Too large to manage, too big to fail.

• Author: Hall, Robert
• Position: Marketing Solutions

Who knew Iceland was just a bedge fund with glaciers?

--Thomas Friedman

The victims of our financial services meltdown are everywhere, including Iceland. While many culprits have been fingered--greed, incompetence, lack of proper oversight--I believe there is one underlying cause that warrants further discussion: Too large to manage and too big to fail. Our remedy for organizations that have become oversized and often dysfunctional is to merge them into ever larger, more unmanageable and less accountable organizations where failure is more likely and catastrophic. The track record of large consolidated oligopolistic entities--airlines, automotive manufacturers, oil companies, Fannie Mae and Freddie Mac, the federal government, high schools has not been sterling. Yet in spite of failure right and left, our actions, under what are admittedly trying circumstances, are to double-down on this losing hand.

As has been much discussed, when we prop up and even subsidize models that are consistently failing in the marketplace, we ensure not only survival of the unfittest but we also punish the fit. Smaller, more effective providers will find it very tough short-term to compete against larger providers subsidized by the taxpayers. As our leaders are faced with very difficult choices regarding whole industries like financial services and automotive, and whole states and cities, it is worthwhile to consider breaking up or pruning large, unwieldy entities rather than automatically embracing a default position of making them larger. It didn't work out too well for lumbering prehistoric dinosaurs and it is unlikely to work for the present-day ones.

What is it about these large entities that leads to dysfunction and failure? While the answer is very complex, there are three fundamental limitations that in my opinion are at the core.

First, power corrupts. Consolidation of whole industries into a couple of complex behemoths in the short-term shifts the balance of power and the apparent advantage from the customer to the provider. However, what this shift empowers is the capability to dictate to the market. Over time powerful leaders devolve toward oppression, stimulating the desire for freedom on the part of those repressed, and eventually rebellion and ultimately overthrow. While we understand this response to oppressive governments, we are only beginning to understand it with respect to oppressive business. Starbucks, once everyone's darling, now takes on...