Magazine article Management Today

The Dubious Economies of Scale

Magazine article Management Today

The Dubious Economies of Scale

Article excerpt

The world's largest companies have been spending record sums on consultancy. Robert Heller weighs the relative merits of reengineering and demerger and asks: is largeness a liability?

The fashionable tide turned against large companies long ago. Yet fashion doesn't always reflect reality. While employment by major corporations is falling, not least among middle management, they still provide the bulk of job opportunities. Managers are understandably less loyal to great employers, and job-hop more: but the hops are most likely to be from one ample lap to another. And in several industries, the laps are becoming still more ample.

No previous merger waves were as towering in financial terms as those now reshaping the worlds of pharmaceuticals and entertainment/ communications. It's inside the large companies, tool that internal and external consultants have been busily instilling the precepts and practices of the New Management. One giant alone, AT&T, created some kind of record in 1993: $347.1 million on 'consulting and research' services, mostly contributing to a massive drive to reengineer the phone company's culture and business systems.

The brand-leader in re-engineering, CSC Index, has grown nearly fivefold in three years to fees of $470 million, of which $ 7 million came from AT&T's trough. From change management to cost-reduction, leadership to information systems, total quality to purchasing, large companies are spending and striving more than ever before to meet the competitive challenges which revised strategies-another booming consultancy field-have in their sights.

It is inconceivable that all this effort has been vain. However long it has taken, Detroit's car manufacturers are now broadly competitive with Japanese costs and quality. Other multinationals whose backs were to the wall (Cummins Engine, say, or Caterpillar Tractor) have come out fighting effectively and on reasonably equal terms. Even the symbol of corpocratic degeneration, IBM, is now turning over a profit. The experiences of its crucial PC business, though, underline continuing doubts over the viability of scale.

This year, when IBM could least afford to falter in face of Compaq's challenge, it has dropped to fourth place in the US market. The new PC leader, Rick Thoman, pulled no punches in telling the Financial Times about his predecessors' sins. Hailed for the success of its newfound independence, the unit was 'bogged down in bureaucracy... To fill a typical corporate order, 13 managers had to sign off on various decisions.' The product array (70 models in some 400 configurations) was 'unmanageable' and produced from an uneconomic dozen sites (now being cut to four). …

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