I'm going to disagree with the author of the article here a little. He describes "office politics" as a the subversion of organizational priorities in favor of those belonging to other constituencies. In my experience, office politics is all about the struggle for favor among individual employees.
With that perspective in mind, I believe office politics is far down the list of corporate diseases -- nowhere close to as damaging as Institutional Capture, for instance. The reason for this is most political action falls along the lines of one employee attempting to outdo another along some dimension the company actually values. Yes it can involve dirty and destructive tricks that ultimately hurt the company, but those are an exception rather than the rule.
The most desctructive element of office politics, in my opinion, is that good employees end up tossed out of the organization (mostly voluntarily, but involutarily as well). Yes, there are droves of back-ups out there looking for a job, but I'm sure in many cases, the victims of political maneuvering are not traded up on in their replacements. And turnover costs -- time and efficiency/effectiveness both.
And small companies aren't free from the foibles of office politics either -- although the situation is not as pervasive because the small company leader often knows the facts (or most of them) rather than relying on the assessments and comments of others. The small company is, however, subject to something larger corporations mosly escape -- the personal prejudices and opinions of their supreme leaders. Those opinions about how to run the business MIGHT be related to their success, but the MIGHT NOT be also. For example, if the boss at a small company thinks being unerringly polite in all business dealings (and consequently firing those who aren't polite) is a requirement for success -- which it is not -- then there will be unnecessary turnover and expense at the small company as well.
So, are office politics a major contributor to the anergies of large organizations? Yes, and it's main aspect of damage is the loss of good employees. But it is down the list a ways in terms of severity.
