My theory of “why large organizations are so susceptible to getting out of touch with reality?” First, a little math background:
- The volume of a sphere scales like it’s Radius cubed
think of the number of internal parts of the organization, the number of people ‘inside’, the number of offices, departments, and so on
- The surface area of a sphere scales like the Radius squared
think of the number of people in regular contact with the outside world, the external neighborhood, the current and potential customers, suppliers, regulators, and all of the external environment of the organization
- The fraction of the organizations people, time, and opportunities to be “in touch with reality” (as opposed to being involved with the artificial environment internal to the organization) is then the ratio of “Area” divided by “Volume”. This is then ~ R-square/R-cubed, i.e. 1/R.
Hence, the members of an organization that’s twice as large* as another will have only 1/2 the rate of contact with the external reality.
- What this means is fewer people involved with a sense of urgency for survival and growth of the organization, and relatively more motivation to “climb the corporate ladders”, and compete in a “zero-sum game” with other members of the organization.
Later, we’ll discuss the relation of this topic, with that of the “Network Effect” aka Metcalfe’s Theorem.
* 1/R if ‘size’ is based on a linear dimension. If ‘size’ is based on Volume, V then 
