The Limits to Scale

The laws of scale that govern the growth of both organisms and organisations mirror a symmetrical logic in spite of them having traversed completely independent journeys through the maze of their evolution. Organisms and organisations that attempt to climb the mountain of scale often face significant obstacles in their growth journeys. Nature, on the other hand, has mastered the art of managing scale in organisms across diverse species, over hundreds of millions of years of evolutionary history.

The biological science of allometry describes the comparative relationship between body size and other physiological parameters of diverse species, providing an interesting perspective on the science of scale. One of the earliest expositions on allometry was provided by Scottish biologist D’Arcy Thompson in the early 1900s, who drew a connection between the rate of growth of species and corresponding modifications to their form.[1] A century later, theoretical physicist Geoffrey West studied the hidden order that silently lies beneath the differing size and scale of diverse species and companies. This research provides compelling logic to show that the principles of scale apply symmetrically across both natural systems and business systems.[2]

West studied physiological parameters such as metabolic rate, heart rate and lifespan of species, from the tiny mouse to the giant elephant to examine the correlation of these parameters with increasing body weight. Take for example the metabolic rate which is the energy needed by a species to stay alive. When West plotted metabolic rate against body weight of diverse species, he found a sub-linear relationship with a scaling factor of 0.75, rather than the intuitively expected linear scaling of 1.0. This meant that larger species tend to have a lower metabolic rate than expected. When compared to smaller species, a larger species whose body weight was 10,000× the body weight of a smaller species, had a metabolic rate that increased by a factor of only 1,000×, and not by 10,000× as we might have expected.[2] Other researchers have suggested a curvilinear relationship between metabolic rate and body weight, scaling at a factor of 0.81.[3] Metabolic rate, therefore, is ‘conserved’ as the comparative size of various species increases.

Let’s take another physiological parameter such as heart rate, the total number of heartbeats per minute. D’Arcy had pointed out much earlier that the relationship between the heart rate and body weight is also sub-linear, with heart rates slower than expected as size increases.[1] When West plotted heart rate across diverse species against body weight, he found a sub-linear relationship with a scaling factor of -0.25; as the comparative size across species doubles, its heart rate decreases by 25%. Species with a shorter lifespan have higher heart rates, whereas species with longer lifespans have lower heart rates. Larger species, therefore, have a slower heart rate than we would have expected on a per-capita basis. Regardless of size, however, all species remarkably have the same number of heartbeats in their lifetime, approximately one billion heartbeats.[2]

This systematic conservation of physiological parameters such as the metabolic rate and heart rate that are ‘conserved’ even as the comparative size of a species increases, is what we commonly refer to in management as ‘economies of scale’.[2] As is to be expected, nature got there first.

Let’s turn our attention to the familiar world of business, where we will see that organisations are equally subject to the laws of scale. When the net income of 23,000 publicly traded companies on the S&P 500 was plotted against employee strength, the graph described a sub-linear relationship. As the employee strength of comparison companies increased, the net income did not increase sub-linearly with a scaling factor of 0.88. Similarly, when the total assets of comparison companies were plotted against employee strength, the scaling was again sub-linear with a factor of 0.79.[2] The principle of economies of scale plays out in the invisible hands across organisations in business ecosystems that large companies, with lesser per capita inputs, will tend to grow.

In conclusion, a systematic, predictable, non-linear scaling law is at work across species in natural ecosystems and companies in business ecosystems. As organisations grow larger and larger, however, the rate at which they can transform themselves inevitably declines. The powerful scaling laws impose a finite boundary on the lifespan of an organisation, since more are not able to transform at the pace required to meet a rapidly changing external environment. Scale now becomes the enemy of growth. The limits to growth imposed by increased scale can be pushed outwards to some extent, if an organisation commits to developing its adaptive capacity. Larger organisational scale almost always poses additional challenges to business transformation due to rigid operating processes, unwieldy organisational structures and fixed strategic pathways. These structural inflexibilities can be made more malleable by exploiting the greater adaptive capacity that larger organisations are naturally endowed with, due to their deeper financial resources, broader talent base and more dominant market positions.

Organisations should draw from the crucible of their latent adaptive capacity by leveraging the four key elements of adaptive leadership; acuity of vision, alignment of strategy, processes and people, agility of implementation and autonomy of decision-making. The synergistic alchemy created by these elements of adaptive leadership will allow organisations to break the inertia effects that larger scale brings. Adaptability ensures that the limits to scale do not become the enemy of growth.

References

[1] Thompson, D’Arcy Wentworth. 1942. On Growth and Form. Vol. 2. Cambridge: Cambridge University Press.

[2] West, Geoffrey B. 2017. Scale: The Universal Laws of Growth, Innovation, Sustainability, and the Pace of Life in Organisms, Cities, Economies, and Companies. New York: Penguin Press.

[3] Savage, Van M., et al. 2004. “Effects of Body Size and Temperature on Population Growth.” The American Naturalist 163(3): 429–441.