Why bigger isn’t better in business

 

The adage goes that the best things come in small packages. Larry Page, chief executive of newly-formed holding company Alphabet, seems to have taken this to heart. The decision to break down Google’s businesses and separate its more experimental arms from the core internet enterprise came as a surprise to many, but “slimming down” can make sound commercial sense in a variety of business contexts.  

 

Like Xerox and Kleenex before it, Google is a member of an exclusive club of genericised trademarks. Such is its clout that it is more common to say “googling” than “searching the internet”. While ambitious projects like Google X (which is developing the technology for a driverless car) may align Google with the notion of radical exploration, any company whose interests are too diverse runs the risk of becoming flabby, and losing its brand definition.

 

Google may be a tech titan, but any ambitious manager should take note. A study into brand strategies by BI Norwegian School of Management’s Lars Erling Olsen found that brands which focus on the strengths associated with them, but have a limited network of associations, tend to outperform those with a large number of associations in resonating with consumers and establishing loyalty. “Brand managers that focus on a few diagnostic brand associations, and that consistently market these associations over time, will most likely succeed with their branding strategies,” remarks Olsen. 

 

In an interview with Entrepreneur, Adam Kleinberg, chief executive of US branding agency Traction, went further. He said that branding is “the art of sacrifice, sacrificing the things you could be to uncover the one thing you should be.”

 

Far from providing a broader pool of resources, large teams can disrupt lines of communication. “The number of links that need to be managed among members goes up at an accelerating, almost exponential rate,” Diane Coutu told the Harvard Business Review.

 

Research by management professor Jennifer Mueller bears this out. After analysing questionnaires and performance evaluations relating to more than 200 knowledge workers from a number of different companies, Mueller concluded that, as the size of a team grows, its members feel increasingly disconnected, and the average performance of individuals declines. 

 

Speaking to Wharton Business School, Mueller said that, in larger teams, “people were lost. They didn’t know who to call for help because they didn’t know the other members well enough. Even if they did reach out, they didn’t feel the other members were as committed to helping or had the time to help. And they couldn’t tell their team leader because it would look like they had failed.” In contrast, members of smaller teams were more aware of what resources were available and felt more comfortable asking questions when they encountered problems.

 

In many cases, large teams can be an excuse to slack off. In the 1970s, the University of Massachusetts Amherst’s Alan Ingham ran a tug-of-war style experiment. He discovered that people tend to try less when they are part of a large team, if they are under the impression that their individual performance is more insulated. 

 

So how many is too many? Analysis of experiments into this lackadaisical attitude, known as “social loafing”, has led Judge Business School’s Marc de Rond to conclude that four or, at most, five members provide optimal performance. Somewhat wryly, Fortune magazine put the ideal number at 4.6. Mueller agrees that a diminishing effect is witnessed in teams larger than five people. “Teams can function to monitor individuals more effectively than managers can control them. The teams function as a social unit; you don’t need to hand-hold as much.”

 

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