How big is Big business?

How big is big has been a perennial question in economic and business literature. The most common measurement used is the number of employees. When a business grows from thirty to three hundred employees, it does indeed undergo a change is structure and behavior; and another qualitative change usually occurs when a business grows from three thousand to thirty thousand employees. But while relevant, number of employees is not by itself decisive.

There are businesses with a handful of employees that have all the characteristics of a very large company.

One example would be a large management consulting firm. ”Large” here means about two hundred employees which in an insurance company would be tiny and in the automobile industry impossibly small. Yet the business has all the “feel” of a large company, requires the organization structure and the attitudes and behavior of large company management. The reason is, of course, that everybody in a management consulting firm excepting only secretaries, messengers and file clerks is top management or at least upper middle management. A management consulting firm, like the Romanian Army, has only generals and colonels. And a senior management group of two hundred men is large business indeed.

Conversely, companies with a large force of employees may well be fairly small business in every other respect, and especially in the demands on management structure and behavior.

The best example known is of a water company supplying a large metropolitan don’t need more management than a toy store does. Being a franchised monopoly, there is no competition. The danger of water’s becoming obsolescent is remote. A good deal of technical skill is needed in the building of reservoirs filter stations and pumping stations, but the contractors supply that: all the engineering the company has to do can be done by the president himself with two engineering draftsmen. Cost control in meter reading and billing is important; but again there are no business decisions here, only careful procedures work. The only area that requires management of any sort are relations with the state Public Utility Commission, the City Council and the public. But, as the president points out, they would be the same whether the company had 75 or 7,500 employees.

Another example was the Hudson Motor Car Company which was managed successfully as a medium sized company until its recent merger with Nash-Kelvinator. It had well over 20,000 employees. But it was only a marginal producer in the automobile market, supplying less than 3 percent of all cars sold. It was actually too small to exist in an industry that must have national distribution and service; and in the end it had to merge with another company, precisely because it was too small.

During the thirties, however, it prospered because it understood what it means to be small company. It understood, for instance, that a marginal supplier cannot get anywhere by undercutting price except into bankruptcy. But it shrewdly competed by putting a higher price tag on its cars, which enabled it to offer a larger trade-in price for its used cars In this way, the customer was offered a “medium-priced” car which cost him only the same differential between new car and used car price that he would have had to pay for the low priced cars. This is the classic model for the right price policy of the marginally small business. Hudson’s entire organization except in the sales area was that of a small business. One top man made all businesses decisions. And there were only a small number of functional managers.

The most interesting example is another automobile company: Chrysler. By World War II, Chrysler had become the second the second largest automobile producer in the world. It had well over 100,000 employees, and its annual sales were above one billion dollars. Yet, Chrysler in the thirties was (apparently deliberately) organized and run as a medium sized business. Chrysler only manufactured bodies, accessories and instruments – was into an automobile – frame and bodies, accessories and instruments was bought on the outside. Production was a pure assembly job, and while requiring great technical skill assembly requires few business decisions. Capital investment in an assembly plant is low, as neither heavy buildings nor complicated machinery s needed. Few people realize that automobile assembly is done by hand, with a wrench the most complicated tool in general use. The difference between good and poor assembly plant management is simple and obvious: the difference between fifteen and seventeen cars coming off the line. And whatever else was needed Chrysler tried to contract out: its union negotiations, for instance, were handled by a partner in a New York law firm. Marketing and design remained as areas of business policy and management decision. Otherwise Chrysler needed only first rate assembly technicians by and large. As a result, one man could do most of the actual managing: Walter P Chrysler himself with one or two close associates helping him. The management group was small, compact and easily organized – yet harmonious.