Data source: The Value Line Investment Survey for Windows, September, 2001. Reproduced with the permission of Value Line Publishing, Inc.

Data source: The Value Line Investment Survey for Windows, September, 2001. Reproduced with the permission of Value Line Publishing, Inc.

companies, smaller companies feature "flat" organizations with quick, decentralized decision making and authority.

The villain sometimes encountered by large-scale firms is not any diseconomy of scale in the production process itself, but rather the burden that size places on effective management. Big often means complex, and complexity results in inefficiencies and bureaucratic snarls that can strangle effective communication. In the former Soviet Union, a huge, highly centralized, run-from-the-top system came crashing down as a result of its own gigantic weight. Hoping to avoid a similar fate, many large organizations are now splitting assets into smaller independent operating units that can react quickly to customer needs without the typically long delays of large organizations. IBM, for example, has split into independent operating units that compete directly with each other to provide customers with the latest in computer equipment and software. GM, seeking to become more lean and agile like Japanese competitors, established Saturn as an independent operating unit. Exxon is selling domestic exploration and production operations to smaller independents that chop overhead and earn significant profits despite low volume and depressed oil prices. These examples suggest that many large corporations are going through a metamorphosis that will favor organizations that are especially adept at reallocating capital among nimble, entrepreneurial operating units.

In the past, when foreign visitors wanted to experience firsthand the latest innovations in U.S. business and administrative practice, they found it mandatory to visit major corporations in Chicago, Detroit, New York, and Pittsburgh. Today, it is more likely that they would make stops at Boston's Route 128, California's Silicon Valley, or North Carolina's Research Triangle. From electronics instrumentation to specialized steel, smaller companies have replaced larger companies in positions of industry leadership. The trend towards a higher level of efficiency for smaller companies has become so widespread that larger companies are now finding that meeting the needs of the customer sometimes requires a dramatic downsizing of the large-scale organization.

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