Large Is Sometimes Essential
Many enterprises can survive and even thrive as very large organizations because they are able to capture a large share of the market, hence need not be terribly concerned with either price or efficiency. In past years, Standard Oil and IBM could thrive as large organizations because of this dominance of the market. In recent years, Microsoft stands out as an example of a large, dominating organization. Yet, the successful anti-trust suits against Microsoft—much like the antitrust suits against Standard Oil many years ago—suggest that there are definite limits regarding the control of market share.
Other enterprises must remain large because of the volume of sales needed to sustain the business—given their small profit margins. In many cases these are traditional production industries (such as garment and household appliance companies) or more contemporary discount stores that only make money through mass production or large volume sales. These organizations typically require large markets, massive investments in machinery and technology, and low labor costs. During the last decade of the 20th Century, for instance, Wal-Mart moved from a suspicion of technology to a wholesale embrace of computer-based technology as a “core competency” of the organization. Yet, as reported in 1999, Wal-Mart (Brown, 1999, p.73)
. . . spends less on technology, as a percentage of sales than other retailers—0.5% last year [1998] vs. 1.43% for the industry. Wal-Mart can do this because of its size. ‘They reap economies of scale from being large,’ said Kurt Potter, a research analyst with the Gartner Group. By the late 1990s, Wal-Mart’s computer centers in Bentonville [Arkansas] and Tulsa could store 43 terabytes of data—more than any other corporations. Today, of course, this storage capacity is vastly surpassed by the massive capacities of an on-line retail giant such as Amazon.
In yet other instances, organizations must grow large in order to attract sufficient capital to begin or sustain their key operations—as in the case of many e-commerce companies. Many small businesses are undercapitalized and never get off the ground. Furthermore, credit is often cut back for small businesses during periods of recession.
Finally, it should be noted that the internationalization of many business sectors often requires the presence of rather large organizational structures (or even consortia involving several large corporations) in order to compete effectively with the complex legal, financial and political forces operating in these international arenas. Many of the mergers during the 1990s and first two decades of the 21st Century were forged in large part to enable corporations to compete effectively in an international market—this is particularly the case regarding those mergers that involved American and foreign companies (making Tom Friedman’s world that much flatter).
