Too Big to Succeed?

10 Jun 2011 Sandeep Mehta

A quick note about an article with some interesting data inf (Too Big to Succeed?).  The overall conclusion is pretty interesting:

Research on nonfinancial companies finds that larger companies typically grow more slowly and earn lower returns on capital.

The author has done a pretty extensive analysis:

Our capital-market research on the 1,000 largest nonfinancial U.S. companies, excluding those that were not public for the full decade of the 2000s (net sample size: 748 companies), indicates that size does indeed matter — but more as a shortcoming than an advantage.

Here are the detailed results (should be useful for any benchmarking):

The overall lessons are quite intuitive:

Why do large companies tend to underperform smaller companies? The specific reasons vary greatly, but there are a number of common themes:
• Organizational distance from executives to the people running each business inhibits use of full and objective information in strategic decision-making at the top and tends to slow down the decision processes at the bottom.
• Managerial reliance on performance against budgets lessens the intensity for delivering true continuous improvement at the front line and introduces managerial stumbling blocks such as “sandbagging,” “hockey-stick plans,” and “spend it or lose it.”

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