February 26, 2008
Bonsai Organizations
Posted by Gordon Smith

Charles Handy is commenting again over on Marketplace. You may remember Handy's interesting views on markets, which we discussed here. Yesterday he offered an intriguing commentary on the optimal size of organizations:

Americans think big. This has helped make them the most powerful nation on Earth, but bigger is not always better, either for our bodies or, I suggest, for our organizations. If I were to visit a symphony orchestra and ask them about their growth plans for the future, how would they respond? They would talk about their plans to extend their repertoire and to bring their work to new audiences, not about increasing the number of violinists. The same holds true for a school or a hospital. Once they get to the appropriate size, they strive to be better not bigger.

Why should it be different for business? Why does almost every business that I know seek to grow in size, year after year, in fact, as if there were no limit? Why can't they be content with doing more with less? I ask because large organizations are not usually, or even often, nice places in which to spend the best part of our lives. Humans are most comfortable in clusters of 10 to 12, family-sized groups. Put them in armies of hundreds and thousands and they cease to be individuals, but only human resources, just numbers in jobs. Humanity too easily yields place to bureaucracy.

An executive in the project I am working on at the Drucker School in Claremont, California calls the business he created a "bonsai" organization, after those small Japanese trees. These trees need to be trimmed and reshaped, but they don't grow beyond their ordained size. So it is, he says with his organization, and if you really have to be bigger, then maybe the challenge is to create woods of bonsai trees. This way, the economies of scale and the personal ambitions of our leaders won't run up against the constraints of human nature, because if we aren't careful, organizations can become the prisons for our souls.

Notice the implicit assumption of Handy's first sentence: that organization size is culturally contingent. Is it? I suspect the folks at orgtheory.net might have some insights, but I am so accustomed to thinking about this issue through the lens of Ronald Coase's Theory of the Firm that Handy's first sentence struck me as a surprising starting point.

Handy's commentary also prompted thoughts of Louis Brandeis and his series of Harper's Weekly articles that were compiled under the title Other People's Money--and How the Bankers Use It. Brandeis was concerned about trusts, and he rails against large business organizations in expansive language. Brandeis was right to be concerned about monopolies, of course, but "woods of bonsai trees" do not occur spontaneously in nature. Indeed, Brandeis never figured out how to create a Japanese garden through regulation. The landscape of creative destruction is much messier.

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