught our attention: You will probably outlive most big companies. McKinsey stated 17 years ago that 75% of the companies quoted on the S&P 500 will disappear by 2027. Why is this? As we have written, the bigger you are, the more complex your infrastructure and therefore the more vulnerable you are. IMD think tank author Professor Stephane Garelli adds, “Large companies need a continuous input, more management energy just to exist. The larger the company, the more energy it needs, and therefore large companies spend more time managing themselves than they have time and energy for managing their stakeholders.”
Dhafer Hasan, career coach, expands on how less can be more, “Innovation is required to find the shortcut to same or even better results. But this does not sound like spending less energy, in the contrary, it requires a lot of thinking and doing to reach this level and adapt this approach.” The required tools? Critical thinking in context of market orientation. More on that in our book The Truth About Transformation, chock full of business tips and strategies.
Practical Application
John Early, author of Lean Book of Lean says that less is more when “doing the absolute minimum necessary to get the desired result.” The challenge is identifying the absolute minimum necessary. We counsel our clients that to achieve that level of efficiency it requires an absolute understanding of the human factor involved in meeting that goal. And for all the moving parts to work holistically, it requires sound organizational tactics. On the human side, it requires experience, knowledge, and skills. And experience is gained by trial and error, experimenting, and analyzing data – and time, which s today’s most valuable currency.
An example of doing the maximum that bogs down an organization is disguised in a form of employee empowerment. As Inc. reports, “Google gives a great deal of autonomy and decision-making power to its employees and allowed the company to grow rapidly in different areas at once. But as it has grown larger, it’s made it difficult for Google to move swiftly in response to opportunities or threats. The same problem plagues many companies.”
The Move to Small
Garelli writes that as the life expectancy of companies drops, ours is increasing. We have reported that since the beginning of the century, 50% of the children born in advanced economies can expect to live up to 100 years old. Therefore, the retirement age will increase, and benchmarks (like middle age crisis) will be redefined in terms of timing. Next gens will work longer and have portfolio careers, perfecting their individual skills and taking them from job to job instead of having a career with one company … forever. Remote and hybrid work models have already impacted the smaller physical footprint of companies, leaving the excess real estate as a headache for organizations, local governments, and urban landlords. Small businesses that survived and local leaders are now struggling to redefine business spaces and districts.
Garelli adds, “People will increasingly become partners rather than full-time employees. They will manage a range of business relationships and not need a traditional office inside a company. When companies or jobs disappear faster (think of the recent layoffs at Google, Meta, Microsoft, Twitter, Lyft, Goldman Sachs, Salesforce, Washington Post, The Wall Street Journal, et. al.) these talented out-of-work individuals will become even more self-centered and self-reliant, creating their own careers, not depending on institutions or organizations. Or in a retaliatory moment, they will get better paying jobs or start up enterprises to compete with their former employers.
Let’s consider for moment what is happening with big tech – the perfect example of Big Is Not Beautiful. The over consumption of time and energy in growing and managing these organizations resulted in being overly optimistic that growth is unlimited. As the reality of market limitations set in, their ivory towers started to crumble and they were faced with the reality that no company, regardless of importance, status or size is immune from hubris. What also came to pass is that the government and policy finally caught up recognizing that the Wild Wild West of innovation has consequences. The once-protected insular tech world that was predicated on the principles of growth and world economic dominance has cracked.
Diversification and Expansion
So, what happens when the organization is pressed by its board and investors to level up, grow exponentially and establish a bigger footprint? A bigger is better mindset often concludes that diversification is the solution to all problems. If an organization can diversify into multiple, preferentially dissimilar, products or services targeted to different markets, it can grow and become bigger and more influential, protected from changes across markets and less impacted by the whims of investors.
When it comes to considering change and transformation in remaking an organization, the most important tool is experience and practical, applied learning. Here’s the concept. An organization (company, business, entity or whatever it calls itself) has become successful doing one thing within a market segment/industry (think beverages, social media platforms, advertising technology, automobiles, airplanes, beauty). It has reached that position by acquiring a workforce that continues to evolve with the skills, talents, and capabilities necessary to fulfill the organization’s mission and shared purpose. The organization currently successfully meets customer expectations. Also, the organizational culture has been formed around the values, practices and norms required to do that one thing well. Following are four case studies to illustrate the point when a bigger is better mandate enters the picture.
- General Electric
Historically, the mantra of General Electric was diversification. But in upsizing, it miscalculated its skills and abilities to go beyond fossil-based energy and equipment into financial services, consulting, and renewable energy. Over the past 20 years, it found itself returning to its core, first moving away from financial services and consulting to then recognizing the necessity to sell off other elements of its business. Its current intent is to achieve a smaller, more targeted organization that reflects what it is really good at doing and what its culture/workforce are experts in.
- Estée Lauder
Consider the challenge facing beauty giant Estée Lauder who recently bought the Tom Ford brand for an astounding $2.8 billion and inherited a fashion business in the process. Lauder has excelled at being the leader in the beauty business and now will be competing in the apparel and accessories spaces. Needless to say, product development, marketing, and retail sales for fashion is not a core skillset of the Lauder beauty-based workforce.
- Meta
Or consider Zuckerberg’s key Meta businesses: Facebook, WhatsApp, and Instagram. These social platforms are reaching a point where the market potential is tapping out. Population growth is slowing, competitors have become formidable (TikTok), and advertisers are either reducing overall spend or diversifying their spend and aligning it to where the critical mass of users are. And when it comes to social platforms, users are fickle, always seeking the new and shiny platforms that seem more exciting. In seeking to change and transform, Meta is banking its future on the Metaverse with virtual immersive platforms. Virtual worlds are very different than “social” platforms. That bet requires Oculus (Meta’s headset device) to virtually entertain and immerse millions of users, beyond gamers, to and beyond the point where Meta can achieve a return on investment and a fruitful redefinition of the company. Are the skills and talents necessary to run a social platform the same for managing a fully immersive universe? Like Lauder, Meta is stepping into untested waters with a team that has only perfected its current businesses. The point here is that skills, talents, and market orientation may not always allow for success in other segments or industries.
Elon Musk is a talented technician and engineer who knows how to build physical products — rockets and cars for example. Do his achievements, talents and abilities extend to knowing how to transform a social platform brand? One might assume a clever engineer like Musk can rally a crack team of software engineers and developers to make Twitter’s platform better. But in reality, Twitter is more than a tech platform. Revenue is derived from advertisers … who are people. It is people who build trust with others, make decisions, and build relationships. To remake Twitter into a profitable company, the relationships with both its users and advertising companies are critical. Musk isn’t known for his skills and abilities in building relationships; he routinely offends, communicates without thinking, and comes across as brilliant and erratic at the same time. How will users and advertisers build a relationship based on trust? We think that Musk has put his personal goal to grow and extend the size of his business portfolio above the people he is going to need to accomplish that goal and may have strayed from his own expertise and competencies.
Size at Any Cost
It seems that that as a society, an individual or a collection of individuals within an organization, we eventually learn that the aspiration to grow, become bigger, more diverse, expansive and more influential does not always result in good outcomes. Perhaps the most sobering aspect of unrealistic growth is the pounding that it takes on the environment with mismanagement of resources (think energy demands, over-packaging, water usage), degradation to the natural world (think topsoil, microplastics in the oceans, and the 11.3 tons of textiles tossed into landfills annually), and labor (over-dependence on underage workers in fragile economies).
The desire to be better by becoming bigger is often a short-term goal based on a leader’s whims. Let’s face it, infinite growth is physically impossible, as markets, the planet’s resources and people are finite. The big-is-best approach has hidden costs. Ultimately, an organization’s ability to sustain an ever-growing size becomes compromised as the resources to support it become scarce. It requires balance to successfully grow, and that balance depends on the balance of the human and natural worlds.
Paradigm Shift
If these pronouncements and observations seem unrelated to your own business, think again. The Less Is More movement will begin to permeate every organization with a new rigor in rethinking products, processes, and people. Many organizations today are hell-bent on growth, leaving customers to fend for themselves. The customer experience is diminished when there are not enough people on the frontlines to help them. Members and customers are put off when customer service functions fail. Stakeholders lose faith when organizations are too preoccupied with growth at any cost leading to short-term profits and forgetting the necessity to serve constituents. And the workforce resigns when management is overly distracted by meeting financial goals and not listening to, understanding, or respecting their needs and wants.
All of this is to say that organizations that think only big are destined to fail at every level. Leaders who insist their workforce be on-site against their will are risking losing their top talent. Startups that trade off quality in pursuit of scaling up fast risk losing it all. And management that stuffed their organizations with too many employees and misjudged emerging post-pandemic trends (unaware of how the economy and marketplaces would shift) are finding themselves in the crosshairs of their boards and investors.
Exponential growth may look good for news reporters and Wall Street. But in a society clogging on too much stuff, customers dealing with bloated organizations, and leaders with misguided notions that infinite growth can never be enough, it takes courage to buck the trend and rethink the model to operate under the philosophy that “enough is just enough.”
Rightsizing
At 2040 we stress that all markets are finite, and organizations cannot grow continuously or exponentially based on aspiration alone. That leads us back to less is more. We as individuals, organizations, or even governments cannot be good or experts in everything. Just think about the ongoing dialogue between political parties where one side believes a government’s responsibilities are to be expansive and the government’s role is to solve all problems. The other party seeks to establish a foundation of governance that is based on individuals and businesses solving their own problems and making their own way. Less is more. When the first party is in power, government grows bigger, then when the other party is in power, there is an attempt to contract and resize.
So, it all gets messy when organizations and governments expand and contract, depending on who is in charge. The thought of staying in one’s swim lane over time may be more realistic and deliver a more practical expectation of who we are and our potential.
We coach our clients that any aspiration to predict the future must recognize that our thought processes, capabilities, and innate behaviors inevitably default to the present. Our hope to be the best by being big dismisses the reality that big is generally an unwieldy, unmanageable monster that is hard to control. Energy and physical resources are finite; there is only so much to go around. Although it runs against popular thinking, remaining small and nimble can be a more productive, successful, competitive, and ultimately fulfilling advantage.
Get “The Truth about Transformation”
The 2040 construct to change and transformation. What’s the biggest reason organizations fail? They don’t honor, respect, and acknowledge the human factor. We have compiled a playbook for organizations of all sizes to consider all the elements that comprise change and we have included some provocative case studies that illustrate how transformation can quickly derail.
