Big companies have their downside... [jump to upside]

Many large companies talk excitedly about their R&D, yet their favored new-product source is often the acquisition of small companies that have demonstrated exciting and innovative new products.

An article in the September 2002 issue of Fast Company magazine proposes that “Size is Not a Strategy”. It talks about why many big companies don’t work, and offers some ideas for change. A recommended read. [click to read the FastCompany article]

A commonly stated principle is that in product development communications burden increases geometrically with the number of people involved with a project.  Remote developers further increase that burden.

Our corollary is that each layer of management between the Project Leader and the CEO increases the team workload by three to seven percent. If the Project Leader reports to an Engineering Director, Operations VP, President, and then the CEO, bingo! A 9% to 21% increase in work. Imagine a mega-company there might be 6 or 8 levels of management… a huge competitive burden.

If your company is in turmoil, these estimates are probably low. Further endangering project results, time taken by upper management is most disruptive to those who are leading the project.

“But this doesn’t increase the project size” you say? Right. But take a minute and laundry-list what a project team does other than build great products. Think about project time in minutes; that yields clearer results than thinking in days. Project schedules slip by minutes and hours, not days and weeks.

In the Fast Company article they talk about changes in shareholder wealth for the 10 largest mergers of all time. Topping the list is AOL/Time Warner which destroyed $148 billion since its 2001 merger. Of the 10 mergers listed, only two increased in value: Exxon/Mobil and Travelers/Citicorp. The net for the 10 (including the winners) was $672 billion lost. Mergers are difficult, but bigness increases complexity to where it can exceed human mental capacity.

To me the answer is clear. Use a small company to develop a great idea. If you are in a big company, use a skunk works… which is in affect a virtual small company. Whatever you do, consider it a top priority to shield your project and team from bureaucracy.

And big companies have their upside too...

Be assured that there are many large companies that add only minimal overhead to product development teams. These low-overhead companies may provide significant advantages. Here are a few of the advantages that we have experienced while leading product development for large companies.

First is access to consulting resources. In a large company there are resources that can be tapped by a quick phone call to aid understanding of technical and market factors. These resources can provide critical insight to aid making a high quality decision. Some Knowledge Management tools are available that scan email servers to identify subject-matter experts and make them easier to find in large distributed organizations.

Secondly, most small companies spend a great deal of management time working issues relating to financing or cash flow. This may take the majority of the CEO’s time in a startup and its impact usually flows down to project leadership. Large companies will have a docketing process to set project priorities and release funding. I have found that process to take less total hours and occupy fewer months out of the year than the sometimes interminable search for finance by an independent company.

Third is legal and patent support. Protection of intellectual property is imperative, but implementing disclosures and patent filings is challenging, time consuming, and expensive. A big company will usually have a global patent strategy and people that understand that strategy standing ready to implement it. Some companies even have disclosure and patent writers on staff.

Fourth, big companies provide a buffer for business litigation. They often have the expertise to deflect, offer guidance, follow through on legal actions, and handle much of the litigation workload.

And fifth, the cost of tools. The large company purchasing power may well reduce the cost of development tools and their annual maintenance by a quarter to half.

Developing products in a big company can be better or worse, easier or harder than in a small company… it depends on the people and the product development culture. So what are the odds? Probably better at a small company. If you are thinking about working on new product development for a big company, choose carefully.

My newsletter on the downside of big company product development on August 15, 2002 drew more reader email than any other in the two years that the newsletter has been published. It was both unfortunate and notable that not one email defended big companies.