Corporate culture is another limiting factor: The larger your company gets, the harder a great corporate culture is to maintain. From all accounts, WinCo has a great community of workers, and it has 15,000 of them, which sounds like a lot. But Wal-Mart has more than 1 million employees in the U.S. It might be hard to maintain that level of excitement as you get into the hundreds of thousands of employees. If you try to expand quickly to get scale, your core of loyal employees who have been with you forever shrinks relative to the newcomers who don’t yet have the same commitment to the company. This is particularly a problem in employee-owned companies; as you get more employees, you can dilute the sense of ownership, because each employee’s contribution makes such a tiny impact on the bottom line — or you may get wars between groups of employees, as we saw with United Airlines.
This is related to another key challenge: management. As organizations grow, they have to change. Anyone who has been through a startup can attest to this — when you start out, you don’t need to have many meetings; you just hash stuff out impromptu when the need arises. As the company grows, you start to need management reporting lines, and defined roles, and scheduled meetings, and other bureaucratic unpleasantness that everyone hates. But if you try to do without it, everything quickly degenerates into a chaotic mess.
Not every company is good at this transition. If one of the things that made you great as a little baby company was your informality and flexibility, you may find that growing makes your key producers unhappy and ultimately saps the creative flux that made you great at what you do.
This is also a big challenge as the company moves beyond “small” and into “large”; in fact, every time you dramatically increase the size of your business, you will find that it needs to gut-rehab its management structure. Your three great managers who made all the trains run on time can no longer oversee things at the level of detail they once did; they need to spend more of their time making sure that other people do so. Some of them aren’t good at that role, but they will be unhappy if someone else is promoted or hired over their head. You start to rely more and more on well-standardized processes rather than individual initiative, which may require some compromises on quality to maintain the price point that your customers expect. It is the difference between an exquisitely pulled shot at your local coffee shop and the massive amount Starbucks has invested in machines that make exactly the same coffee every time.
Megan McArdle, “In-N-Out Doesn’t Want to Be McDonald’s”, Bloomberg View, 2014-10-02.
September 17, 2015
QotD: Corporate culture and management overstretch
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