The Rule of 150

Continuous improvement and innovation work best in small groups

Published: Wednesday, July 27, 2011 - 10:07

In a 2009 book review for Bukisa.com, a blogger named Khead quoted from Malcolm Gladwell’s book, The Tipping Point (Little, Brown and Co., 2000): “‘In order to create one contagious movement, you often have to create many small movements.’ This is one detail that explains his Rule of 150. The number 150 represents the maximum number of people that we are able to maintain a social relationship with… and that when a group, organization, or society begins to reach the number of 150, it is beneficial and necessary for a group to divide.”

Does this mean that, in the business world, in order to sustain a contagious movement (i.e., continuous improvement, innovation, stupendous customer service, and constant elimination of waste), an organization needs to subdivide itself every time it gets to about 150 employees, otherwise people won’t know of each other, or how they work or relate to each other? Yes, it does. Gladwell provides the example of a company that does exactly that. Gore Associates, a privately held, multimillion dollar, high-tech firm based in Delaware, divides itself every time employment reaches about 150 in any one facility. This is a number it stumbled upon, just as so many other organizations and societies have in the past, without Gladwell’s influence.

A recent client of mine employs about 700 people at its U.S. headquarters. It has an additional site in Europe that employs about 200 employees. After spending one week at the European site, I fully understood the working relationships of the vast majority of this organization. After spending a far greater amount of time at the headquarters in Illinois, I was still mostly confused about the organization’s makeup—who does what and who reports to whom. Many employees who have spent several years there have the same problems. They know only a small percentage of the entire employee base, and they work there every day.

So, I wonder, should my client subdivide, and if yes, how should it be done?

Here’s one way. Prior to my venturing into the consulting world, I worked for a company that divided itself into three focused factories. It worked brilliantly well. We were nimble in processing orders and solving problems. The three focused factories were still located in the same building; we were just organized differently. As a quality engineer, I primarily focused on our product line and less so on the quality engineering department, although that relationship was maintained for the purposes of standardization.

As another alternative, Gore Associates intentionally never builds a factory site greater than 50,000 square feet, which equates to holding about 150 employees. I’ve heard similar stories from other companies.

As a third alternative, organizations can be organized in terms of their value streams, a design that overlaps somewhat with the focused-factory model. And there are, of course, spin-offs.

However it is done, what is important is to maintain and support that small company feel. It is important for an organization to move quickly and be nimble in all processes and operations. To do this an organization must know who does what and who are the internal customers and suppliers. When employees don’t know each other and how they are supposed to interact, there will be waste. The waste will exist from both duplication of effort (often many times over) and from overlooking responsibilities and activities because employees, assuming that certain activities will be completed by others, don’t complete tasks.

A cumbersome company is like an over-documented quality management system. There’s a tremendous amount of redundancy, and the system itself becomes unusable because it’s not user-friendly.

Such a company also exemplifies the process waste of “excessive inventory.” Many people are aware of the seven (or eight) process wastes, one of which is inventory. Can a facility actually have an excess inventory of people? Yes, it can, and perhaps that excess inventory of people is any number above 150.

The client referred to above was also a client of mine 17 years ago, when it employed somewhere around 100 employees. The employees’ (including those in its European operations) confusion about the job responsibilities and organizational structure of the U.S. facility is perhaps the biggest difference between the company then and the company now. It is often unclear who does what, how the reporting relationships work, and who the internal customers and suppliers are. People just generally don’t know each other. They get a lot done through many hours of work, but perhaps, just perhaps, they have grown too big within one facility and are too big to work effectively together. As a result they have become a little bit slower in meeting all their customers’ needs.

Even though my client is tremendously successful and a market leader in the products it makes, it is now perhaps slower, less nimble, and more wasteful than before. Most companies find it difficult to grow up effectively, and extremely few manage that change successfully. As a company grows, it wants to centralize itself to maintain “control.” Decentralization, which should be the result of lean principles and any lean movement, is necessary. Centralization of a company can kill it.

Decentralization is best accomplished like an amoeba, through true organizational division, perhaps somewhere around 150 employees, without corporate control over all processes.

About The Author

Mike Micklewright

Mike Micklewright has been teaching and facilitating quality and lean principles worldwide for more than 25 years. He specializes in creating lean and continuous improvement cultures, and has implemented continuous improvement systems and facilitated kaizen/Six Sigma events in hundreds of organizations in the aerospace, automotive, entertainment, manufacturing, food, healthcare, and warehousing industries. Micklewright is the U.S. director and senior consultant for Kaizen Institute. He has an engineering degree from the University of Illinois, and he is ASQ-certified as a Six Sigma Black Belt, quality auditor, quality engineer, manager of quality/operational excellence, and supply chain analyst.

Micklewright hosts a video training series by Kaizen Institute on integrating lean and quality management systems in order to reduce waste.