[Management Column Vol. 44] There is no "appropriate size" for a company.

basic information

Please use this as hints for management decisions, such as building a management foundation, improving management qualities, cash flow management, bank relations, business succession, and restructuring after the appointment of the second or third generation. Also, feel free to contact us with any questions or inquiries when putting this into practice.

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Applications/Examples of results

Pursuing the appropriate size is necessary because continuing business as usual poses the risk that fixed costs will eventually pressure profits. If sales and gross profit remain constant, an increase in fixed cost burden will squeeze profits. Therefore, the aim is to shift towards an appropriate size to reduce fixed costs. When the environment changes, fixed costs also fluctuate, and the appropriate size changes as well. The food supermarkets mentioned in an article have all moved towards smaller store formats compared to before. This is a natural step from the perspective of reducing fixed costs. In the case of food supermarkets, they can engage in a scrap-and-build approach, allowing them to downsize stores while still expanding the overall scale of the business through new openings. For food supermarkets, a store is merely one unit of business. Even if they pursue the appropriate size for a business unit, it does not necessarily lead to the appropriate size for the company as a whole. While the concept of appropriate size for a business unit exists, there is no concept of appropriate size for the company itself. The idea that "growing too large leads to failure" arises from neglecting the existence of business units that exceed the appropriate fixed cost size. Next time, I will discuss "the subdivision of management units to focus solely on profitability."