Big Company Syndrome

Cities have economies of scale. The larger the city, the higher the per capita output tends to be.

However, the larger a company is, the lower its per capita output often becomes, a phenomenon commonly referred to as "big company syndrome."

In the world, there are many cities with populations exceeding ten million.

But there are very few companies with more than 100,000 employees that can still operate efficiently.

Why is it that, despite similar large scales, companies cannot increase per capita output like cities do?Social Circle Limit

In sociology, there is a well-known concept called "Dunbar's number."

Dunbar's number describes the quantity of social relationships a person can maintain.

If we were to depict social relationships as a series of concentric circles, the innermost circle, with the smallest area, consists of the people with whom we have the closest ties.

This includes parents, children, and spouses. The number of such individuals is typically in the single digits.

Moving outward to the next circle, we find close friends.It is someone with whom you would like to spend happy times, or seek help when encountering difficulties.

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Close friends are not many, generally around 15.

Moving outward to the next circle, there are casual friends or relatives you don't see often.

Interactions are not very frequent, but you would send wedding invitations, and they would give you a red envelope in return.

Typically, this number is around 50.

By the fourth circle, it is the boundary of ordinary social interactions, around 150 people.

Beyond 150, it becomes difficult to maintain friendships.Hierarchical Structure in Large Enterprises

Similarly, this applies to businesses.

For a small enterprise, it is often a close-knit community where the boss can call everyone by their names.

When the number of employees in a company reaches several hundred, it becomes impractical for the boss to know everyone's situation.

At this point, there is a need for specialized "management personnel."

Thus, a hierarchy is born within the enterprise.In some large corporations, there are clearly defined promotion levels, with some even reaching more than a dozen tiers.

This indeed facilitates management.

However, the management and hierarchical systems also limit human productivity.

Employees' thinking may gradually shift from "for the customer" and "for the business" to "to cope with the boss."

Unfortunately, not all bosses are wise.

In fact, the larger the scale of the enterprise, the more distant the boss usually is from the business operations.

• When there are just a dozen or so people, the boss will be on the front line.• When there are hundreds of people, the boss will lead the department heads to conduct business together.

• When there are tens of thousands of people, the boss becomes a 'mascot', usually speaking about corporate culture and vision during meetings, but at this point, they are quite distant from frontline employees and customers.

Some companies, to address this issue, hold regular flat meetings.

For example, Google regularly allows bosses to meet face-to-face with frontline employees, and some strongly worded questions can also be raised.

However, most companies do not have such a mechanism.

During meetings, it is often the case that the boss talks a lot, and although employees have ideas, they do not actively communicate.

Why cities are differentSo, why do cities have economies of scale?

This is because a city is a relatively loose structure.

(1) Cities also have management bodies, but they are different from companies.

The management layer of an excellent city usually focuses on building a good urban environment and infrastructure, and less on interfering with the operations of a particular company.

By providing these services, more talents can be attracted. At the same time, these talents are encouraged to start their own businesses.(2) Within the same city, there are often not as many layers of hierarchy between different enterprises and individuals.

A company, if it has a need, can fully cooperate with another company.

As a city grows, it becomes more diverse.

Business and economic activities will continue to expand, new fields will continue to develop, and new opportunities will continue to emerge.

However, as large enterprises grow, the authority of the boss may become greater, which in turn may limit the emergence of more creativity within the enterprise.

The case of Silicon ValleyA city where connections between people can be easily established and where comprehensive basic services are provided can stimulate individual initiative.

Creativity and productivity are greatly liberated.

This is the key to why, as the size of a city grows, its per capita productivity increases.

The book "Scale" explains the effective principle of economies of scale in cities.

However, in another book, a vivid case is presented. That is Silicon Valley, introduced in "The History of Venture Capital."Why has Silicon Valley produced so many leading companies in technological innovation over the past few decades?

Why did two technological leaps (semiconductor chips and the internet) both occur in Silicon Valley?

In fact, there is also the influence of economies of scale at play.