This document discusses running an agile Fortune 500 company. It notes that scaling an organization is based on structured principles, not magic. When a company grows from 100 to 5,000 employees, operational failures can occur if managers don't understand two key laws: the law of diminishing returns and economies and diseconomies of scale. As companies scale, managers must address 20 dimensions to avoid culture dilution, strategic ambiguity, and other issues that hamper organizational scalability. Constantly recognizing and addressing these dimensions is needed over simply focusing on short-term metrics.

1. *
“Running an Agile Fortune 500 Company”
Aditya Yadav, aditya.yadav@gmail.com
in.linkedin.com/in/adityayadav76

2. * A Typical Global Company
* Fortune 500/1000
* 200 Divisions
* 40 Countries
* 25000 Employees
*

3. *
@ Acme Inc.

4. * Original Question “Since we have grown from
100 to 5000 people nothing seems to work.
What should we do?”
* The Correct Question - “There is no magic to
Scaling an organization. Its based on structured
principles. While the solution is never the same
for two organizations the principles of scaling
are. Shall we look at those principles?”
*

5. *
And The Philosophy Behind The Answer

6. 1. The Law of Diminishing Returns
2. The Law of Economies and Diseconomies of
Scale
* Because Scaling is the biggest issue causing
operational failure in organizations of any size.
*

7. * Managers don’t understand the implications of this law.
* They have a very myopic factor based approach to management
* They use a set of metrics to measure, and perpetually push harder
and harder to maximize those metrics
* Without realizing that this law is kicking in
* The law of diminishing returns (also law of diminishing marginal
returns or law of increasing relative cost) states that in all productive
processes, adding more of one factor of production, while holding all
others constant ("ceteris paribus"), will at some point yield lower
per-unit returns. - wikipedia
* The law of diminishing returns does not imply that adding more of a
factor will decrease the total production, a condition known as
negative returns, though in fact this is common. - wikipedia
*

8. * Economies of scale are the cost advantages that enterprises obtain due to size, with cost per unit of
output generally decreasing with increasing scale as fixed costs are spread out over more units of
output. Often operational efficiency is also greater with increasing scale, leading to lower variable cost
as well.
1. Technical economies. They are found mostly in plants and arise mostly because neither the capital cost
nor the running cost of plants increase in proportion to their size. The main idea is to spread the fixed
costs over as large output as possible, so Average Fixed Cost decreases.
2. Managerial or administrative economies arise because the same people can usually manage with bigger
output, so average administrative cost decreases when production increases. Large firms can employ
specialists, which leads to the increase in efficiency.
3. Financial economies arise because e.g. the interest rate for getting a loan is higher for smaller firm
than for larger one. This is because large firms have large assets and banks trust them more. It is also
relatively easier for large firms to raise their share-capital by issuing shares.
4. Marketing economies. They are available both in purchases of raw material and in selling of the
product. A large firm may have a bulk discount when purchasing raw materials. In terms of promotion,
to large firms the average cost is smaller, because the prices of advertisements are the same for all
firms, hence the large firms can afford costs of sales promotion without causing much difference in
their profit shares.
5. Social economies. They may be developed into two groups: those that build up the goodwill of the
community and so attract customer (sponsorship), and those that develop the loyalty of the firm's
employers (Christmas bonuses)
6. Risk-bearing economies. They are the firm's ability to bear losses. If one part of the company has a loss,
other parts of the company can support it. If the company sustains a loss, it has enough capital to
overcome it.
*

9. * Diseconomies of scale are the forces that cause larger firms and
governments to produce goods and services at increased per-unit costs.
1. Communication costs
2. Duplication of efforts
3. Office Politics
4. Top Heavy Companies
5. Cannibalization
6. Isolation of decision makers from the results of their decisions
7. Slow response time
8. Inertia (Unwillingness to change)
9. Public and Govt. opposition
10. Large market share
11. Large market portfolio
12. Inelasticity of supply
*

10. 1. Culture Dilution & Disintegration 1. Purpose and Directional
2. Organic vs Inorganic Growth Ambiguity
3. Sustainable Growth and Staying 2. Need for Mass Standardization
Cash Flow Positive 3. Process for Stable things
4. Capability & Skill Dilution 4. Customer Experience
5. Knowhow & Core Competencies 5. Agility & Lead Time
6. Chaos and Disorder
6. Time Zones and Co-ordination
7. Conflicts of Interest
7. Silos & Collaboration
8. Strategy & Vision Dilution
9. Loss of Control & Need for
8. Decision Making
Empowerment 9. Ethics & Corporate Social
Responsibility
10. Failure of Plans and Strategy by
Design, and the need for 10. Span of Control vs Influence
Emergent Strategy
*

11. * Because Managers are not concerned with it
* Managers are concerned with things like costs, efficiency,
productivity, revenues, metrics, kpi’s, goals and targets
* Managers completely miss the issues that need to be
addressed for organizational scalability
* There is no silver bullet organizational scalability
formula/framework
* A constant view of recognizing and addressing the 20
dimensions mentioned in the previous slide is needed
* Also managers need to understand that (i) diminishing
returns and (ii) diseconomies of scale will eventually get
them if unaddressed
*

12. Aditya!!!
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