IS BIGGER ALWAYS BETTER?

WELSH EXECUTIVE OUTLOOK

By DAVID MORGAN REES. Reproduced from 'Voice of Welsh Industry' (February 1964) with kind permission of the publishers - The Certificated Engineer April 1965.

"You’ve got to talk big to get anywhere." So says the go-getter in true extrovert fashion. But are we in danger of applying the same slip-shod value judgment to the size of an individual company in the industry?

Some people seem to have the idea that the big firms, merely because they are big, are more efficient than the small to medium-sized company. Thus, idealistic reasoning behind Socialist nationalisation plans after 1945 was that the larger grouping of the means of production and the sources of supply was not only more just socially but automatically more effective in terms of long-term planning and management.

And today, when financiers' eyes become all glittery at the thought of take-overs and mergers when the sundry company "doctors" and wizards postulate that, industrially, safety and strength lie in numbers, it is all too easy to forget that centralisation of company control and resources can lead to ossification and that the small company which is nippier on its feet will not necessarily be trodden underfoot by the mammoths on their ponderous march forward.

Disproved by Facts

The facts, of course, do not prove any pattern towards giantism in British industry. More than half of the total employment in the manufacturing industries is found in factories with less than 250 workers. Indeed only 2 per cent of manufacturing establishments in this country has more than 1 000 employees although they account for more than one-third of the total labour force employed. Neither is there any significant trend towards larger grouping in American industry-the anti-trust and monopoly legislation has rather more bite there than here.

Before we get too enthralled by the idea of sheer size, let us look at some of the arguments in favour of large-sized companies. Wider, better sources of capital to finance development than the smaller firm? This is obviously true, following the principle that it's easier to persuade your bank manager to allow you to have an overdraft for ￡20 000 than it is for ￡2 000.

The small company does find it hard to get access to new finance. While not asking for any Government pampering or wishing to detract from the facilities provided by the Industrial and Commercial Finance Corporation, one could wish that there were opportunities for the small man on the scale offered by the Small Business Administration in America which was set up in 1953 as virtually a separate government 'ministry'.

To qualify for loans under the S.B.A. scheme a small industrial concern (with no more than 250 employees) must be independently owned and operated and must not be dominant in its particular field. As a result of the work of the S.B.A., the scale of private investment in U.S. small firms is higher proportionately than it is in British industry.

Research Facilities

Better research and development facilities? The best results of these are not necessarily the prerogative of the large company with its lavish budget. Often the small man has a brilliant idea-for example, the introduction of Telcan, the amazingly cheap and simple method of recording telecasts, was developed by two men, not by one of our electronic empires.

Of course, they did not have the means to promote their invention and they needed a large American corporation to develop it commercially.

That there is a kind of 'club' with big companies preferring to buy from other suppliers of a similar' size? With basic raw materials-oil, steel, and platinum-this is largely true but the pattern is different with manufactured goods and components. Motor car manufacturers and other large engineering concerns tend to buy from hundreds of smaller units because once they have laid down their specifications they believe that they get greater flexibility of service, good quality and better prices for certain items which they know the smaller man can produce more efficiently.

Training Schemes

Good management training and development opportunities? Although the large company can afford more time and cash to external training schemes. more frustration exists amongst executives, particularly those who have had their eyes opened on these courses and then return to their colossi to see clearly the rigid departmentalisation and specialisation necessary in the big outfit.

Then perhaps they cast envious looks at the man who works in the smaller company and who is expected to be much more versatile. Although this small company would benefit greatly from sending more people to be trained, the large firm has to be exceptionally well managed to overcome the creeping paralysis of inertia in the middle ranks of its management structure.

When we are in danger of being overawed by the majesty of sheer size we must remember that the small firm plays a vital part in British industry and that it is important for each industry to have within it a balanced pattern of companies of varying size. This is the desirably dynamic 'industry mix', in the same way, that an individual company should have a wise product or marketing mix. There is room for the big boys and for the small provided they are efficient-and efficiency has nothing to do with size. It is purely dependent upon the ability of those who manage the destinies of the company.