Large firms can be notoriously slow to change. For example, Polaroid Corporation's refusal to move into digital imaging when the photography industry was clearly becoming more digital, adversely affected the company, ultimately leading to bankruptcy.
Reasons large firms can be slow to change include:
Communication challenges: Communication can often become inefficient in large organizations due to the greater number of communication channels that develop with large size. One-on-one communication becomes impractical with large organizations leading to different groups within an organization communicating with each other but not necessarily with other groups.
Slow response time: In a large company an employee’s actions are often far removed from the results of those actions. For example, in a large manufacturing corporation, mistakes of inefficiencies in operations are often not identified until managerial cost reports are generated and analyzed weeks or months after the actions that produced the negative results. After such a time gap it is often too late to avoid the losses incurred from such inefficiencies or mistakes.
In a much smaller firm employees often know immediately if consumer preferences change, for example. Not only will the smaller firm employee be more likely to recognize a potential problem or opportunity they will often be in a better position to respond quickly to the situation. Employees in a smaller organization are also able to understand the relationship between the various operations of the firm and the results these operations produce. A large company would need to do research, create an assembly line, determine which distribution chains to use, plan an advertising campaign, etc., before any change could be made. By this time smaller competitors may well have grabbed that market niche.
Unwillingness to change: Large, older companies are often characterized by an attitude of, “we’ve always done it that way, so there's no need to ever change". Refusal to consider change, even when indicated, is toxic to a company, because changes in the industry and market conditions will inevitably require changes in the company, in order to remain competitive.
Mature market stagnation: Large firms also tend to be older and in mature markets. Both of these have negative implications for propensity to change as well as future growth potential. Additionally, firms that have been around for awhile tend to have a large retiree base, with high associated pension and health costs. Add to these costs the tendency for large corporations to be unionized and the propensity to change is further suppressed.
Burdened by bureaucracy: The larger a company becomes the more dependencies there are between decisions, which makes it natural for decision-making committees to grow in number. In addition, processes are added in layers over time, often complicating operations and requiring more employees to accomplish tasks. This result is in companies burdened by bureaucracy where 20 people are “required” to complete a task that is accomplished at a smaller, leaner competitor by 3 or 4 employees, often with better results. Over time, administrators forget that it’s possible to make things happen without talking to a committee, filling out forms, or doing extensive market research. The challenge is that it’s typically easier to add processes than it is to remove them.
Protection of Status quo / Follower mentality: For anyone interested in progress, risk taking, change or growth potential, a large corporation can be an incredibly frustrating place to work, because the dominant culture is one of playing it safe and political correctness.
Differences in incentive systems: Medoff and Abraham (1980), who examined the pay of managerial and professional employees in two large manufacturing firms and found little differences in earnings resulting from superior performance. In addition, Lawler (1971) reviewed cites six separate studies of the relationship between pay and performance in large companies, and found that the studies generally concluded that pay is not very closely related to performance in many organizations that claim to have merit increase salary systems. The studies suggest that many business organizations do not do a very good job of tying pay to performance. While many companies claim their incentive systems are based on performance most organizations do a poor job in this regard. What is often found, however, are horizontal equity systems which are concerned with maintaining equal treatment to everyone at the same level in an organization with the objective of “fairness”. While fairness may be achieved an unintended side effect can be complacency and a perpetuation of status quo.
By contrast, small firms are better able to lure top talent than large firms due to their comparative advantage in offering aggressive incentive packages. Such packages are more likely to reward individual contributions and therefore, are more attractive to innovators as compared to traditional, merit-based systems. In addition, at small firms, senior managers are more likely to be involved in employee recruitment and are better able to judge the quality of job applicants. Also, small size helps these firms avoid information overload while sustaining cooperation. As a result, small firms are better able to generate unique insights from their own experience to support change as compared to large firms.
Although many large corporations can be characterized by the reluctance to change as described in this blog post, it doesn’t have to be that way. Large organizations can be dynamic agents of change. Take, for example, Apple’s incursion into the sluggish music business with the introduction of the iPod in 2001 and then the iTunes music store in 2003. At the time, Apple was faced with slow growth in the high-end computer industry. Even though industry conditions were not promising, Apple had all the resources of an established, well-run corporation: highly skilled employees, brand appeal, and access to capital. And the company was hungry for growth. Since Apple entered the music business, the company’s profit has increased more than 3,000 percent, from $57 million in 2003 to nearly $2 billion in 2006.
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I think this is a great article. Showing that big companies might want to change but after they grow so large they become hard to steer. Bureaucracy and unwillingness can kill a company fast. It is good to have someone in charge that knows how to handle changing situations and how to communicate that to a mass amount of people.
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