20 Organization Size
Pressure for Growth In 1990s, Peter Drucker, declared that “the fortune 500 is over” Yet every businessperson has the dream to take his/her company to the fortune 500 list – to grow fast and to grow large Sometimes this goal becomes more important than profitability In 1997 $ 1.6 trillion worth of mergers took place worldwide, a new era of “bigness” to control the resources and distribution channels Many in the industry believe that firms must grow to stay economically healthy. To stop growing is to stagnate Example of BCG matrix, nobody wants to be a “dog” To be stable means that customers have not got their demands fulfilled or that competitors will increase their market share at your expense Greater size generates economies of scale, power, revenues In addition growing organizations are vibrant, they attract more people
Large vs. Small How much to grow and how large to become? LARGE organizations have the following advantages: Economies of scale Global reach Vertical hierarchy, mechanistic Complex Stable market Organization men
Large VS Small Organizations responsive, flexible Regional reach Flat structure, organic Simple Niche market Entrepreneurs
Small organizations Current Trends: Since mid-1960s, most of the then-existing large businesses have lost market share worldwide Today, 96% of exporters are small businesses Internet is a fertile ground for the growth of small companies Rapidly growing service sector contributes to a decrease in average organization size Percentage of employees working in large organizations is constantly falling In pharmaceutical industry R&D in small organizations has been much more effective, give example of vaccine of hepatitis B personal involvement of employees in small organizations encourages innovation, commitment and employee motivation
Small organizations Problem: Small companies grow fast and becomes big Solution: Jack Welch: “big company/small company hybrid” i.e. combining large resources and reach of big companies with a small company’s simplicity and flexibility (divisional structure) Another approach is called the front/back approach, back for production and front end for distribution