Knowledge, ability, nimbleness

It struck me recently that the "too big to fail" crowd has it all wrong.  In most cases, the companies that are too big to fail are simply too awkward to change.

Think about an entrepreneur or a small firm.  The firm may have a some knowledge or insight that is valuable, and is very nimble, but lacks the scale and ability to reach a wide audience.  Ony the advent of the internet has changed this dynamic, meaning we can now have very small companies provide services and information to a wide audience.

Over time, small companies grow larger and gain more insight and knowledge, yet they increasingly become less nimble, to the point where changing the focus or intent of the firm, or how value is delivered is difficult if not impossible.  Bureaucracy, organization and process add value as you grow the firm until those things become barriers to change and agility.  Many of our largest firms really struggle to get anything new or interesting accomplished, since change requires a different set of skills.

Perhaps the best operating model is to achieve the best of all three components - knowledge, ability and nimbleness.  That would mean gaining enough skill and insight to be really differentiated, the ability and scale to deliver that value effectively and the nimbleness to adapt to change and market conditions.  Most likely this organization would be a holding company, made up of a lot of small to mid-sized companies or lines of business that are large enough to create learning curve scale but small enough to remain nimble and agile.

Historically only two of these criteria appeared important - knowledge and ability to scale.  Once a firm demonstrated insights or knowledge that was valuable, and the ability to scale, the sky was the limit.  That thinking was predicated on a relatively stable environment where change happened slowly or not at all.  This was true from the end of World War 2 to about 1990, when globalization and increased competition changed things.  These changes were exacerbated by the rise of the internet, which allowed many small but smart companies to "scale" rapidly.

Right now the banking firms are excellent examples of knowledgable, scaled organizations that are locked into traditional models and slow to change.  Many banks are still only open 8-4 and only Monday through Friday.  They seem to think the financial world came to a screeching halt in 1950.  Meanwhile a significant number of smaller disrupters and competitors, much more agile and facing far smaller scaling costs (see Mint) are chipping away at the customer base of the larger financial institutions.  And like good bureaucracies with something to protect, the larger banks are fighting change and resisting new legislation, rather than accept the fact that the world has changed.  Large and smart but rigid isn't an operating model anymore.

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[maternity nursing clothing]

Many of our largest firms really struggle to get anything new or interesting accomplished, since change requires a different set of skills.