Bigger is not Always Better.

I used to have a lot of pride in the idea of big corporations. After spending much of my life working for the public service (and indeed I still am although in a different capacity) and lamenting at the inefficiencies the private sector looked like the greenest pastures I’d ever thought of. It was then interesting to note that when it came time for me to make the jump into the private sector my initial impressions were pretty much as I had expected. After a while though it all started to morph into the same story I had experienced for the past few years.

Take any large organisation and the one thing you’ll notice is the increase in bureaucracy and this is not necessarily a bad thing. As organisations grow larger they will require more people to lead and facilitate communication between disparate sections. However what I traditionally saw in the public service was that restructures often caused redundant positions to retained instead of removed. This often lead to the too many chiefs problem where you get a lot of people who are in charge of something or someone which tips the management to underling ratio unfavourably. This is not to say I didn’t see the same thing happen in the private sector, it was just less common as when you’re trying to turn a profit from your business it becomes much easier to remove those people who aren’t really adding value to the business.

More recently I’ve encountered this in my own personal financial matters. A couple years ago my fiancée and I took the plunge and bought our first house here in Canberra. The process was actually pretty easy for us and we managed to find our beautiful home in the first week, although we held off making an offer for a while to make sure it was the one we wanted. After a couple quick signatures and a couple of phone calls to our broker the process was over and done with in a matter of weeks. Needless to say we were pretty impressed with everyone involved.

Naively believing that it would be the same deal the second time around we took the plunge yet again to buy an investment property. Now I know most people would be telling us we’re crazy for trying this (I did the figures, and believe me it still surprises me how good an idea this was) but we went ahead anyway. We found a beautiful place that would rent fantastically which unfortunately fell through. We since then found another house which was in good shape for its age and was in a great location. So we went ahead and decided to purchase.

Queue the last 2 months of my life spent dealing with the bureaucracy that is one of the big 4 banks of Australia. Our first loan was from a smaller bank that was from outside of our state and was a painless process. Our new bank had so many different sections that communications between myself, my broker and the bank would usually hit at least 3~4 different sections, all of which were responsible for different things. Not only was settlement delayed over a month because of a simple question I asked they also lost several critical loan documents twice over, something I’d never experienced before from a professional institution (let alone a bank). I was left pining for the smaller banks, at least then there would only be one central location that dealt with everything.

And so marked the end of the idea that a bigger corporation could do something better. It seems that there’s a sort of bell curve phenomenon going on here. When you’re too small you can’t do all the things that the big guys do. Once you’re at the peak you’re doing just as well as the big guys without the inefficiencies. After that it’s all down hill and whilst your company might be more successful you’ve traded in your efficiency to achieve that. It does keep the stock holders happy however.

I guess now its time for me to put my money where my mouth is and start my own company and do better then them. I’ll take the easy route out and blame the global financial crisis for it instead 🙂

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