Where does inefficiency come from?

That an organization tends to get less efficient as it grows probably doesn’t come as a great, earth-shattering, revolutionary piece of news to you. But what may sometimes elude our understanding is exactly why it seems to be that as an organization gets larger, growth sometimes comes at the price of efficiency, which in turn causes us to question if the net gain is really worth it.

I ran across this quote by Al Ries in The 22 Immutable Laws of Internet Marketing and I thought it really hit the nail on the head:

As a company gets bigger, it also becomes internally less efficient. Too many layers of management, too many channels of communication, too much time spent just keeping track of what others in the organization are doing.”

Now we know! He goes on to praise the addition of computers to the systems of the organization as a way of helping manage some of these inefficiencies, but I think the big lesson for us is to be careful how we grow! Bigger doesn’t necessarily mean better. Bigger almost always means that complexity goes up, which also increases the number of opportunities for error (thank you for that lesson, Six Sigma!).

So growth is good, just be careful how you grow! Is a bigger but less efficient organization really what you want?

Growth that results only in volume and does not produce higher overall productivities is fat – it should be sweated.” – Peter F. Drucker