Glenn Reynolds explains the nature of the firm in How Big Can Small Get?:
One of the things we teach law students is that a corporation isn’t really a thing, but a web of contracts. A big corporation is a bigger web of contracts than a small one, but lots of times the differences aren’t as significant as they might seem. A small corporation that contracts out its design work to another company, its manufacturing to various others, and relies on other corporations to do the actual retail selling is doing pretty much the same things as a big corporation that keeps all those activities under one roof. The shape is different, but the web of contracts is just as big either way.That doesn’t mean that there’s no difference at all. In fact, for a variety of technological and sociological reasons, the different configurations might behave pretty differently. But it’s not really because of size, but because of the way the different components interact.
In the really old days, prior to the industrial revolution, there were no real advantages to hugeness. 1,000 blacksmiths pounding on anvils weren’t any more efficient per capita than a single blacksmith working alone. In fact, with the overhead for management, they were probably less so. Powered equipment and division of labor changed things, though, as we learned ways to make 1,000 people working together far more than 1,000 times as productive as a single individual, even allowing for the inevitable management overhead and idiocies.
Now things have changed again. In many fields, the individuals may actually be more productive on their own than they would be as part of big organizations, where time that could be spent on productive matters is instead spent in endless meetings, at diversity-training retreats, and the like. And easy communications and coordination, thanks to computers and other modern technology allow those individuals to be coordinated without nearly as much overhead.
This is where one difference between big and small organizations presents itself. In a small organization, people deal mostly with customers and suppliers. They get ahead mostly by making both (but especially the customers) happy. In big organizations, people mostly deal with other people within the organization, and they get ahead mostly by making those people happy. Pleasing customers is a way to get ahead only to the extent that it also pleases the bosses, and if you have to choose whom to please, you’re better off pleasing your boss than your customer.