To me the reason for the problem is the disconnect between the work and what it is to be human. When you forget that people naturally want to do a good job and feel involved and be a part of something larger then themselves — then you get stuck. Thinking about it in the context of: people are…well…humans, filled with emotions, social desires/aspirations, and other feelings this becomes very easy to see. There are always a few bitter holdouts though!

Compare what it is like for: (A) a creative, artist-type to see their efforts made into something and have a real sense of importance in the world (people love to create and improve things don’t they?) with; (B) a cog who knows they are replaceable, who can’t see the importance of what they do (usually because, let’s be honest, it’s not that important, mostly uncreative and boring, simply pushing paper around).

Nobody wants to ever be, or feel like, (B).

You can just ask the (B) people and they are more than willing to tell you once you get them going. Most recognize how they are one technological innovation or policy change away from becoming obsolete. Bad companies do little to actually develop their employees so that they can change with the corporation. Most large corporations though generally do a bad job of changing with the times so this is a near-impossible dream.

I think this is why CEO’s do so much to entrench themselves; they know how little value they bring to organizations and how much good/bad luck can impact performance and overall survival of their company. They can very easily be replaced – just like their employees — and this is scary.

This really isn’t anything new and, I agree, quite intuitive. Shame is how long it’s been going on for and how long it will continue. We should all be thankful when companies (are allowed to!) fail, when recessions occur, and small companies can sprout from this creatively destructive process.

It’s easier to analyze a single management making large purchases than it is to analyze a large number of smaller purchasers. If a company is big enough, its customers and speculators can profit at its expense by predicting its actions and their effect on the market.

As the company gets bigger, this opportunity increases. Its impact on the market is greater, leading to larger profit opportunities. Its size makes in slower to reach a decision. Bigger buyers means less likelihood that a large buy somewhere will be cancelled out by a smaller-than-normal buy somewhere else (or vice versa), raising overall volatility in the market.

A firm in this position might consider buying one of its suppliers, but that has its own risks.

Also, Hard Facts may be of interest to any contrarian.

The military sees it all the time. E.g. there are basically two suppliers for military jets, and the government won’t let either go out of business (since that would make the problem worse). They both have to get the same amount of business, year in and year out, just to keep their factories viable. There’s enough knowhow in each that, if one died, replacing it would be practically impossible. And you’ll notice that “how many planes we need” is not a factor in these equations…

I certainly am not saying that management and institutional factors aren’t serious causes of diseconomy in their own rights, of course.

Hard Facts, Dangerous Half-Truths And Total Nonsense: Profiting From Evidence-Based Management has it that it’s extremely hard to develop incentive plans which don’t damage cooperation.

Zbaracki, Mark J., and Mark Bergen. Forthcoming. “When Truces Collapse: A longitudinal study of price adjustment routines,” Organization Science.
Zbaracki, Mark J., 2007, “A sociological view of costs of price adjustment: Contributions from grounded theory methods.” Managerial and Decision Economics 28: 553-567.
Zbaracki, Mark J., 2006, “Success, Failure, and ‘The Race of Truth,’” Journal of Management Inquiry 15(3): 336-339.