Platt Perspective on Business and Technology

Business scale, business complexity, and lessons learnable from insular biogeography 1

Posted in strategy and planning by Timothy Platt on February 6, 2016

I usually take a more practical and even hands-on, how-to approach in the postings that I offer in this blog, and particularly as I write them for inclusion under the strategy and planning tag and in my Business Strategy and Operations directory (see its Page 1, Page 2 and Page 3.) But I at least occasionally offer what can best be considered a thought piece installment there, too. This posting falls specifically into that second category. And my impetus for writing it comes from a question that I have found myself thinking about recently, that I offer as a starting point for this discussion.

First some background: I often write about lean and agile businesses, and of eliminating bloat and excess as a route to creating greater competitive effectiveness. That approach has informed a great deal of my hands-on professional experience too, and both when I have worked in-house for specific businesses and from when I have worked as an outside consultant. And as I have explicitly noted:

• Lean and agile in this context means allowing for and supporting systems and resource bases in a business that are needed for that organization’s immediate here and now,
• As buffered by strategically required “excess” that would be specifically called for in meeting well-considered risk management requirements, and for addressing the unexpected.
• But this still means any given business containing within it, an at least in-principle, optimal overall size as far as its physical and operational systems are concerned. And the question that this raises is at least in principle, fairly simple and straight forward:
• How do you determine an optimal size for a given business with its current stage of development and its marketplace context, and both for its resource base and for its operational and systems complexity?

One possible approach to answering that question is to measure and calibrate business scale in terms of value creating performance measures. There, you determine what is needed, in terms of what the business is actually doing and what it immediately seeks to do, and with a focus on what it is doing that would keep its doors open and keep it profitably effective and ideally at least, optimally so. So I start this discussion by defining a key organizing term: the scale and complexity benchmark that a business should seek to optimize itself towards, as measured by the volume of market-oriented business transactions carried out, and what would be needed to stably support them and both normatively and in the face of prudently prepared for change.

• Starting from that foundation point it should be expected, and essentially as a truism, that functionally larger organizations actively require the support of greater levels of physical structure and operational complexity than equivalently productive smaller ones do, and certainly when all businesses under consideration there are operating in the same industry and with the same basic marketplace and other outside constraints.
• And it can be similarly expected that when effective scale is measured in terms of effectively meeting the needs of directly value creating performance as I do here,
• Any excess in what is organizationally and operationally maintained and any deficit in that as well, would lead to disconnects and avoidable costs, avoidable delays and business systems friction – and a loss of overall competitive effectiveness from what that business could achieve if its systems were maintained and run in closer alignment with their more ideal scale and complexity benchmark values.

This makes sense, as the more actively productive a business is in fulfilling market needs and the more such transactions it carries out in any time period, the more staff will be needed to accomplish that, with this only beginning with the number of employees who actively produce marketable products and employees who actively bring them to market. As these areas of staffing expand out, an increased need for supporting staff arises too, to match that. And this means more physical space and more physical resources of all types that would be needed to support all of these employees as they perform their tasks. And as the overall head count rises, individual job descriptions that the business needs to fill tend to become more specialized and in more and more areas of that business and its operations too. And this also drives an increase in the overall complexity of operational processes and systems that have to be in place to keep this business and its increasingly diverse staff all performing consistently and efficiently. And that applies to exception handling and risk management systems in place too, and as much so as it does for systems and processes that would be employed on an ongoing normative basis.

• Bigger organizations, as measured in terms of market participation and competitive engagement,
• Come to require larger size and greater organizational complexity if they are to sustain their higher levels of performance and continue to produce, market and sell at that scale,
• And with more employees and more specialized employees and more basic and specialized resources in place for supporting all of this effort.

This, as I noted above, can be seen as a truism and certainly when the issues that I raise here are only briefly considered and then moved on from, to address more pressing concerns. But let’s reconsider this organizational assumption – and that is what it is: an assumption. Let’s reconsider it as if it were that more pressing concern that would be moved on to and as if it were worthy of more protracted attention in and of itself. And I begin that by drawing a comparison to a thoroughly empirically validated organizational model that was developed to describe and predict scale and complexity in living ecological systems: the concept of ecological niches and of the overall niche space that any given habitat would organize into when viewed in terms of the diversity of species that inhabit it.

• Think of an ecological niche as the sum total of everything that a species needs and everything that it does, as it survives and thrives in some habitat that it can be found in.
• The niche space of that habitat represents all of the functionally significant details of what the comprehensive collection of species and organisms that live there, need and do there, that functionally define it as a suitable sustainable place for the life to be found there. In this, each of these species, each with its own niche in that habitat, influences and acts upon other species there. And in a stable ecosystem and in stable habitats, the collective activities of all of these species help to maintain their respective numbers there, creating a sustainable dynamic balance. I write here of simple stable ongoing ecosystems and of habitats that remain essentially as-is, long-term.
• Now let’s reconsider the business systems that I began this posting with, and from an employee and employee activity perspective as I have been pursuing here. Think of an employee’s job description and the inventory of resources that they need to effectively, productively fulfill it, and what they do with those resources as their business ecological niche. And think of the cumulative activities and needs of all of the staff and at all levels of the table of organization as the niche space of the business as a whole. (I will add in marketplace and other “outside” factors later in this overall series discussion.)
• A key finding of ecology and more particularly of fields within it such as insular biogeography, is that a larger physical space (e.g. a larger physically isolated island, so this can be measured cleanly) can support a larger and more complex overall niche space and therefore a larger species diversity and number of inhabiting species, and with more finely differentiated, similar species niches stably supported.
• A larger business can support a larger and more diverse employee niche space, and with finer and finer niche specialization and overlap: with more highly specialized job descriptions and employees who work at them who interact in more complex and far-reaching ways.
• And if you try to squeeze a larger system into too small a “business island” you will create inefficiencies and avoidable conflicts that create them. And if you try to operate too leanly you leave your business open to performance and performance capability gaps too.
• And all of this line of discussion, and both as I have been developing it in business terms and as I have been paralleling it in ecological terms argues a simple case for larger supporting more expansive scale and complexity benchmarks, and smaller more optimally supporting and allowing for less, and even fundamentally requiring less.

I am going to challenge all of this in a next continuation posting to this brief series and certainly as I have been presenting these two basic conceptual models here. And in anticipation of my next series installment to come on this, I will address change and both as it arises and plays out evolutionarily and as it emerges disruptively and in a more revolutionary manner. And in anticipation of that, I note that I will address the rate of change and the acceptance of and resistance of it, and state of change overlap and how new and emerging can and do overlap for being supported and deployed. A key word that could be applied to essentially every line of argument that I have offered in this posting is “stable” and even when I give nod in the direction of change in it. But that expectation does not and cannot always apply and that is what I will turn to in this series’ Part 2.

Meanwhile, you can find this and related postings at Business Strategy and Operations – 3 and also at Page 1 and Page 2 of that directory.


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