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Big or small, which is better?

June 30, 2014

Big contracts or small contracts? Large corporations or SMEs? Centralized functions or decentralized? The debate over big versus small does not go away. While the strength of this debate is currently most visible in the public sector, similar undercurrents are also evident in private business.

For a time, it seemed like globalization would confirm the advantages of consolidation and scale. Business was pre-occupied by reducing the size of the supply base, centralizing relationships and decisions, driving price and discounts through consolidated spend. Big suppliers overwhelmed smaller, local competition, leveraging their scale to provide goods and services at much lower cost.

But steadily, questions start emerging. The world is not flat or uniform in its needs; global suppliers owe no real loyalty to anyone; large industrial empires do not necessarily prove reliable in performance; multi-nationals may destroy local jobs and enterprise. The list goes on. And so public policy – and to some extent the public itself – starts to fight back and question the extent to which ‘big’ is beneficial. Most Governments now have policies directed at increased business for small enterprises. In some cases, there are also specific requirements for big business to include small local suppliers in their contracts. Governments are sometimes steering away from large mega-contracts and dividing them into smaller bundles.

Commercial sector management is asking similar questions. The vogue for highly centralized functions has given way increasingly to center-led models, where control is achieved through technology, not through reporting lines. Global standard contracts are becoming far more nuanced, with increased local discretion over business terms. Boards are having to show much more sensitivity to wider issues of ethics and judgment, for example with regard to tax policies and supplier selection.

Yet as soon as use of smaller companies increases, we see complaints about their inability to perform or their commercial naivete. We hear that it is too expensive to oversee their performance. And in public sector, this debate can quickly degenerate into a party political issue, with one claiming that big is good and the other espousing small and neither having much clue what they are talking about.

Perhaps the major issue here is that everyone prefers to find a ‘one size fits all ‘ model. It makes choice and management so much easier. That is why there was such enthusiasm for books like Tom Friedman’s rather simplistic ‘The World Is Flat’. It encouraged the view that complexity was going away, when in fact it has steadily increased. The arguments over big, small, consolidated, decentralized are similar – unfortunately there is no right or wrong. The answer is that we need a mix and managing that mix demands different approaches, skills and knowledge. Trying to fit diversity into a uniform set of processes and practices simply will not work.

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