In the industrial era, scale was important, allowing companies to reduce the cost of co-ordinating work. But on Harvard Business Review blogs, consultant Nilofer Merchant says that only led organizations to grow larger and larger until they were too big to fail, a dangerous situation as we learned in the financial crisis.
Moreover, she argues that in today’s “social era,” with modern communication technology, information efficiency comes more naturally and people can easily self-organize without having to be herded into a large organization, making the previous advantages of large organizations more widely available to all.
That’s helpful, because she points out that giant companies often rule out too many opportunities as too small to pursue. “It is this … mindset that is the central reason so many industries (automotive, financial, health care, and even education) and their companies are failing all around us today. It’s not that our economy is stalled, but that our thinking has stalled. It means that industries are stagnating because nothing new ever shows up as a $1-billion market right away – market opportunities show up first as the $50-million or $100-million opportunities,” she writes.
Bryant University Professor Michael Roberto, on his blog, adds that executives often mistakenly believe that economies of scale exist in every industry; that further economies of scale can be exploited; and that dis-economies of scale do not exist. “These three beliefs are often proven incorrect,” he notes, “yet companies and their leaders continue to adhere to these notions.”