Even the Giants Can Learn to Think Small
By JANET RAE-DUPREE
Published: NYT, August 3, 2008

Some interesting thoughts.

BACK in the waning days of the 20th century, little start-up companies couldn’t wait to get big. Growth was their entree to the upper echelon, to millions in venture capital and tens of millions more in an initial public offering of stock. Getting big meant taking advantage of economies of scale, putting the company name on a ballpark, creating a global distribution network and hiring the industry’s best to conduct big-picture research.

Size mattered.

It still does, of course, but the tables have begun to turn. After spending decades growing and merging themselves into their behemoth proportions, big businesses are rediscovering the charms — and the innovative side effects — of thinking small. By breaking huge business units into smaller, nimbler teams, companies stand a chance of rekindling the creative spark that got them rolling in the first place. (As discussed below, companies must be ambidextrous –I agree smaller units are more accountable and have a clearer connection between what customers want and internal decision making. There are, however, parts of the corporate operation where scale plays an important role. You need both and must think through issues of centralization and decentralization carefully.)After all, “small is the new big,” as Seth Godin, a prolific blogger and author, puts it in his 2006 book of that name.

It is a point of view shared by a diverse group of business leaders, management consultants and information technology experts. According to Philip Rosedale, founder and chairman of Linden Lab, the company that created and operates the virtual world of Second Life, companies seeking to foster creativity must find ways to break apart the bureaucratic hierarchies now smothering it. Optimizing a company for creativity involves helping individual employees of every rank develop an entrepreneurial spirit. (Although I agree with the intent of this statement, as we discussed in an earlier posting, successful innovation companies must be ambidextrous – the combination of entrepreneurial attitudes and culture as well as being highly disciplined to get the offering out the door. Everyone cannot be an entrepreneur.)In Mr. Rosedale’s view, the most creative work environment is one where every employee, regardless of job title, has enough freedom to develop that sense of personal initiative.
“Most companies erroneously focus on competition and on differentiation from their competitors,” he contends. “The business opportunity lies in turning creativity into productivity.”

Decentralizing the hierarchy opens the door to creativity, giving workers the leeway they need to make significant decisions without first jumping through executive management hoops. “The idea,” he says, “is to enable a creative environment where there’s a good degree of experimentation.”

Optimizing a company for creativity also optimizes it for small-group collaboration. And that opens the door to new information technology that lets team members work cooperatively from anywhere on the planet. “That’s the revolution that’s making all of this possible,” Mr. Rosedale says.

Thomas W. Malone, a professor at the Sloan School of Management at the Massachusetts Institute of Technology, agrees that new collaboration technologies are at the heart of the get-small movement. In “The Future of Work,” his 2004 book, he says the transformation will not come directly from the new technologies but from the desire of workers for “noneconomic goals” like freedom, personal satisfaction and fulfillment. “How much energy and creativity might be unlocked if all the members of an organization felt in control?” he writes.

Evidently, quite a bit. At Avocent, an information technology management company based in Huntsville, Ala., customers, product developers and testers had gotten to the point that they rarely interacted. Each group felt that it lost control of a project too early in its progress. So, in March 2007, the company revamped development so that members of all three groups would work on the same team, following a project from start to finish and making changes as needed. With customers, programmers and testers working virtually side by side, Avocent tripled production without adding workers.

By making sure products in development meet customer needs each step of the way, Avocent has been able to avoid spending weeks correcting errors in the final product, says Ben Grimes, chief technology officer. “That is the nirvana of working in global teams,” he says. “It breaks down the walls of isolation and streamlines collaboration. I don’t think innovation can occur without having that diversity in geography and experience.”

That desire for diversity can be part of the motivation for global mergers and acquisitions, which probably won’t abate as industries mature. But as smaller companies join ranks and become corporate behemoths, the merged companies very likely will try to maintain smaller, more creative units. Rather than a monolithic giant, tomorrow’s creative corporation will look more like a collection of smaller companies flying in close formation.

Mr. Rosedale reports that he has already seen similar developments within Second Life’s virtual businesses. In a way, he says, Second Life can be used as “a terrarium for looking at these changes.”

It is time for real-world executives to learn from their virtual counterparts, he says: “They’re going to figure out that they don’t need to control this from the top down. These companies will still get put together, but they’re only going to be connected at the balance sheet and at the level of finance. Information technology levels the playing field.”
Janet Rae-Dupree writes about science and emerging technology in Silicon Valley.