How do we determine how big is best?

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By John Bartlit

The environment, which is everything on earth, constantly struggles to find the right size for a system.

Sizes that get tried out alternate between being larger and smaller than today’s models.

A set of parts that must work together as conditions change. Examples of a system are a live animal, a corporation, an agency, a city and a fuel supply chain.

Nature evolved dinosaurs. The pterosaur, a flying relative of dinosaurs, had a wingspan of 18 meters (60 ft.). By contrast, the wingspan of the World War II British Spitfire aircraft was a mere 11 meters.

     The pterosaur, a.k.a. pterodactyl, is no longer found gliding and hopping about. It did not work so well in the scheme of things. Smaller species do better in a wide range of flying conditions.

     How about corporations? What is the right size for a corporation to be?

     One cryptic answer is, as large as people and their tools can manage. Systems smaller than this can profit from getting larger. The principle at work is the “economy of scale.”

     Economies of scale are why decent diapers cost less at Wal-Mart than at a gas station.

     Most people could not afford a car until Henry Ford made lots of identical vehicles. TVs and cell phones grew the same way.

     Economies of scale help explain why the U.S. economy, even in downturns, works better than most.

     People and tools able to manage a large system make the U.S. food supply more dependable than the output of small systems, such as Somalia’s.

     No size, large or small, works without flaw. Good systems don’t stay good by themselves. They always need attention, repairs and upgrades. In a word, they need constant managing.

     People manage large systems the only way we know how, that is, by splitting up the areas of focus. This results in compartmentalized “silos,” also called “stovepipes.” The roguish terms describe sections, divisions and bureaus and their bad effects. These functional barriers are inherent in managing largeness.

     Silos and stovepipes pop up as soon as something starts to get large. They are universal in clubs, companies and governments.

     Managing a large system inevitably means depending on the performance of many people in it. How well others do their parts may range from superb to awful.

     As a system gets larger, its mix of people grows more typical of people in general. “Typical” is measured in traits such as political leanings, applied talents and range of work habits.

     Small systems allow more self-reliance. Smallness also restricts the scope of resources. A few people cannot supply all the parts a business needs.

     Government fills in some necessary large components, such as safe drinking water, shipping ports, roads, levees and the rule of law. We take these parts for granted, until something goes wrong in the large systems.

     A phrase in the news these days is “too big to fail.” It means a company that fills so large a part in the nation’s economy that the company’s malfunctioning poses a threat to the entire nation.

     How does a company get to be “too big to fail?” My best guess is it adds economies of scale until it is too big for people to manage.

     No one knows a priori how big is too big. But if we step back a ways, one menace is clear. Managers manage very poorly if they start to think what they manage is too big to fail.

     Yet at the same time, a manager’s pay depends on how large a venture grows. In the short run, a bigger size boosts pay more than how well it works.

     This column may seem confused about whether systems should be large or small. The ambiguity accurately reflects the wide range of opinions on the subject.