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It was much easier to benefit from economies of scale in the past than it is the fast-changing digital world that we live in now. It looks cheaper to mass-produce in one country, but often only in a spreadsheet. In reality, that is not working anymore.
And why is that you ask?
There are several reasons why it doesn’t work:
- Companies operate with the waterfall way. They spend a lot of time collecting the needs and plans for each country before starting the implementation. But due to the fast pace of change today, those needs & plans keep changing. And so the execution keeps being postponed or what headquarters deliver can be outdated.
- The cost of alignment is bigger than the cost reduction. Time and money is lost in countless meetings to align the needs.
In the past, being big was an advantage in terms of costs. But today, smaller and agile companies are at a better place to succeed because of the accelerated speed of change. But also because, the access to new technologies is so much easier.
When you are large organization, try to segment your organization into small independent units and to reduce as much interdependencies as possible. This will often mean moving away from a functional organizational structure and embracing cross-functional teams.
So should you completely stop trying to go for economies of scale?
No, you can still choose that strategy in these cases:
- If the technology you want to use is not available (yet).
- If the benefits from the economy of scale are bigger than the actual costs of alignment.
Do not try to build big corporations anymore to avoid diseconomies of scale. But if you have a big company, build mini corporations within it!
You cannot miss this exciting episode. Here’s the preview of what awaits you:
- [3:00] Why mass production for several countries in one country does not work.
- [6:44] The benefits of technology and its power to make things easier through automation.
- [11:56] The benefits of small organizations as compared to larger ones when it comes to benefiting from economies of scale.
