As you triple the number of employees, their productivity drops by half.*
That arresting fact is the starting point for a superb blog post by Dave Gray on the connected company, in which he explores the question of why companies appear to get less productive as they get bigger, while cities get more productive.
Historically, we have thought of companies as machines, and we have designed them like we design machines. A machine typically has the following characteristics:
- It’s designed to be controlled by a driver or operator.
- It needs to be maintained, and when it breaks down, you fix it.
- A machine pretty much works in the same way for the life of the machine. Eventually, things change, or the machine wears out, and you need to build or buy a new machine.
[…] And we tend to design companies the way we design machines: We need the company to perform a certain function, so we design and build it to perform that function. Over time, things change. The company grows beyond a certain point. New systems are needed. Customers want different products and services, so we need to redesign and rebuild the machine, or buy a new one, to serve the new functions.
This kind of rebuilding goes by many names, including re-organization, reengineering, right-sizing, flattening and so on. The problem with this kind of thinking is that the nature of a machine is to remain static, while the nature of a company is to grow.
The fundamental problem, Gray argues, is that companies get too big to be self-managing, and thereafter consume every increasing resources in the ever growing complexity of control. That makes them too rigid to adapt and develop and so to stay in line with their changing environment. “So what happens”, he asks,
if we rethink the modern company, if we stop thinking of it as a machine and start thinking of it as a complex, growing system? What happens if we think of it less like a machine and more like an organism? Or even better, what if we compared the company with other large, complex human systems, like, for example, the city?
Cities, of course, are not managed or controlled by anybody. Bits of them are – the provision of utilities, aspects of the transport system, the location and logistics of Tesco, Starbucks and every other chain – but in most cases that control is partial and in all cases it is separate from every other component. Looked at from the calm and rational world of organisational design, cities simply shouldn’t work. And yet they do.
More than that, it seems that they get more productive as they grow, rather than less. Geoffrey West, a theoretical physicist attempting to apply mathematical rigour to the understanding of cities is the subject of a recent article in the New York Times:
According to the data, whenever a city doubles in size, every measure of economic activity, from construction spending to the amount of bank deposits, increases by approximately 15 percent per capita. It doesn’t matter how big the city is; the law remains the same. “This remarkable equation is why people move to the big city,” West says. “Because you can take the same person, and if you just move them to a city that’s twice as big, then all of a sudden they’ll do 15 percent more of everything that we can measure.”
It is a big, though tempting, jump to assume that if only companies were more like cities, everything would work better. It’s a jump Geoffrey West seems willing to make, for him the strength of cities is precisely that they are unmanageable:
Unlike companies, which are managed in a top-down fashion by a team of highly paid executives, cities are unruly places, largely immune to the desires of politicians and planners. “Think about how powerless a mayor is,” West says. “They can’t tell people where to live or what to do or who to talk to. Cities can’t be managed, and that’s what keeps them so vibrant. They’re just these insane masses of people, bumping into each other and maybe sharing an idea or two. It’s the freedom of the city that keeps it alive.”
It is of course quite a stretch from there to suggest that companies would work better if they were more like cities. That’s for two rather different reasons. The first is definitional: if a company were that much more like a city, we probably wouldn’t call it a company at all, it would be much closer to being an emergent property of a particular set of conditions. Silicon Valley is everybody’s favourite example of that; Silicon Roundabout works on a much smaller scale, but there is considerable scepticism about the likely success of even the lightest form of directed growth, and even if it proves successful, the thing which emerges will not be a big company. The second is that cities can grow and work like cities in part because companies behave like companies. The fact that cities may work because they are chaotic at the macro level does not in itself mean that they will work if they are chaotic at the micro level.
But even if the city isn’t quite the right paradigm, it is clear that avoiding the diseconomies of large size would be a good thing. Dave Gray’s argument is that we will do better to switch the metaphor, from building a machine to nurturing an ecosystem:
Although we tend to design companies like machines, we instinctively and intuitively understand that companies are not made of cogs, levers and gears. In the end, they are made out of people. For top management, it would be wonderful if we could put our business strategy into the machine, push a button and wait for the results. But it doesn’t work that way. You have to put your strategy into people if you want to get results.
And today, thanks to social technologies, we finally have the tools to manage companies like the complex organisms they are. Social Business Design is design for companies that are made out of people. It’s design for complexity, for productivity, and for longevity. It’s not design by division but design by connection.
To design the connected company we must focus on the company as a complex ecosystem, a set of connections and potential connections, a decentralized organism that has eyes and ears everywhere that people touch the company, whether they are employees, partners, customers or suppliers.
That, for Gray, indicates a series of characteristics, including loose internal connections balanced by a strong culture, characteristics which, as it happens, also seem to characterise long-lived companies.
What though might any of this mean for government?
Governments are no more companies than they are cities, but they are large complex organisations, and they are overwhelmingly built and managed in the machine paradigm, despite the fact that the machine doesn’t quite work as intended. Shifting to a model where the design metaphor is organism not machine, and where design is expressed as connections rather than as structure feels like an attractive and powerful approach. As so often with this kind of thinking, though, the hard question is not so much what would we like it to look like, as how might we get there from here. Precisely because the machinery of government is stable and long lived (over a wide range, though very brittle beyond that range), new structures of government will not tend to arise, phoenix like, from the ashes of their predecessors. The landscape of companies changes because, over relatively short periods, the companies populating the landscape change. The landscape of government stays the same in large part because many of its component organisations stay the same.†
If better results do come from having smaller pieces more loosely coupled, then creating that ecosystem will have to be an explicit goal for government, because it can’t so readily happen as a result of speciation (and even in the private sector, speciation, as opposed to the births and deaths of individual companies, seems to be a slow and erratic process). The big society though not, as far as I know, thought about and presented in these terms, could be seen as an attempt to move government in that direction, but does not in itself create the more connected ecosystem Gray is advocating.
When companies make cities, the results tend to be artificial and rigid – places such as Saltaire, pictured above, or Port Sunlight have characteristics of company structures as well as city structures. They were built for a specific purpose, and struggled to find a more general one once that purpose had been lost. Whitehall doesn’t look quite like that. But if it can’t find ways of adapting and evolving, perhaps one day it will.
*That apparently holds true for the S&P 500 in the US and for the FTSE-100 in the UK. In both cases, there are challenges to the methodology in the comments, so to be treated as a starting point for reflection rather than indisputable fact.
†That may look like a contradiction of my own earlier argument that Whitehall departments merge and re-form with bewildering rapidity, but I am not sure that the parallel is as close as it may appear – and in any case, M&A is not the same as new company formation.