It’s possibly the most under-estimated risk facing large businesses – ‘corporate blob syndrome’.
If you’ve ever worked in a big business, you’ll probably recognise the symptoms. Suffice to say, independent thought, judgement and above all – common sense – often go out of the window.
Thankfully, there is an antidote. It isn’t a silver bullet. But harnessed correctly, I think it can be enormously powerful.
In a nutshell, a ‘corporate blob’ is a large unwieldy bureaucracy, typically with multiple layers of middle management.
It typically happens when a company gets large, often too quickly. Common features include centralised teams and committees setting budgets, too many people involved in decisions, constant meetings and extensive policies and procedures.
The dangers of ‘corporate blob syndrome’ are too many to list, but include a bloated cost base, lack of accountability, loss of agility and innovation, reduced focus on the customer and a tendency to fail conventionally, rather than succeed unconventionally. All of which tends to result in demoralised employees, waning customer satisfaction and ultimately, a steady loss of relevance.
Thankfully, there’s an antidote to the corporate blob.
“Decentralisation” is a fancy word for putting power back into the hands of front-line workers and trusting them to do their jobs. Instead of functioning as a single “corporate blob”, a decentralised business will typically split itself into multiple smaller, self-contained units.
It’s essentially well-designed delegation.
The best-known example is probably Berkshire Hathaway, led by Warren Buffett and Charlie Munger. But there are many others. In the UK alone the likes of Halma, Judges Scientific, Bunzl and Diploma all function as collections of smaller businesses, operating with considerable autonomy. Their long-term track record speaks for itself.
Decentralised businesses tend to be more entrepreneurial because front-line employees are empowered to make decisions. This normally results in greater responsiveness, agility and deeper customer relationships.
There is usually a high degree of accountability business leaders are incentivised on the performance of their own company or division. And because these leaders are trusted, they tend to want to do a better job.
A decentralised business structure may also be easier to scale, especially with regards to acquisitions. Acquired businesses can be kept independent, minimising integration risk. By contrast, acquisitions within a ‘corporate blob’ structure may bring significant integration challenges.
Like anything, decentralisation will only work if it is effectively managed. Place power in the hands of the wrong people and you are in trouble.
But the biggest potential drawback is duplication of functions and the resulting inefficiencies. A decentralised business consisting of 50 independently managed units may have 50 different IT systems, finance teams, suppliers etc. On the surface, this seems very inefficient, providing a huge incentive to merge these functions and extract “cost synergies”.
The benefits of scale are often easily apparent, while the disadvantages of “corporate blob syndrome” are often hidden. Procurement gains from combined purchasing can be boiled down to precise numbers on a spreadsheet. But the loss of accountability, flexibility and focus from mashing two companies together is virtually impossible to quantify.
This suggests the point at which corporate blobbishness overrides scale advantages may be much closer than many businesses think. Once that point is reached, size becomes a drag on growth and margins, rather than an accelerate and the whole becomes less than the sum of its parts. This is why duplication within a decentralised structure is often a price worth paying.