Big Business – Some points

There is little reason to believe that mere size alone is against the public interest. It need not lead to monopoly. It need not curtail social or economic mobility (indeed, the fastest turnover in our economy is among the smallest and the hundred largest companies). The very large business, contrary to folklore, does not inhibit the growth of new or of small businesses. Entrance into an industry (unless monopolistic practices are permitted by law) depends on technological and market factors ad on capital required rather than on the strategic situation within the industry. And the very large business tends to sponsor a cost of small, independent businesses acting as suppliers or distributors. Similarly, mere size need not affect labor relations or social stability.

But mere size may make a business unmanageable. A business tends to become unmanageable when the chief executive of a product business can no longer work directly with the chief-executive team of the company but has to go through channels to get to the top. When, in addition to a number of deputy presidents, a layer of group vice-presidents is needed then the business approaches unmanageability. Similarly when objective setting officers no longer can work directly as part of the chief-executive team but need an executive vice-president or group vice-president of their own to coordinate them and to communicate their thinking to the top team, the business has grown too big to be manageable.

A very large business also becomes oversized when it needs so many levels of management that even a man of real ability cannot normally rise from the bottom to the top and yet spend enough time on each level to be thoroughly tested in performance. Such a business not only has to fall back on hothouse methods of executive growth. It inevitably suffers from executive anemia as it deprives itself of the full use of its own most precious resource. And it denies a basic premise of our society.

In practice this means that any business that needs more than six or seven levels between rank-and-file employee and top management is too big. Seven incidentally, is also the number of levels in the military forces (for first and second lieutenant as well as lieutenant colonel and colonel are different pay grades rather than functionally differentiated levels); and the example of the military shows that seven levels is almost too many, for only under wartime conditions of expansion does the ablest officer reach the top ranks.

Finally, a business become unmanageable when it is spread out into so many different businesses that it no longer can establish a common citizenship for its managers, can no longer be managed as an entity, can no longer have common over-all objectives.

This danger is particularly great in the business that originated in a common technology such as chemistry or electrical engineering. As the technology unfolds it creates more and more diversified products with different market, different objectives for innovation – and ultimately even with different technologies. The point is finally reached where top management cannot know or understand what the diversified businesses require or even what they are. Then point may be reached where objectives ad principles that fit one business (or group of businesses) endanger another.

This problem has been realized, it seems by the big oil companies. The petroleum business is highly complex and closely integrated. But there are only a small number of main products and they are closely interrelated in production and marketing. Hence even a giant oil company, operating on a worldwide scale, remains manageable. But when petroleum chemistry came along the big oil companies put their new chemical businesses into separate companies, retaining financial ownership but truing over the management job of chemical businesses to new companies. The deliberate break with their own tradition of close integration was their solution of the problem of unmanageability.