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Learning to manage complexity

In an article titled Learning to manage complexity, Jonathan Byrnes writes about how growing companies succumb to complexity – their own complexity brought about by growth.

“Success often hurts, and even mortally wounds, well-run small businesses.”

In the article, Jonathan recounts a particularly compelling observation by Daryl Wyckoff,

Wyckoff described a rather strange profitability pattern of trucking companies. Both small and large companies were very profitable, but the medium-sized companies were quite unprofitable.

That problem,

Wyckoff found that small trucking companies that were run by strong entrepreneurs, often hands-on managers, did well and grew. They continued to grow and prosper as long as the entrepreneur could see what was happening in the whole company and directly control all the activities. The problem was that as these small successful trucking companies grew, they typically established a network of terminal facilities. At some point, the complexity of this network prevented the entrepreneur from being able to know and personally manage the whole system.

And further more,

Some entrepreneurs figured out that they would have to manage their companies in a different way. They hired strong terminal managers, delegated authority, and managed through planning-and-control systems. These entrepreneurs were able to continue growing their companies and wound up having very profitable large companies. Other entrepreneurs, however, couldn’t let go. They tried to continue managing their growing companies as they always had. Costs went out of control, and profitability plunged. They had to retrench, and once again they found themselves managing small trucking companies.
Because they were strong entrepreneurs and the companies were small again, they were able to regain control of their companies. They once again made their companies prosper and grow, up to the point where they lost control, lost profitability, and had to retrench yet again. And so the cycle continued, causing the “Bermuda Triangle” Wyckoff described.
In later work, Wyckoff and others found the same pattern in the restaurant industry, the hotel industry, and other similar businesses.

This is something that I read about frequently happening in Silicon valley startups as well. Except that in this case because of the influence of VCs (Venture Capitalists) who are quite aware of this managerial competence gap that entrepreneurs and founders often have, they exert considerable influence and power in bringing in managers and technicians who are well qualified to take the firm into the second stage of growth.

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About me

I am Chris Jacob Abraham and I live, work and blog from Newburgh, New York. I work for IBM as a Senior consultant in the Fab PowerOps group that works around the issue of detailed Fab (semiconductor fab) level scheduling on a continual basis. My erstwhile company ILOG was recently acquired by IBM and I've joined the Industry Solutions Group there.

@ SCM Clustrmap

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