June 17, 2021 Blog, Human Capital

The Paradox of Size

CEOs of mid-sized companies rate their execution capabilities highest among their peers.

Line-of-SightSM helps mid-market companies and large enterprises execute better by measuring and managing five critical capabilities necessary for successful execution (or KSEs): strategic understanding, leadership, balanced metrics, activities & structure, and human capital; it also assesses market discipline – the ability to execute in a way that remains true to the strategic intent. These factors are aggregated to form an overall Organizational Health index measured on a scale from 0 to 100.

In the first quarter of 2021, Line-of-Sight conducted research to measure how CEOs evaluated their organizations’ execution performance. The research considered in particular whether large companies (more than 500 employees) had any execution advantage compared to small to midsize companies. This assumption was grounded in the perception that larger organizations tend to better document and communicate their strategy, have more experienced leadership, and have more robust reporting and organization structure.

Results are quite surprising: the data actually suggest the opposite is happening. CEOs of mid-sized companies (150 to 500 employees) rate their own execution performance slightly higher than CEOs of small companies (150 employees or less), and significantly higher than large companies.

The edge that mid-size companies have over their smaller peers is admittedly small: their aggregate Organization Health index is only higher by 1 point, at 73 vs 72. And data suggests that their index is only higher because of a large, 14-point difference in balanced metrics in favor of mid-size companies. It may be explained by the fact that size itself often compels companies to invest into more robust reporting systems, payroll and HRIS, and ERP: beyond 150 employees it becomes simply too complex to manage the business based on personal connections with employees and the leadership’s own detailed knowledge of operations.

The real surprise comes from the gap in execution performance between mid-size and small companies on one side, and their larger peers on the other side. In other words, beyond 500 employees, the larger the organization, the weaker the execution capabilities. The gap here is very substantial: 15 points below in overall Organization Health, and up to 25 points below in each of the KSEs for companies with 500 employees or more.

Upon closer analysis, the gaps make sense: the biggest gaps are in Strategic Understanding and in Leadership (21 and 25 points below respectively). Communicating the strategy is simply more complex in larger organizations, requiring a deliberate and constant effort that some leaders may cut short (this is a well-known change management challenge: since leaders are those who developed the strategy and know it intimately, they systematically overestimate their employees’ familiarity with it).

Predictably, the gap is narrower when it comes to Balanced Metrics, Activities and Structure, and Human Capital: larger organizations tend to require a more refined set of dashboards and a more sophisticated organizational structure, and have more resources to invest in hiring and employee development. Yet, CEOs of larger organizations are trailing their peers overall.

Large companies do face predictable execution challenges that certainly explain Line-of-Sight survey data: the sense of a shared vision is harder to establish than in smaller structures still led by the founder, for example; larger companies may not be as agile as their smaller peers, with execution lagging behind strategic changes; and communication is inherently easier and faster at smaller scales to keep the organization focused on priorities.

“Small is beautiful” appears to be true when it comes to strategy execution, and CEOs of small and mid-size companies rate their execution performance significantly higher than their peers at the helm of larger organizations. This is a reminder for leaders growing their organizations beyond the 500-employee mark: execution does not just follow the strategy – it really is the hard part, and it requires a thoughtful, deliberate practice to optimize all its components.

Upcoming blogs will discuss additional insights and practical recommendations from leaders, based on the execution assessments of more than 100 CEOs.

How well is your business executing? To find out, please reach out to us and we will initiate an assessment of your execution capabilities. Learn more here: Line-of-Site

Share: