Why do big companies suck?

Many small companies aren’t that good and medium ones too.  The real question then is why, if at all, do big companies suck more than smaller ones. I’m not sure they do, certainly not when I put my selfish consumer hat on. I own a Honda Civic, an Apple iPod and a Black & Decker cordless drill, three good products made by three very large corporations. These products are relatively cheap, well made, and part of what I’m buying is faith the company will be around in five years if I need repairs or support for these things. A smaller company probably couldn’t provide low cost, high quality, products and promise they’d be around in the future.

And when I fly I’m glad my airplane is made by Boeing or Airbus, and not some local startup company run by people working from their garage. But there are some things that tend to happen when companies get big that are problematic for independent, creative people – and that’s what I’ll explore in the list below. Why big companies suck:

  1. The soul has left the building – All big companies start as small companies. But by the time a company has 500, 1000 or 50,000 employees, many of the people who made the small company successful have left and their spirit went with them. You can have a financially successful company that is mostly banking on the ideas and successes of people who left years ago, but whose middle-managers take credit for what was mostly inherited the day they were hired. When things go bad, none of the ‘leadership’ has any of the tools required to fix, rebuild, or recreate the pattern of success that started it all.
  2. Obsessive Optimization – When you have 5,000 employees, or $500 million in revenue, fractions become significant. A .5%  increase in revenue is not a small thing, it’s a big thing. It can be bigger than many companies’ entire revenue. And as companies age the culture looks to optimize and refine, eventually to a point where the good things that led to all the success have been whittled away. Managers at big companies often have more incentives to minimize costs, than to find new business or develop new ideas since minimize costs or optimizing an existing process are cheaper wins that show results in the short term. In an optimization centric culture, the myopic love of short term wins can make long term improvements which often require short term sacrifices hard to achieve.
  3. Addicted to bureaucracy –  I travel often and visit with companies of many sizes. It’s fascinating to visit places where there are 20 people doing work I know is done by 3 or 4 at one of their competitors, often with better results. It’s strange to see smart, senior people who have forgotten it’s possible in this universe to make things happen without talking to a committee, filling out forms, or doing extensive market research. The bigger a company gets the more dependencies there are between decisions, which makes it natural for committees and approvals to grow in number.  But it’s easier to add processes than to remove them. Over time bigger companies accumulate process, it gets inherited, and no one can even imagine a simpler more autonomous workforce. Big companies should have dedicated process simplifiers, senior people who just run around, point our areas that can be leaner or simpler, or where line level employees should be more autonomous, to keep this tendency in check. Or once a year every manager should be forced to work on a small project (like a website), where 3 to 5 people are responsible for everything. It’d refresh their sense of how little process is actually necessary.
  4. They believe their own bullshit – Any large group of people functions because of shared beliefs, but their are both positive and negative kinds of belief. The negative kinds are the ones that involve lies, distortions of truth, and a lack of perspective.  Company all-hands meetings can feel like political rallies, where  a reality distortion field prevents any valid questions of the company from being mentioned, and all bad news or mistakes are whitewashed away. When you’re banned from using competitors products, even when they’re better, or not allowed to critique and criticize decisions even when they’re dumb and bad, it gets harder and harder for good ideas to rise because real thinking is prevented. When the party line is BS, the wise start to keep their mouth shut, and look for other jobs.
  5. The Peter Principle – When you have several layers of management it’s entirely possible the manager isn’t contributing much, and the line level employees are mostly self-sustaining. If a manager inherits a successful team, a team self motivated to improve, and it does under his management, he may very well be promoted for simply being around at the right time.  There are many bad reasons people get promoted, and it’s more likely to happen in bigger companies, where there is more ambiguity about who is contributing what.
  6. It’s hard to fire people – Big companies get sued more often because they have more money. And on the day a small company gets it’s first law suit for wrongful termination, or discrimination, everyone runs the numbers and concludes it’s cheaper, on paper, to prolong the process for firing people and increase the amount of paperwork about employees managers must create, than it is to lose lawsuits.  Performance evaluations, mid-year reviews, and all of that are heavily (but of course not entirely) motivated by lawsuit prevention and defense.
  7. Corporations can be psychopaths – In 1886 the U.S. Surpreme court ruled that corporations were entitled to the same protections as people. This was a big deal. It made it possible for executives to make decisions on behalf of a corporation that were illegal, or ethically questionable, without being directly liable for them, and gave constitutional rights to entities that were not people.  Combined with the motive for profit, there are lines big corporations are lead to cross that no indivudal ever would, since the entity of the corporation is held responsible, and not necessarily the individual leaders.
  8. Status quo / Follower mentality – The bigger a company gets, the more it’s main attractive power for new employees is job security, rather than opportunity to grow, learn or take risks. The Innovator’s dilemma is real, and leaders who have big sucess are often the last to recognize when it’s time to move on. For anyone interested in progress, risk taking, change or growth potential, a large company is incredibly frustrating, as the dominant psychology is one of play it safe and political correctness. A running joke at Microsoft used to be that the best way to get a product idea to ship at Microsoft was to have a competitor do it first.

The list can go on I’m sure (but there could also be an equivalent list of why big companies are great to work for). What did I miss on this list? Leave a comment.

82 Responses to “Why do big companies suck?”

  1. Bernard Dy

    Scott, I love this post. Too bad the execs that need to read it won’t, and even those that do will likely ‘pooh pooh’ the points.

    I have something to add that wasn’t specifically mentioned: Big Companies Change Constituents. Many of your points are related (especially “The soul has left the building”), and of course this doesn’t happen to all big companies, but I think that when a company is small, it is focused and passionate about serving a key client need. As it grows and becomes public, the customer changes; it’s no longer the end user, but the stockholder. Stockholders don’t care about the quality of the end product, don’t care about the end user, and certainly don’t care about how the company’s employees are treated. It becomes all about quarterly results.

    Again, this wouldn’t apply to all companies but as I’ve struggled with my frustrations with large companies, this thought came to mind. It is a special company that can deal with the pressures of public ownership and still maintain some of the intangibles that tend to fade with age and bulk.

    Reply
  2. Pat

    I think this is a great piece and I wish that the big chiefs at the big bad companies would take heed.

    I am just about to go through my 2nd Company buy-out in 3 years. I changed companies after a year and a half after the last one. I was at a small company with issues, but where every one knew each other, what they were supposed to do and what they did/did not do, who to go to and yes… who to blame etc. Talent was appreciated (if not financially rewarded), decisions could be made, progression was tangible and things could happen quickly. Those were the good old days. I think what we have to accept that organizations like that, to be successful, will either have to change to compete with the big guns or they will be acquired. Unfortunately, we need to learn to deal with them and get the best of the positive things that they have to offer. Financial security is not something to be scoffed at…even if you do risk losing your soul and creativity.

    Reply
    1. Nicky

      Well i will say about it, private companies give big shock to there juniour employes. I mean we only look for job and we only stuck in such situations wich gives problems and unstable life.., but still i wanna say If Private sactor give chance to any employe they naturally become responsable for their succsess and failures as well.
      If any company or job can not give security why the hell people go and run behind it. I worked in a company as a designer in mumbai (india) got to switch in 3 months and keep on switching till 3 years. As if sombody (Pvt. Sec.) is making fun of my unemployment.
      Anywasys, that was a difficult time so i accepted it as a stuggle of young age. But i really wanna rais my voice and also want to add people who are suffring with same probs. Because in rude words, private companies not only sucks young humen blood infact they steel mony and very pricious time of life. Because as per my experience i could do so much better and productive work during those days when i have wasted into Silly private jobs.
      Wake up World., We need to work more n more to improve the quality of private sactores.

      Reply
  3. Loopgru

    Just one point of note- there is actually no original ruling explicitly granting corporations legal personhood and status in the US. The ruling in question included an obiter dictum (essentially a non-binding editorial) from one member of the court opining that said status was understood, but as it was not a part of the ruling itself it sets no precedent.

    Reply
  4. Real

    Great article and soooo true. It all resonates with my experience and I’ll add this for my two cents worth. Big companies are obsessed with their unchallengable authority. They are not wrong, ever. In their eyes it is always someone else, and they can pin the tail on the donkey of whomever fits the crime and move on with apparent impunity. The guy who suffers is down the ranks, always.

    Reply
  5. Peter

    Good article and I recognize a lot of this.
    The only thing is that the Job security argument doesn’t really hold anymore if the company is focussed only on saving costs (implemented by reducing hourly rate).

    I am working now at a big company and expecting our site to close down within a couple of years. If it does, the main reason will be that we self-destructed because the soul is gone, and because we spend more time administering and planning the work than actually doing it. Also, there is a culture that prevents innovation from within so we depend entirely on feedback from external customers, and that means that one feedback loops takes a couple of years.

    Reply
  6. Josef

    There’s one more reason I’d offer: Parkinson’s law. I’ve read the original paper in awe, and the English wikipedia page at http://en.wikipedia.org/wiki/Parkinson's_law give a cool summary:

    He [Parkinson] explains this growth by two forces: (1) “An official wants to multiply subordinates, not rivals” and (2) “Officials make work for each other.” He notes in particular that the total of those employed inside a bureaucracy rose by 5-7% per year “irrespective of any variation in the amount of work (if any) to be done.”

    Replace “official” with manager, and look at many companies’ 5-7% growth in staff from a new perspective.

    Reply
  7. Scott Berkun

    Josef: Parkinson’s law is always interesting. Arguably the role of a good engineer or manager is to work against it.

    Reply
  8. Joe McCarthy

    Just saw your recent [re]tweet about this article (which I didn’t see when you first posted it in January). Interesting and provocative, as usual.

    I also just read Robert Scoble’s more recent analysis of why Google can’t build instagr.am, which offers both corroboration for some of the issues you raise – e.g., “Google can’t keep its teams small” aligns well with your point about bureaucracy – as well as a few additional considerations – e.g., “Google can’t reduce scope like instagr.am did”.

    I find myself thinking of the Dr. Seuss classic, The Lorax, e.g.:

    Well, I have my rights, sir, and I’m telling you
    I intend to go on doing just what i do!
    And, for your information, you Lorax, I’m figgering
    on biggering

    and BIGGERING

    and BIGGERING

    and BIGGERING,

    Reply
  9. gumby

    I have lived the corporate life for so long, it’s nice to hear other people notice the same things..

    You hit the nail right on the head.

    Reply
  10. Kyle Lussier

    Agree …. great post!

    The optimization obsession one is particularly true as large companies find growth more difficult, they end up focusing more on squeezing the life out of their people and their vendors to increase profitability.

    Reply
  11. jack

    Here is an inside tip of whats going on at the Sears Holding Corporation. In most of the Kmarts nation wide Appliances are sold at Sears registers and appliance salesmen are commission based. Well as of June 12, 2011 Kmart will be eliminating these salesmen jobs. All appliances will go through kmart registers and no competitor price matching will be given to customers. Inventory will take up to two weeks to replenish. Minimum wage cashiers will sell appliances not real sales people. Customer will have to call a 1800 number if they want there appliance delivered. This company is dead. The store my friend works at has 4 sales people that each sell over two hundred thousand dollars a year in inventory. You should blog about this.

    Reply
  12. Drew @ Willpower Is For Fat People

    The store my friend works at has 4 sales people that each sell over two hundred thousand dollars a year in inventory.

    That’s nothing to brag about. Assume 100% markup and no overhead. That means they’re only generating $100k per year in profit. That’s maybe $50k for your friend and $50k for the store.

    If it were my store, and salespeople weren’t doing any better than that, I might get rid of them too.

    Reply
  13. E chabot

    Very good paper. As an employee of a giant corporate landscape company, I was looking for affirmation of my frustrations. Thanks to the new boom in the contracting of efficiency experts such as Mckenzie, we can look forward to increased pressuring of employees and further watered down corporate goods and services.

    Reply
  14. John C, Spring TX

    Thank you for this; it is refreshingly honest and insightful. I was with a large oil & gas company in Houston and all of these are painfully present. As the economy lifts itself up by it’s own bootstraps I think people will start to slowly migrate to smaller mid-size companies and reap the benefits. I see the creativity and inspiration available at a small or midsize company benefits that cannot be quantified though exist on a very personal and individual basis.

    Reply
  15. Mike

    Nice article!
    Also, corporations monopolize industries, disrupt local economies, and stifle innovation; as their widespread presence and products influence the masses. And they fuck up the environment!

    Reply
  16. Louise

    My comment relates to “Why Big Companies Suck”, and more close to home how, I spent 20 years coming up through the ranks a savy smart employee (or so I thought), remained of the opinion that large organisations and their leaders were basically honest. A female in a male world (yes Banking)I never questioned the ethics of “big business” I told the truth I didn’t play the politics “I suffered”. The GFC happened, it will happen again, because the large gobble the small, In the eyes of all but the small, big is better. The regulators concentrate all efforts on the small, they can manage them. The large have political sway and are just “too hard”. Small entities can grow faster, comply, have some control over ethical behaviour, they are nimble, employees know each other. Takeover, of course big is better. 5 employees doing what a 100 do at the large organisation, are cast aside,end to end knowlege of he process combined with economies of scale are ignored, better stick with the spaghetti jungle already there. Accountants by the 100, a couple of engineers needeed but nobody thinks. I was from a “small company” perhaps 10,000 people even there I reached the glass ceiling not being female, but the inability to lie was my downfall. It was not until a large takeover, the process, the due diligence or lack thereof, and the self servring motives of those with most to lose and most to gain that I really learned. Ethics is a word best scrapped day 1 at a large Bank. Lawsuits with genuine underlying rationale and should have provided final recourse are met with the largest lawfirms. Who at the start of proceedings open with the comment “we will break you”. The sad thing is irrespective of “breaking individual”, they broke the smaller entity and all that was good about it, a culture despite some players at the top, that was decent , ethical and a great place too work.

    Reply
  17. Bartholomew

    Imagine you hold a lemon in your hand and you squeeze it. What’s left?
    This is exactly what happens in a big company…a human wreck is what remains.

    The higher you are in the hierarchy the more brown nosing ou can see…a rat race is ‘detectable’ too…all to generate profits for you big company.

    Reply
    1. SortingHat

      Thanks for describing EA Games!

      Reply
  18. Jerome DePape

    Thank you for putting it all so well, the feelings I tend to have regarding this subject. You touch on may valid points and manage to say them without injecting the frustrations and anger I’ve felt over the years from my experiences of corporate life.

    Reply
  19. SortingHat

    This question should be titled. “Why do Big Corporations that are protected by Big Government suck?*

    Reply

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