How Big: A Plan
or Accident
By R. Henry Migliore
Abstract
How big?
 Four considerations
 Optimum size
 Five-year horizon
 Update and revise

Optimum Size
Expected return
 Market share
 Competition
 Resources

Introduction
Should firm grow and expand
 Chase market or control growth
 Size of the firm in the long run
 Strategy of General Patton in
World War II
 “Big is better”
 Growth doesn’t always mean
expansion
 Understand why firms should
grow in the first place

X = f(a,b,c,d,e…?)
X = the dependent variable
 X is the function of various
combinations of independent
variable a,b,c,d,e…. on to
infinity

Why Should Firms Grow?
Understand how organizations
grow as systems
 Any organization is a system
 May self-destruct in a process
called entropy

First Law of Organizations

An organization at rest tends to
stay at rest
Organizations don’t like change
 Inactivity breeds inactivity
 Complacency

Second Law of Organizations

Organizations at rest tend to decay






“If you snooze, you lose!”
Business world is not stable
Complacency means firms fall behind
Example: IBM and Compaq didn’t
maintain technological edge
In slow-moving industries complacency
can breed trouble
AT&T’s effort to transform back into a
competitive organization
Third Law of Organizations

Organizations in trouble tend to
get worse
“flailing about”
 American Motors death spiral

How to Combat the 3 Laws
Growth
 Growth in different directions
such as Mother’s March of
Dimes
 Growth can be achieved by
getting smaller
 Consolidation of Northeastern
Railroads
 How big the firm should be for
the long run?

Determine the firm’s share in
the total market
 Three categories of
organizational resources – land,
labor, and capital
 Just having resources is not
sufficient
 Downfall of Dakota Software


Key part of managing growth is
figuring out what resources are
needed, in what amounts and
when those elements are
needed
Figure 1 – Market Share
Firm A
Firm B
Design/Build
Firm D
Roles of three tangible
resources: Information, Time,
and Legitimacy
 “Information Age”
 “Network” Organizations like
Nike and Dell
 Innovation will leave firms
behind that cannot process
changes

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Management of growth requires
sufficient time
Two types of legitimacy

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Examples of firms facing market and
social legitimacy

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Market legitimacy
Social legitimacy
Sony and Betamax
Tylenol
Intangible resources help or impede
growth

Guidelines to help managers
decide how much of each
tangible resource is necessary:
1.
2.
3.
4.
Recognition importance
Realization that intangible
resources have costs
Acquiring and maintaining
intangible resources may
outweigh it’s benefit
Learning to tolerate ambiguity
Figure 2 – Long Run Average Cost Curve


Every of business
must respond if the
firm chooses to
grow
The closer the firm
operates at the
bottom of the Long
Run Average
Curve, the better
opportunity to use
pricing as the
competitive
strategy
Average Cost per Car
Resources and Growth
Each area of business needs
resources
 Both tangible and intangible
resources are needed

Conclusion
Emphasis is proactive planning
 Long-term size based on
revenue/return, competition,
market share and resources
 Short-term targets control and
coordinate growth
 Conditions change, alter plan
