Size Determines Structure
Why are human organizations of different sizes structurally different? Why does a small organization become unstable as it grows? Why is the triggering size the same in different cultures?
It appears that six or seven is the largest number of relationships that one person can deal with continuously. We need the hierarchy, with its well-defined roles and patterns of behavior, to allow large numbers of people to work together without overload.
An important study(5) has shown that decision-making performance in egalitarian groups falls off rapidly as the group size grows beyond six. This is a result of a well-studied limitation of the human brain, which cannot simultaneously retain and process more than about seven "information chunks" at once. (One such study by the Bell System set the size of local telephone numbers at seven digits.)
To make larger groups work while still retaining their egalitarian nature, six or seven groups form a "sequential hierarchy." In this structure, consensus is achieved first within small units -- for example, nuclear families -- and then is attempted among the formative groups themselves, with full consensus finally reached after a lengthy process of referring the issue back and forth from the smaller to the larger entities. The largest stable group in which this process has been observed contains about 100 people, and involves three levels of consensus; the usual maximum is about 50 people (7 times 7), and uses two levels of consensus.(6)
Two points to hold in mind are: 1) As group size changes, so must its organizational structure. This is as true for the long-term evolution of human society as it is for the short-term evolution of a company; 2) Within a single social system, groups of different scale exist and require different organizational structures. A major dysfunction occurs when an organizational structure appropriate for one scale is used for groups of other sizes.
The Camp in the Hierarchy
At the top of every stable hierarchy there is a camp-like consensual group. Even in outright dictatorships there must be an egalitarian council, as Machiavelli advised 500 years ago:
"A prudent prince must ... [choose] for his council wise men ... he must ask them about everything and hear their opinion, and afterwards deliberate by himself and in his own way, and in these councils and with each of these men comport himself so that every one may see that the more freely he speaks, the more he will be acceptable."(7)
The Modern Organization
Thus, four types of organization have arisen when people live together and try to do something in common: the working group, the camp, the general hierarchy and the state bureaucracy.
The most primitive of these is the working group, up to six people. It is also the one that elicits the most profound emotional response. The camp, up to 30 to 50 people, is the next most primitive, and is a very old structure. Camp-like groups are found among non-human primates, and in all human societies.
The most modern organizations, and therefore the ones for which we are by nature least adapted, are the hierarchy and the bureaucracy. Behavior in a tribe, a company or a nation is not innate: it is learned, in contrast to behavior in camps and working groups, much of which is innate. An individual's success in a hierarchy depends on how well he or she has learned its rules, and to what extent his or her innate behavior allows that person to conform to those rules.
The Modern Corporation
A modern corporation employing more than 100 people is a hierarchy; a company of more than 1,000 is a bureaucracy. A camp-like board of directors is at the top, to offer guidance by diverse experience and to provide intercorporate information. The corporation's best work is done by working groups.