The Physics of Corporations

Geoffrey West is a physicist who has been studying cities. As reported by Jonah Lehrer in the New York Times, he thinks he understands how they grow and why they prosper. He has found that the denser the city, the more adaptable it is and the more wealth it produces per person. But when he turns his eye to the corporation, he finds a different story.

In the bleak corporate reality, summarizes Lehrer, efficiencies of scale are almost always outweighed by the burdens of bureaucracy. To quote West:

"When a company starts out, it’s all about the new idea. And then, if the company gets lucky, the idea takes off. Everybody is happy and rich. But then management starts worrying about the bottom line, and so all these people are hired to keep track of the paper clips. This is the beginning of the end."

West goes on to conclude that large companies are increasingly vulnerable to market volatility. In contrast, cities become stronger and more vibrant as they grow.

"Unlike companies, which are managed in a top-down fashion by a team of highly paid executives, cities are unruly places, largely immune to the desires of politicians and planners. […Cities] can’t be managed, and that’s what keeps them so vibrant. They’re just these insane masses of people, bumping into each other and maybe sharing an idea or two. It’s the freedom of the city that keeps it alive."

If you're the CEO of a large company, what are you supposed to do with this information? It may feel like a dagger to the heart of your livelihood, and that can't be comfortable. May I suggest, as a first step, that you consider these three key ideas:

• Economies of scale in theory are often illusory in practice
• The short-term benefits of control and management rarely survive the long-term
• Freedom, insanity, unruliness, and other undisciplined characteristics of a workplace can be signs of its long-term health

Be warned that, taken seriously, these and similar ideas can lead you and your company towards decentralization and divestiture, empowerment and experimentation, creativity and chaos. I wouldn't blame you for being skeptical.

But I would ask how much of your skepticism comes from a dispassionate evaluation of the outcomes, and how much from a basic lack of confidence that you can be an effective leader in that kind of workplace. I suspect there's more of the latter than you might be willing to admit.

If I'm correct, it might be rewarding for you to learn more about creative leadership, or even to get some experience practicing it. I can reassure you, there is practical wisdom out there for you! I'd be happy to point you to some sources.

New York Times article