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When it comes to business: small is the new big

Small ant carrying a big boxThere’s a new giant in our midst. Known as super competitors, these corporate colossi are breathtaking in size and scale, with cavernous footprints in market share and unprecedented merger-driven muscle power. So wide is their stride over the competition that, according to McKinsey Global Institute research, 10% of the world’s public companies are gobbling up 80% of all profits today.

But the so-called ‘armour’ that outfits superstar companies can lead to crippling corporate inertia. As these companies grow, so too do the systems and processes needed to control them. These systems and processes invariably act as a quick sand that slows down their decision making. Even worse, it constrains their thinking to preserve what they have created, and risk taking is avoided.

In future, the bravado of management teams touting being the ‘biggest and the best’ might be code for the ‘slowest and the most risk averse’. Does this mean the demise of the mega-corporation? Quite possibly, if they don’t reposition themselves to think differently around how to win.

When it comes to business: small might literally be the new big!

When David challenges Goliath, David often wins!

With disruption moving at a thunderous rate, those positioned to keep up with the pace are not necessarily the largest.Within large enterprises, change does not come easily . Decisions can take months, as they run their course through the chains of command and bear burdensome cost implications. Failing products are not easily pulled off the production line, and cracks in organisational culture take time – and a whole lot of undoing – to mend. Vehicles of this size make slow and wide turns, and it’s never fun for anyone involved.

Smaller businesses, conversely, have speed on their side. Unlike their big counterparts, their lack of complexity allows for decisions to be made quickly and seamlessly. With low staff numbers and streamlined services, they facilitate quick turn-arounds that respond aptly to market demands. Tappsi, for example, has managed to disrupt the powerful traditional taxi industry of Latin American cities by offering an e-hailing mobile app that secures a safe and reliable experience within vulnerable urban settings. Launched in 2012, the company currently has over one million app users and over fifty thousand taxi drivers on their books. The idea isn’t new (insert Uber), but the ability to bring a mass-scale solution to this significant societal ill is. Going outside a cumbrous system but using its resources, Tappsi leveraged unconventional methods to infuse new value into a historically hamstrung industry. It didn’t take a lot of cash and people to do it.

Growth isn’t (necessarily) good

When they are challenged, the response from most large companies is to use their corporate muscle to ‘muscle out’ the competition: they try to drive down prices by buying power or offshoring; buy out the competitor (mergers and acquisitions); or create monopolies where they are the only service provider in the market. It gets worse when they become publicly listed. When they are on the stock exchange, they have to do what the market values, i.e. pursue these strategies aggressively to grow.

But by doing this, they are actually disconnecting themselves from their customers. Despite this massive growth, they are losing touch with their clientele’s real needs and leaving the door open for another more nimble, agile smaller competitor to come in from below.

Staying close to the groundHurdle jump

The inherent disadvantage to being at the top is that your ear is nowhere near to the ground . And though large corporations can perform studies or hire consultants to scope the land of buy-and-sell, small enterprises can achieve the same results in a fraction of the time by leveraging their client relationships. The ability to engage one-on-one with customers and clients enables small organisations to come up with relevant solutions to real-time problems in a way that large corporations cannot. Backed by organisational agility, clients’ on-the-ground insight can inspire small business to differentiate on products and services which add original value to the market. Their unique insight into customers’ preferences and spending behaviours give them a one-up edge on what is needed and wanted, or even unanticipated, amongst consumers. And as such, they can move into that unoccupied space of the market and gain the competitive corner.

So, what then should big companies do? If they want to keep on winning, they’ll need to learn to ‘cannibalise’ themselves. They’ll have to cultivate a culture which ‘eats’ its own businesses – meaning they will have to constantly divest themselves of services and products that they value highly today so as to enable the new to come through and to make room for focusing on what will be successful tomorrow. In other words, they’ll disrupt themselves purposefully so that they don’t get caught out following an unalterable course called status quo.

If large companies don’t divest themselves of the services and products that they value highly, they’ll never create the sense of urgency that drives successful start-ups, i.e. “We simply have to make something work, because if we don’t, we won’t survive.” They’ll have to let go of that which they value the most to enable the new to get the focus and attention and oxygen it needs to be brought to life.

With disruption moving at a thunderous rate, those positioned to keep up with the pace are not necessarily the largest. Though dwarfed by the deep shadows of the superstars, small businesses are poised for success . Nimble, adaptable and able to align to overcome, small may just be the new big – and big business would do well to pay attention.

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7 replies »

  1. I have said and ECHOED this time and again over more than a decade. No – one seems prepared to listen. Most try to learn the hard way and reinvent the wheel. It is NOT NECESSARY to fix (or even attempt to fix) what was never REALLY broken. Now that it is broken, others are fixing it and the BIG GUNS are having to learn the hard way.

  2. Completely agree; we developed a concept for a future, more sustainable car industry many years ago, dubbed Micro Factory Retailing which involves a dispersed network of small local car ‘factories’ assembling environmentally optimised vehicles and then leasing them out, refurbishing and updating on take-back and then leasing them out again. These small outfits would make cars from simple basic modules, perhaps mass produced for a number of them, and beyond that configure the vehicle for local tastes from local suppliers. There are already moves in this direction.

  3. Reminds me of a great comment by Prof. Peter Little, QUT Business School, when discussing company boards and executive teams, and their often lack of energy. He asks the question at the start of meetings, sometimes: ‘Have you bought your inertia to the table.’ Pretty much sums it all up. Institutional inertia and the drive of executives to protect their position and the status quo.

  4. A company shouldn’t be too quick to divest itself of services and products it values highly today. If such services and products provide good revenue and margins, they can be used as “cash cows” to invest in new products and services that have or are forecast to have high growth and margin.

    The decision to divest (and invest) should be based on a number of factors including market attractiveness, prospective growth and margin. An agile company is one that can make these informed decisions and implement them quickly. And informed decisions come from the “company’s radar” being focussed outwardly on its clients, market opportunities and threats. In these respects, I agree with Carl that large corporates might be at a disadvantage to smaller companies due to their corporate inertia.

  5. I agree that companies need to be agile to respond to new emerging opportunities and threats and maintain an appropriate risk appetite.

    The Apple corporation under the second round of Steve Jobs leadership resembled a business model as described by Carl Devereux. Where strategic vision and decision making of a massive bureaucracy was generally controlled by a single risk taking visionary. With his passing I suggest that Apple already morphed into a more traditional and slower moving risk
    adverse organisation as described above.

    Large organisations need to have well established technological forecasting and environmental scanning systems that feed directly into the executive leadership team to make quick and meaningful strategic business decisions. Effectively bypassing the their well established bureaucracies below primarily designed to manage their existing and profitable goods and services.

    Such a structure would only benefit the business on the basis that the leadership team retained the same successful innovative business culture that drove it in the past.

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