Companies find more strength in smaller numbers

ON EXCELLELANCE

January 18, 1993|By TOM PETERS

Lately I've stumbled on company after company, high-tech and low, that finds competitive gold in moderate-sized business units. Take British entrepreneur Richard Branson, whose Virgin Group employs 6,000 people in 100 companies.

"If a company gets too large," Branson told Success magazine, "break it into smaller parts. Once people start not knowing the people in the building and it starts to become impersonal, it's time to break up a company. I'd say that number is around 50 or 60 people."

Ben Lytle, chief executive officer of the Associated Group, a $2 billion financial services company, quickly became dissatisfied with his new divisional structure (it only changed the perspective of a few executives, he observed). So he created dozens of 65- to 100-person Acordia companies, each with its own CEO, board and facility.

Sherry Nord, CEO of Acordia Collegiate Benefits, explains one reason the scheme is working: "Decisions are made very quickly. We're located within a hundred yards of each other and can walk across the hall and say, 'Hey, let's get together and talk about this.' "

Former Union Pacific Railroad boss Mike Walsh (now Tenneco's CEO) favors a bigger number. In 1986, he cracked the railroad's huge operations arm into 30 units of 600 people each. His reasoning echoes Branson and Lytle: human scale. For one (big) thing, he figures each chief of a miniature railroad should know all his employees by name.

Fifty? 100? 600? Why, in this age of high-tech networks, are we seeing a return to cottage businesses? Only modest-scale operations, it seems, can engender the commitment required to compete in an ever-changing marketplace.

Anthony Jay, in his landmark 1972 book "Corporation Man," carefully examined unit size.

"I had a feeling . . . there was a grouping of great importance, even if I could not understand why," he wrote. "It lay somewhere around 400 or 500."

His hunch was borne out in studies of the Australian outback, Paris suburbs and numerous schools and entrepreneurial firms.

"A unit of 500 . . . is something you actually feel a part of," Jay explains. "You know that if you leave, everyone will notice the gap you have made. . . . This is profoundly important in a community, if only because it so radically affects what you can get away with. . . . Imagine trying to conduct a matrimonial intrigue in a village of 600 people: You could reckon that the time lapse between one person suspecting and the whole village talking would be a maximum of 12 hours."

More recent research pegs the magic number at 150 (153 on the dot, according to one analysis). Groups of 100 to 230 "turn up everywhere," Britain's New Scientist magazine recently reported. "In most modern armies . . . the smallest independent unit normally [numbers] 130-150 men. . . . Sociologists have known since the 1950s that there is a critical threshold in the region of 150 to 200, with larger companies suffering a disproportionate amount of absenteeism and sickness."

In 1989, Tony Becher of the University of Sussex published a survey of 12 disciplines in both the sciences and humanities. . . . Once a discipline becomes larger than [200 researchers], it fragments into two or more subdisciplines.

"Neolithic villages from the Middle East around 6000 B.C. typically seemed to have contained 120 to 150 people. . . . The Hutterites, a group of contemporary North American religious fundamentalists who live and farm communally, regard 150 as the maximum size for their communities....

Support for such anecdotal observations comes from research labeled the "social intelligence hypothesis." Groups of primates max out at 55. Reason: "social grooming," the main mechanism "used to cement relations between individuals." But it is "costly in terms of time [since a] monkey can only groom one individual at a time."

Social grooming, via language, also preoccupies humans. "Conventional wisdom has always supposed that language evolved to enable humans to exchange information about food sources and . . . hunting," New Scientist continues. "But it is difficult to see why humans should be any more in need of this than other primates.

. . . A more plausible suggestion is that language evolved to enable humans to integrate a larger number of individuals into their social groups."

And language, the research suggests with precision, is three times more efficient than non-verbal grooming: "The sizes of conversation groups in a student [dormitory], for example, consists of an average of three to four individuals. . . . Larger groups . . . fragment into . . . smaller conversation subgroups. . . . Thus the characteristics of speech seem to be closely tied to the size of the interaction group required to maintain cohesion."

Arguably, we got away with violating these "laws" during the age of mass production, when the human hand rather than the human head was the primary work tool. In the craft tradition that preceded the Industrial Revolution, the head reigned supreme. Now we're back to head work, with a vengeance. And 150, give or take, may be the answer. Ben Lytle and Richard Branson think so. and Microsoft's Bill Gates, wrestling with rapid growth, has latched on to 200 as his maximum unit size. Hmmm.

(Tom Peters' column is distributed by the Tribune Media Services Inc., 720 N. Orange Ave., Orlando, Fla. 32801; [407] 839-5600.)

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