A recent Wall Street Journal article (May 26, 2016) with the headline “Focus Is In, Scale Is Out for Tech Giants,” tells that major tech companies have been shedding lines of business.
The article mentions that Microsoft has been dismantling the smartphone business it invested billions to acquire not all that long ago. The article also discusses HP’s efforts to slim down, and includes a picture of Hewlett Packard Enterprise CEO Meg Whitman next to a chart showing her company’s revenues in decline. According to the article, tech companies need to scramble as the market changes and “scrambling is hard when you are huge.” Regarding the tech sector’s tendency to shed assets and shift toward greater focus, the Wall Street Journal article says, “That is quite the change. Scale once mattered in tech.”
But, the Wall Street Journal’s statement about scale can be misleading. As someone who has been researching business success and failure patterns for 25+ years, I find that scale does still matter. Today’s start-ups and new product lines will still have to ask whether or not their new businesses will scale. And, there are still many circumstances where being too small a player can put a company at a disadvantage.
Thus, despite what it says in the Wall Street Journal, scale still matters. It matters in the tech sector. And, it matters for non-tech companies as well. Granted, some companies do thrive at a smaller size– for example, niche players and some tiny, but successful, ventures of the self employed. But, that hardly means scale doesn’t matter. From tiny start-ups to huge, well established businesses, there can be value in the greater scale associated with achieving a position of competitive strength/
Nonetheless, despite its stance on scale, that Wall Street Journal article does make some very good points. For example, the article says, “HP in particular was driven for years to outsize its rivals and build a one-stop shop that catered to nearly every technology need of businesses and consumers.” Consistent with HP’s slimming down, the article goes on to warn that adjusting to changes in the marketplace can be difficult when a company is so huge. And, while discussing Microsoft’s smartphone forays, the article makes the excellent point that “size and money don’t guarantee a place in the winner’s circle.”
Although these points are valuable, I see an important takeaway not discussed in the Wall Street Journal article. The important take-away I see is that there is a big difference between scale, which does still matter, and endlessly increasing a company’s size in ways that don’t help and can often hurt. Merely striving for astronomical size and becoming a behemoth does not necessarily bring success. And although selling additional products and services to existing customers is often a successful strategy, being a one-stop shop for everything the market needs, as HP was striving to do, is generally difficult to pull off. The kind of scale that still matters, however, does not entail those kinds of deleterious growth attempts.
So, do not become misguided by the potential for confusion about scale. As tech companies shed pieces, don’t be misled into thinking scale doesn’t matter. Scale does matter. But, so does making wise strategic choices about what businesses to be in. And, correcting for strategic choices that aren’t working, as tech giants shedding businesses are doing, does not mean scale is no longer needed. Scale still matters.
