Questioning the Value of "Vast"

Frankly, I haven’t been a fan of the Harvard Business Review for years—and it doesn’t seem to have crippled my ability to keep up with biz thinking. But the other day in Reagan National airport I picked up the September issue, because one article caught my eye: “All Strategy Is Local.” It is brilliant and counterintuitive—and it reinforces my longstanding bias that beyond a certain point Big ceases to be beautiful. Markets from retail to media to pharmaceuticals are examined, and the results are startling. Even ubiquitous Wal*Mart’s assumed scale/efficiency advantages are questioned! Here are some selected quotes:

“All Strategy Is Local: True competitive advantages are harder to find and maintain than people realize. The odds are best in tightly drawn markets, not big, sprawling ones”—Title/Bruce Greenwald & Judd Kahn/HBR09.05

“Sustainable domination is more likely in markets of restricted size. It is paradoxical but true that economies of scale are subject to scale limitations themselves. … When a market gets too big, diseconomies of coordination can prevail over economies of scale.”
—Bruce Greenwald & Judd Kahn/”All Strategy Is Local”/HBR09.05

“Some observers have argued that Wal*Mart owes its superior returns to its enormous size and, as a consequence, its purchasing power. [But] if the purchasing power that comes with size were responsible for the company’s success, then Wal*Mart’s profitability should have increased as the company grew. Yet its operating margins have not increased since hitting their high watermark in the mid-1980s. … As Wal*Mart has grown, its profit margins have suffered in comparison with those of more geographically concentrated competitors, such as Target. … Sam’s Club appears to be no more profitable than Costco and BJ’s Wholesale Club. The fact that Sam’s Club is the least geographically concentrated of the three competitors appears to have offset any advantages derived from Wal*Mart’s efficiency. … Wal*Mart’s experience overseas tends to confirm the limited impact of the retailer’s operating advantage. Overseas returns are less than half its domestic margins.”—Bruce Greenwald & Judd Kahn/”All Strategy Is Local”/HBR09.05

“In media, broadly defined, actual experience has been even more strikingly at odds with prevailing strategic wisdom, which has proclaimed that successful media companies would be those that integrate content and distribution, are global in reach and embrace and master new technologies. … None of the leading media companies [Time Warner, Viacom, Disney, News Corp] has equaled the performance of the S&P 500 over the last 15 years.” (Also way below traditional newspaper companies.)—Bruce Greenwald & Judd Kahn/”All Strategy Is Local”/HBR09.05

“For all their talk of the global convergence of consumer demand, separate local environments are still characterized, in both obvious and subtle ways, by different tastes, different government rules, different business practices and different cultural norms. … The more local a company’s strategies are, the better the execution tends to be. Localism promotes decentralization—and since the days of Alfred Sloan, decentralized management has consistently served as a superior structure for concentrating management attention.”—Bruce Greenwald & Judd Kahn/”All Strategy Is Local”/HBR09.05

Tom Peters posted this on September 2, 2005, in Strategies.
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