The Limits to Scale.

The laws of scale that govern the growth of both organisms and organisations mirror a symmetrical logic, in spite of them having traversed completely independent journeys through the maze of their evolution.?Organisms and organisations that attempt to climb the mountain of scale often face significant obstacles in their growth journeys. ?Nature, on the other hand, has mastered the art of managing scale in organisms across diverse species, over hundreds of millions of years of evolutionary history.?

The biological science of Allometry describes the comparative relationship between body size and other physiological parameters of diverse species, providing an interesting perspective on the science of scale. ?One of the earliest expositions on allometry was provided by Scottish biologist D’Arcy Thompson in the early 1900s, who drew a connection between the rate of growth of species and corresponding modifications to their form.[1]?A century later, theoretical physicist, Geoffrey West, studied the hidden order that silently lies beneath the differing size and scale of diverse species and companies.?This research provides compelling logic to show that the principles of scale apply symmetrically across both natural systems and business systems.[2]?

West studied physiological parameters such as metabolic rate, heart rate and lifespan of?species, from the tiny mouse to the giant elephant to examine the correlation of these parameters with increasing body weight.?Take for example the metabolic rate which is the energy needed by a species to stay alive. ?When West plotted metabolic rate against the body weight of diverse species, he found a sub-linear relationship with a scaling factor of 0.75, rather than the intuitively expected linear scaling of 1.0.?This meant that larger species tend to have a lower metabolic rate than expected, when compared to smaller species.?A larger species whose body weight was 10,000x the body weight of a smaller species, had a metabolic rate that increased by a factor of only 1,000x, and not by 10,000x as we might have expected.[2]?Other researchers have suggested a curvilinear relationship between metabolic rate and body weight, scaling at a factor of 0.8.[3]?Metabolic rate, therefore, is “conserved” as the comparative size of various species increases.

Let’s take another physiological parameter such as heart rate, the total number of heartbeats per minute.?D’Arcy had pointed out much earlier that for reasons difficult to explain, the elephant’s heart beats slower than ours and a dog’s heart beats faster than ours, concluding that the rate of living slows down as size increases.[1] ?When West plotted the heart rate of different species against their body weight, he found a sub-linear relationship.?Heart rate scales with a factor of -0.25; as the comparative size across species doubles, its heart rate decreases by 25%.?Species with a shorter lifespan have a higher heart rate, whereas species with a longer lifespan have a lower heart rate. ?Larger species, therefore, have a lower heart rate than we would have expected on a pro-rata basis.?Regardless of size, however, all species remarkably have the same number of heartbeats in their lifetime; approximately one billion heartbeats.[2] ?

This systematic conservation of physiological parameters such as the metabolic rate and heart rate that are “conserved” even as the comparative size of a species increases, is what we commonly refer to in management as “economies of scale”.[2]?As is to be expected, nature got there first.

Let’s turn our attention to the familiar world of business, where we will see that companies are equally subject to the laws of scale. ?When the net income of 23,000 publicly traded companies on the S&P 500 was plotted against employee strength, the graph described a sub-linear relationship. ?As the employee strength of the comparison companies increased, the net income did not scale linearly; rather net income increased sub-linearly with a scaling factor of 0.88. ?Similarly, when the total assets of comparison companies were plotted against their employee strength, the scaling was once again sub-linear with a factor of 0.79.[2]?The principle of economies of scale plays out its invisible hand across organisations in business ecosystems; the larger the company, the less per capita inputs it will need to grow.

In conclusion, a systematic, predictable, non-linear scaling law is at work across species in natural ecosystems and companies in business ecosystems.?As organisations grow larger and larger, however, the rate at which they can transform their business model starts to decline.?The powerful scaling laws impose a finite boundary on the lifespan of an organisation, since some are not able to transform at the pace required to meet a rapidly changing external environment.?Scale now becomes the enemy of growth.

The limits to growth imposed by increased scale can be pushed outwards to some extent, if an organisation commits to developing its adaptive capacity.?Larger organisational scale almost always poses additional challenges to business transformation due to rigid operating processes, unwieldy organisation structures and fixed strategic pathways. ?These structural inflexibilities can be made more malleable by exploiting the greater adaptive capacity that larger organisations are naturally endowed with, due to their deeper financial resources, broader talent base and more dominant market positions. ?

Organisations should draw from the crucible of their latent adaptive capacity by leveraging the four key elements of adaptive leadership; acuity of vision, alignment of strategy, processes and people, agility of implementation and autonomy of decision-making.?The synergistic alchemy created by these elements of adaptive leadership will allow organisations to break the inertial effects that larger scale brings.?Adaptability ensures that the limits to scale do not become the enemy of growth.

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References:

[1]?Thompson, Darcy Wentworth. 1942.?On Growth and Form. Vol. 2. Cambridge: Cambridge university press.

[2]?West, Geoffrey B. 2017. Scale: The Universal Laws of Growth, Innovation, Sustainability, and the Pace of Life in Organisms, Cities, Economies, and Companies. New York: Penguin Press.

[3]?Savage VM, Deeds EJ, Fontana W. 2008. Sizing Up Allometric Scaling Theory. PLoS Computational Biology. 4(9): e1000171. doi:10.1371/journal.pcbi.1000171