How the Fourth Revolution Removes the Benefit of Industrial Scale Effect

This interesting paper in MITSloan review ‘The End of Scale‘ addresses the impact of the data revolution on the previous benefits of scale in industrial endeavors. “New technology-driven business models are undercutting the traditional advantages of economies of scale. But large companies still have strengths to exploit — if they move quickly“.

Industrial economy of scale

In the modern world a lot of services that were only available to large organisations are now available to all. Cloud-based applications are the latest, giving access for a modest fee to large technology platforms and services that previously could only be developed by large organisations for themselves. And scale becomes are drawback, as the organisation is much less flexible: “Business in the century ahead will be driven by economies of unscale, in which the traditional competitive advantages of size are turned on their head.”

Large organisations still have huge advantages, and in particular the financial resources that allow them to buy innovation and include them in their ecosystem. Some large organisations move fast to acquire lots of innovative small companies. However, whether their integration will be fruitful remains to be seen.

Anyway, the logic of scale has disappeared and small, innovative companies can make traditional models shake on their foundations.