Nearly six years ago, in these very pages, John Kay of the Financial Times and I debated the question of whether a company can ever be too large.1 The matter now seems beyond dispute: big companies are the big winners in today's economy. In 2003 the world's 150 biggest companies (as defined by market capitalization) accounted for roughly half of the combined net income of the world's top 2,000 companies—up from 38 percent just a decade before. The big are getting bigger, and more profitable too.
Yet big companies have their vulnerabilities. Even their size can work against them: the more workers they employ, the more difficult it is for them to earn high profits per employee. Indeed, of the 25 corporations (among the top 150) that employ 200,000 or more people, only 4—Citigroup, GE, IBM, and Toyota Motor—earn as much as $20,000 or more per employee. In contrast, the weighted average for the entire list of 150 is $60,000.
Overcoming the complexities of scale requires companies to change their organizational design drastically. As Claudia Joyce and I assert in "The 21st-century organization," these changes must involve simplifying vertical structures, abandoning failed matrix and ad hoc...