A little extra does not always help

I have been pondering over the last few days over the gigantism which seems to afflict so many organisations these days.

I am prompted by the travails of Tesco, brought on in part by growing too big, by building too many shops at a time when the protracted depression, the Internet, Lidl and Aldi were changing the game, and by going in for too many foreign adventures, a good number of which do not seem to have fared too well.

Why is it that a company like Tesco cannot define for itself and then stick to the business that it wants to be in and the slice of the pie that it wants to go for. So these days it might say that it wants 100 maxi-stores, 500 regular-stores and 1,000 mini-stores. And then concentrate on doing that well. Have a big enough management team to do that, but without a lot of time and energy to spend on dreaming up new projects (rather like IT teams in the civil service were, and perhaps are, said to do. Dream up some new wheeze and then hunt around for someone on the make to pay for it). Put some serious board level hurdles in the way of going significantly beyond the established framework, perhaps, for example, by requiring a two thirds majority for the change on the board. By not allowing any such proposal to be tabled for five years after once failing to make the cut.

If there is money washing around with nothing to do, one can always improve the offering. Or cut the prices or pay the hard pressed suppliers or shelf stackers a tad more. Maybe even raise the divi. No difficulty about dealing with surplus dosh.

If some bunch of management mavericks does dream up some splendid but offside scheme, let them go elsewhere to realise their vision.

Some people might argue that bigger and bigger means more and more economies of scale. But I am not so sure. What about the increasing costs of maintaining the quality of the offer over an ever increasing number of shops?  What about the increasing costs of keeping a proper grip on the growing headquarters operation? What about the monopolies people, who might be looking for, say, at least three operators of this sort covering the UK? Quite apart from anything else, pushing against that door is apt to stir up the traditional English love of the underdog (I don't presume to speak for the first nations).

Other people might argue that gigantism is the fault of shareholders, always pushing for more dividends, always with their greedy eyes on the greener grass on the other side of the wall, on what they think that rival outfits are up to. But I think the fault lies more with the management team who have got their even more greedy eyes on the rewards that gigantism will bring them in the short term and which subsequent failure is not going to claw back. The fault of the shareholders is more passive, a failure to rein their board in.

In the olden days, they used to say that water companies were very safe and solid businesses to invest in. Perhaps this was in part because water companies were monopoly providers in a reasonably well defined geographical area. There was not much scope for expanding the area or for other kinds of adventure. The sort of household support services that British Gas are now pushing out into, for example, did not exist. Water companies did neither expansion nor adventures. Sadly, mostly beyond the reach of the small time investor these days, mostly swallowed up in entities one has not heard of and which may well not be listed.

I have been  thinking here of commercial, for-profit companies, but one does see some of the same same sort of things in, for example, the National Trust and the Wikimedia Foundation.

PS: I wonder if the likes of Tesco operate anything like the running costs and programme costs regime used by the Treasury in its management of government spending. Which, paraphrasing and for example, is very fierce on the headquarters' costs of the prison service but much less fierce about the costs of building and operating prisons. If you have an overblown defence headquarters, you wind up with too many overblown aircraft carriers, teams of admirals flying desks can get very keen on having lots of big boats.