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7/25/2013
09:43 AM
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The Death And Life Of Companies

Why the aging effects of Big should compel companies to have kids.



Scale is the problem.

That's why I find it darkly comic that most startups do everything they can to scale quickly. We all turn into our parents someday. Startups are just a little too eager to get there, the same way -- and for the same reasons -- that toddlers add "and a half" to their age: They long to sit at the adult table.

Startups are at the other end of "too big to fail" -- too small to know any better. They're willfully blind to the fact that scale is to companies what age is to you and me. It's what eventually kills even the healthiest and luckiest among us.

Normally, that would just be my gut talking. But there are those in academia, such as Geoffrey West, who are making this a data-driven discussion, applying the principles of biology and physics to social systems to better understand scaling phenomena.

West's research builds on the idea that metabolism scales predictably. Once you understand the rate of metabolism for a mouse (average lifespan of two to five years), you can accurately predict the average lifespan of an elephant given its rate of metabolism. And this kind of regularity, West notes, is found from intra-cellular activity all the way up -- some 30 orders of magnitude -- to ecosystems.

The mind-blowing part is that businesses, by behaving like social organisms, operate under the same laws. After a certain size, they die.

"Not true," you say. “There are lots of huge companies that continue to operate and even thrive with massive scale. All the big banks, for instance, have hundreds of thousands of employees, and they are ... um ... OK. You got a point."

Culturally, large companies are the elderly, minus the wisdom. Their metabolism has, well, matured. Information takes longer to disseminate. Decisions don't get made as quickly as they used to. Execution becomes more conservative. Organizational habits calcify.

And just so we're clear, the problem isn't that the biggest companies are filled with old employees. Put 250,000 energetic twentysomethings into a company by themselves and within a week their culture will scream at you to get off their lawn. Hippie!

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So scale is the problem. And biology is an old and apt metaphor.

I wish I could say that technology is the answer, the metaphorical medicine. This certainly would be the right forum.

But technology doesn't seem to be the viable long-term solution. It's at best a temporary treatment to the interminable realities of slowing metabolism.

It improves blood/information flow (communications and collaboration) -- via email, for instance -- but it's only a matter of time before the organism builds drug resistance and you start getting 1,300 emails a day.

Technology increases the intelligence needed for decision-making, helping transform raw data into meaningful and useful information. But owning a gun and pulling the trigger aren't the same thing.

Tech can even speed up execution, delivering beautiful ready-for-production prototypes fast. But then watch them gather dust for months or years as everyone who needs to weigh in -- legal, compliance, operations, strategy, HR, finance and even the government -- takes their sweet time.

Tech is needed, but it's not the answer. After a certain age -- or more accurately in the case of business, after a certain size -- drugs aren't the answer.

In the short run, we need to create scale-free zones: galvanistic management practices -- like what agile does for development or what a school-within-a-school does for public education -- that inject electricity into the lifeless culture of Big. Like Shelley's monster, what we create will never truly be alive, but it'll extend the illusion of life indefinitely, providing meaningful employment to millions of people.

In the long run, a more profound transformation is needed. And it lies at the intersection of biology (as a metaphor) and religion (as an approach to encountering mortality). Large companies have to learn to make friends with death. Or if they're uncomfortable with Eastern answers to the large existential questions, they need to fall back on the more familiar Judeo-Christian solution: They need to have kids.

The Trouble With Spinoffs

Every time a large company in crisis goes through a soul-searching exercise, some clever executive inevitably suggests that it spin off a portion of its technology portfolio. If you buy into the biological metaphor, it's the right idea (let's have a kid), but with all the love and warmth of a sociopathic legal entity (let's sell him).

Just because they sell babies doesn't mean corporations are evil. (Put that on a t-shirt!) To call them evil would be like calling subsistence farmers in the 12th century evil because they had as many children as they could, viewing kids as cheap labor and the best insurance policy against dying of old age (which in the Middle Ages was a crotchety 30).

Corporations as social organisms have some evolving to do. They have a long way to go before they get to modern notions of parenting.

The idea of corporate legacy is still mostly a brand-building gimmick. It'll take some time before the sterile profit-centered institutions of today appreciate that they should invest some of that loot in their legacy. It'll be a long while before they act like there's no greater legacy than their spinoffs and no greater purpose than making sure they succeed.

The odd part is that each of us, as the individuals who make up the larger social organism, intuitively understand the importance of parenting. Just not in the context of work. Not yet.

This can be a bottom-up revolution. We can, collectively, make it less foreign to most companies that spinoffs, like children, should be a product of love, not economic necessity. And raising them should be a balancing act between providing age-appropriate challenges and support.

We just need to apply our collective understanding that child rearing, in every context, is about daily acts of kindness and selfless service. It's an ongoing exercise in character building for both parent and child.

There's an old parable about a poor husband and wife who have a baby girl, Yantra. They raise her with more love than money. So by the time she's a young woman, Yantra has real character -- forged in hardship and shaped by values.

A prince falls in love with Yantra, and on their wedding day he gives her parents a tiny fortune.

The parents decide to have another child, another Yantra. And they raise their second daughter from day one to prepare her for the next prince. She too is given abundant love and care, but now she is pampered because of their newfound wealth. And she's treated as an exception because of her ties to the future queen.

Other princes, especially those who have met Yantra, do come looking for a bride, but none of them wants to marry a princess.

OK, quick confession: I made that up. It might be a parable, but it's not old.

A friend who works at Infosys told me about how, back in 1995, it had joyfully spun off Yantra, a software company that was eventually acquired by Sterling Commerce, an IBM company.

When it was originally spun off, there was a ton of excitement and energy throughout Infosys. And the birth of that daughter began a decades-long transformation of the Infosys management team into the parents in my parable. It became regular practice to cordon off the internal teams doing the most interesting work, pampering them with the best of intent but unintentionally removing all the hardship that builds character.

Once you recognize that all meaningful growth -- whether for your child, employee or business -- comes from the right mix of support and challenge, your perspective changes. You start to see Infosys (as a metaphor for any company), and the fact that it's sitting on almost $4 billion in cash, not as a boon but as a disadvantage.

When your best and brightest live a luxurious, princely life, the balance between support and challenge is lost. That's the problem with incubation as a metaphor: It's about 100% support. No challenge.

And that probably contributes to why Infosys, with its well intentioned policies of business incubation and its white-glove treatment of its most innovative teams, is struggling; why there haven't been any Yantras of late.

The whole thing reminds me of an Internet meme attributed to fantasy/science fiction author Ursula K. Le Guin: "The creative adult is the child who survived."

The Next Evolutionary Step

The economic downturn after the financial crisis slowed the aggressive acquisition strategies of the prior two decades. But there are rumblings that the markets are preparing for another wave of mergers and acquisitions.

If you're a part of the Occupy Wall Street crowd, you finally have a reason to look up the word schadenfreude. All those big bad companies are unwittingly digging their own graves.

If you help manage Big, recognize that the corporation as a complex social organism still has some growing up to do. Take to heart Peter Senge's definition of leadership: the capacity of a community to shape its future. And then tap everyone, from the C-suite to the mailroom, to do everything you can collectively to drive your company to that next evolutionary step. Help it develop and refine its parental instincts and habits.

And then dim the lights, and put on some Barry White. Metaphorically.

Items from pills to power plants will soon generate billions of data points. How will this movement change your industry? Also in the new, all-digital Here Comes The Internet Of Things issue of InformationWeek: How IT can capitalize on the NSA's big data prowess. (Free registration required.)

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