Corporate Inefficiency

I read an interesting article passed along by a friend on why large corporations, despite their advantages, often fall victim to smaller upstarts with limited resources. The author, Luke Johnson, a UK private equity firm president and entrepeneur, makes a number of excellent observations. The article, which was in the Financial Times and can be reached by clicking the link, is summarized below. I think some of these observations need to be expanded upon in my blog on Corporate Politics and I will do so in subsequent posts.

Corporate diseases make large organizations less effective -- their types and varieties are listed below:

  1. Sunk Costs Fallacy -- essentially being unable to abandon a project because it can't be admitted it was a bad idea.
  2. Groupthink -- The inability to question the conventions of thinking that have evolved at the company.
  3. Governance over management -- too much focus on checking the boxes rather than creating value.
  4. Institutional Capture -- people acting in their own interests, rather than the owner's interests.
  5. Office Politics -- Subversion of good projects to serve the needs of internal constituencies.
  6. Failure to act as Owners -- excessive spending because it isn't the employee's money being spent.
  7. Risk Aversion -- punishment for error taking on greater importance than rewards for success.
  8. History -- being hindered by existing assets, relationships and technologies.
  9. Anonymity -- surviving by keeping one's head down and doing the minimum.
  10. Commodity Products -- big companies need large markets, which typically have more competition and are lower margin.