William Guth, Professor of Entrepreneurship and Management at NYU’s Stern Business School, begins by introducing himself as the moderator of the day’s proceedings for the Peter F. Drucker symposia on bigness and business. Drucker begins the symposium discussing how, in looking at the topic of large businesses, there are three trends developing, the first being that the market is changing, and the sizes of organizations that were sufficient--or even optimal--not so long ago are now inappropriate. Second, practically all of the employment growth in American industry, and the industry of developed countries in recent years, has taken place in medium-sized enterprises. Finally, the increase in privatization in private industry, rather than government, has been the last trend, which may be called “unbundling” (outside of England)--shrinking the main business to its core functions. Drucker clarifies that the last trend is not toward smallness in business but smallness in operations--concentration on research, development, and engineering has been the goal. Drucker affirms that, today, executives have to think through their business to determine, exactly, what the right size for the business is, which is a change from practices up until the 1970s, when organizations where focused on consistently enlarging themselves. He goes on to describe how the hospital is very rapidly becoming a command center, rather than a treatment center--a phenomenon that is occurring in many different job sectors. Two elementary observations are necessary, according to Drucker, for thinking about the size of organizations, namely, that the “elephant is not a better animal than the cockroach;” and, second, that size is a function of strategy and should be appropriate to the task. If an organization has large masses, it can only go one way, and communication, along with reaction speed to changes in the environment, are the biggest prices an organization pays for size. The long ratio between size and task makes large organizations incapable of survival of the species. Size does not make diversity easier; on the contrary, it makes it more difficult. Communications are the problem with size, and the law of information states that every relay doubles the noise and cuts the message in half. Diversity requires great ability to communicate, he continues, so the larger the body, the more concentrated an organization has to be. In terms of the guiding principles of an organization, Drucker cites two, namely, how big an organization needs to be in order to be able to buy, and, two, what is the largest possible size of a store in which one can still get a customer out with her waiting fewer than two minutes at the checkout counter. Size is a function, and, increasingly, it will have to be looked at based on the principle that any size that is not necessary for the pursuit/performance of an organization’s function is undesirable. Size must be supported, and it can be a drain, as bigness by itself is irrelevant and ineffective. The symposium then moves on to a question-and-answer session, with Drucker responding to a question on the valuation of the strategic business unit approach to splitting up larger companies into manageable pieces, and, additionally, if new businesses, products, and services be introduced and managed in the same organization that manages venture products and services--in other words, where the source of entrepreneurship in the American economy can take place, and if large companies can be an even more potent force for innovation in the U.S. economy. He states that large companies can successfully innovate by doing the same three things, namely, by not setting up the new in the same organizational unit as the old, and also setting up the new in anticipation of its being big. Second, Drucker states that the new ventures have to fit, not technically, but fit the quality temperament--people have to resonate with the organization. Third, the companies must not acquire, and he argues that the idea an organization can become an innovator through acquisition is a misunderstanding.
Drucker, Peter F. (Peter Ferdinand), 1909-2005 New York University New York University. Graduate School of Business Administration Guth, William D Communication Innovation Entrepreneurship Organization Organizational change Organizational effectiveness Organizational Innovation Government ownership Government policy Symposia Organization size Organization structure Strategic business units
Source
Original recording, April 12, 1989; Drucker Archives; Box 68
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