Arrow-right Camera


Smallness, Bigness Each Have A Place Dynamics Of The Economy Force Companies To Change

Mon., April 29, 1996, midnight

It may seem rather difficult at first to grasp, but a great and seemingly contradictory experiment in American corporate life is under way.

There is one group that says bigness has failed, that it is unmanageable, that it destroys innovation and growth. They say it’s impossible to be expert in a vast area of the marketplace and that you must retreat to what you do best.

You will recognize those who see too many problems with being very, very big. AT&T; and Dun & Bradstreet, for example, both of which have plans to trisect themselves this year. Earlier, Sears retreated back to retailing.

You may also recognize those who see a future in bigness. Nynex and Bell Atlantic, which plan to merge, and Cisco Systems, which plans to buy StrataCom; Disney, which purchased Cap Cities; and Time and Warner, which merged years ago.

The reasons given are predictable.

Bigness, it is often said, is essential for competing internationally, for raising funds, for providing a variety of related services, for economies of scale, for better research, for more efficient management.

And smallness, it is explained, allows companies to be more innovative, to grow faster, to adapt to changing conditions, to cut costs, to seize opportunities, to grow faster, to permit more efficient management.

Some explanations, as you see, apply equally to bigness and smallness, and some companies, IBM, to name one, have been enticed by either direction at different times. Seemingly opposites, such restructurings are really similar.

The first similarity is that most restructurings occur in industries that are relatively new or changing radically: Information and communications in all its forms; technology; medical care; health insurance; transportation.

Market profiles are changing radically. Old products are made obsolete or enhanced by new applications, companies are thrown into each other’s markets, upstart companies entice customers away, demographics demand repeated shifts.

As Nynex and Bell Atlantic view the scene, bigness has its advantages in research, improved service, reduction of duplicate effort, economies of scale, larger financial and customer bases and greater clout with regulators.

In contrast, AT&T; believes that division of itself into three companies will mean more effective management, allow each company to concentrate on what it does best, improve agility in changing markets and improve net incomes.

Whichever format is taken, the evolving marketplace demands new approaches, new marketing techniques, new technology, new ways of selling and distributing goods and services. Everything is changing.

Evidence of this can be seen in the once staid and stable insurance industry.

Aetna Life & Casualty, focusing on health care management, drops its property-casualty insurance business. Having other ideas, Travelers buys it.

There was a time when the mighty insurance giants might have tried to keep it all for themselves, but such opportunities died with the emergence of brand new companies to handle a big problem, that of holding down health-care costs.

That problem was one that insurers handled rather poorly but which the new companies dealt with exceedingly well, succeeding quickly in slowing the annual rate at which doctor and hospital charges were accelerating.

Some such companies - Health Care Compare, Phycor, Medaphis, Healthsouth, to mention a few - have become major players in areas that old-line insurers had been expected to dominate. Health Care Compare even bought an insurer.

In short, the explanation for such moves lies in the dynamics of the U.S. economy, which is experimenting and innovating, and revolting against the old ways in a movement greater than the industrial revolution of a century ago.

Some like it big and some see advantages in being small. AT&T;, so large at one time that it spawned Bell Atlantic and Nynex, now likes it small. But its babies, growing fast and merging to speed the process, like it big.

Click here to comment on this story »