When Size Might Not Matter
t’s a question asked of everyone who has ever started a business: can it scale? The optimal final shape of different businesses can vary, but every new business is consumed with growth. Two different pieces from the Harvard Business Review argue that the notion and advantages of scale economics is changing, and that we need to think about size in different ways.
Scale, argues Max Wessel, is becoming a commodity. The economic advantages of size continue, but the mechanics of creating scale have changed. Scale no longer belongs to a single entity; it is being broken apart and reformed. Initiatives such as off-shoring, crowdsourcing, and open source platforms have made it possible for smaller groups to come together and generate scale economies when required, and then slip into smaller and more flexible units when it is not.
Similarly, Nilofer Merchant examines the obsession many corporations have with scale, and how it fails them. She picks up where the earlier piece left off and stresses that social networks, tools, and processes provide the key to a different definition and the shifting advantages of size:
The new reality is this: The ability to scale is no longer a direct function of size. The Social Era – in which information efficiency is taken for granted, and people can easily self-organize without having to belong to a singular organization – dramatically decreases the cost of communication (e.g., finding people and collaborating with them), changing one of the fundamental reasons that centralized scale once created strength. The competitive advantages of scale have been commoditized.
Merchant argues that the profits that used to be associated with size — such as controlling the supply chain — will dissipate and be picked off by firms whose competitive advantages are different. Size still matters, but not in the way it once did.