Big is beautiful

We live in an era of transnational, the likes of Wal-Mart, Exxon, Microsoft and Toyota, (mega institution is one which earns more than 10 billion dollars in revenues annually and has more than 100000 employees worldwide). In the last few years, the trans-nationals have managed to earn more revenue per worker than the smaller companies, and improve its profit margins dramatically. Companies like Microsoft and Exxon has managed to improve its profitability without any drastic increase in workforce, while companies like HSBC, GE, Toyota and IBM has managed to increase the profitability faster than the increase in workforce. There are 4 companies (Toyota, GE, Citigroup, and IBM) that employ more than 200000 people and earn 20000 dollars or more per employee (McKinsey studies). These companies have managed to overcome the complexity that comes along with size and grow faster their smaller peers. How?

The companies previously were leveraging their scale and scope to control supply chains and means of production. Ford, which took economies of scale to an extreme, at one point of time owned rubber plantations in Amazon for tires, rail wagons to transport them, tire, steel and assembly plants and planned eventually to sell and service Ford cars (though they never did). This proved a disaster.

Now companies are not just selling of their loss making units, but selling off their reasonably profitable ones as well, in preference to their high margin businesses. Citigroup sold off its cash cow Travelers insurance business to Met-life to concentrate on their core banking business. GE, which were traditionally manufacturing, gathered sufficient experience in financial services and now predominantly a services company. So is, IBM, which is moving away from manufacturing (at one point of time, it got a measly 1% ROI on its manufacturing business) to business consulting. It is rumored that in Japan, Toyota intends to market its manufacturing consultancy to non-car companies.

The more significant move was to find and tap the knowledge base of the people. Rockefeller found it difficult to find people who knew even basic accounting and awareness of most commonly used business terms. That is hardly the case today. Companies are trying to make sure they make the systems simple and management decisions consistent so that the ideas of employees aren’t lost in the bureaucratic maze.

The big is beautiful in India too, it’s the big Indian IT companies like Infosys and Wipro that are clocking faster growth in workforce and bottom-line than their smaller counterparts.

What do mega-institutions mean to India?  IT companies are thinking about relocating abroad due to skills crunch, even when there are 5.3 million unemployed grads at home. If Infosys has any chance of becoming an Accenture or IBM, the government must make sure that there are employable graduates in the country. Already, the services are raising their headcount faster than any other sector. It’s high time the supply steps in.

Cheap workforce like China’s is not the recipe to superpower status, quality workforce is.