Contemplating the type of organization one desires to engage with often prompts the question: Are larger organizations inherently superior? The widely known Pareto Principle, or the 80/20 rule, suggests that 80% of outcomes stem from 20% of inputs. Whether it’s revenue, complaints, or wear on a carpet, this principle seems to hold true across various scenarios. However, another less recognized rule, Price’s Law, delves into organizational productivity. It posits that 50% of the work is executed by the square root of the total number of individuals in a group. In simpler terms, a select few tend to contribute significantly more than the majority. This phenomenon has led some entities to adopt small, agile teams comprised of top-tier performers to drive results efficiently.
As organizations expand, they often encounter a tipping point where a substantial portion of effort shifts towards managing communication and processes, rather than directly adding value for customers. Experienced professionals in the tech industry, for instance, have navigated numerous growth phases, emphasizing the need for lean, agile teams focused on swift execution.
Consider the groundbreaking impact of companies like Nvidia in the realm of AI. With a comparatively small AI research team of just 50 individuals out of their 26,000-strong workforce, Nvidia has played a pivotal role in driving AI innovation. This illustrates Price’s Law in action, showcasing how a select group can wield significant influence within an organization.
Reflecting on tenure at Nortel Networks, for example, reveals a stark contrast between large-scale endeavors and more streamlined operations. Despite being part of a sizable R&D team, the efficacy of efforts was often diluted by an excess of meetings and bureaucracy. Conversely, chip design teams, comprising a mere fraction of the overall workforce, exhibited remarkable productivity.
In the realm of Real Estate Development, companies often operate with a core team supported by an extended team. Despite modest sizes, many have achieved noteworthy success by maintaining a sharp focus on project execution. This underscores the notion that effectiveness doesn’t necessarily correlate with organizational size.
While scaling up may appear synonymous with growth, there comes a point where the returns diminish. Some organizations can shed a significant portion of their workforce without experiencing a substantial decline in business—a testament to the indispensable contributions of a core group of high-performing individuals.
When evaluating potential investment opportunities, it’s crucial to assess the quality of skills and track records across essential business functions, rather than fixating solely on the size of the organization. While some may perceive size as indicative of stability, it’s the depth of talent and efficiency that truly drives sustained success.
