AttentionMax

The following is also my latest MediaPost column…

Can Big Companies Act Small?

January 18th, 2008 by Max Kalehoff

Chris Wall, vice chairman-creative at ad agency giant Ogilvy, New York, recently told Ad Age: “For small shops, the challenge is how to scale. Big brands do big things…. It is easier for us to get small than for somebody small to get big.” Wall said that in context of what Ad Age described as retrofitting “a hulking beast of a company to compete in an increasingly media-neutral world, in which lean one- or two-office shops are beating their bigger brethren.”

Beyond this Ogilvy example, is it really easier for big companies to get small than for small to get big?

Apparently, there’s something special about small companies, so let’s first consider their characteristics and advantages: They are nimble and innovate at a faster clip. They have fewer legacies hunkering them down, and less to lose if they screw up. They tend to attract a certain breed of multifaceted talent, often independent-minded, creative, entrepreneurial, risk-tolerant and driven by a sense of mission. Small companies are lean and therefore tend to foster high accountability. Sure, it may be tough for small to get big, but it’s generally a rule that to get big you need to start small.

As for big companies, it’s actually pretty easy for them to get small - technically speaking. All they need do is sell off divisions, lay off staff or simply sell less stuff. But the real question is: How easy is it for a big company to stay big in size, and act small? The answer is that it’s not very easy at all.

For a big company to act small, there typically needs to be some significant threat to sustainability. Not gradual erosion of cash-cow businesses, but massively disruptive forces staring it down. It’s life-or-death situations that truly prompt big companies to snap out of inert, preservationist and slowly-but-surely states. Mission and urgency must be instilled for big ships to do what small ones ultimately do best - turn on a dime and compete agilely.

Now there’s nothing wrong with big companies. They have hugely important roles in the world, and I’ve had great experiences working at a few. But my experience with them taught me two things: First, they’re not wired to act small. Big companies trying to act small usually are deviations from who they really are. Secondly, their competitive advantages are in business opportunities where scale really means something. They need to plot and stick to their course over the long term so the benefits of scale can kick in.

The media and information industry is undergoing tremendous disruption because the market opportunities that once valued big companies’ scalability over small companies’ agility are shifting. Moreover, technology advancements are democratizing many forms of scalability, while eroding the value of the sorts of scalability that legacy infrastructures continue to deliver. This has left many big companies scrambling to extract the remaining value of that legacy scalability while figuring out what to do next - a paralyzing mix.

To be sure, there are exceptions to the rule. Some hybrid approaches have enabled big companies to take on the attributes of small and perform accordingly. For example, companies can treat their divisions like quasi-independent portfolio companies, empowering and motivating them with autonomy, high-potential-high-risk rewards, and other small-company incentives. But I’d argue those cases are fewer and often suffer from compromise.

Some big companies even go so far as to completely spin off divisions to unleash the potential value inherent in small - acknowledging the risks of suffocation and dilution that bigness presents. Of course, the rationale for these cases is largely the belief that it’s easier for small to get big than for big to act small.

Being big has many advantages, but acting small is not one of them.