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Everybody wants economies of scale. They signal you’ve achieved a sufficient size so you can do things, deliver benefits, reach markets – all sorts of good things – with a disproportional level of operational and financial efficiency smaller competitors can’t match. That’s what economies of scale are all about. That’s why they’re really great.

But economies of scale can also be really detrimental and lead to bad strategy when your strategic view is flipped around. They become problematic when you start thinking about how they allow small cost reductions to be multiplied into large absolute cost savings.

When you start your analysis this way, you wind up with:

  • Orange juice which shaves several ounces off of how big a half gallon is.
  • Quick service restaurants which stop providing napkins in to-go orders.
  • A hotel with only 1 wastebasket in a very large room.

All these changes seem subtle. But they’re really annoying when you run out of orange juice, don’t have a napkin to wipe your hands, or spend 5 minutes trying to find where to throw something away.

In all those cases, scale-oriented savings make brands seem really cheap . . . and not cheap in a good way.

Coupling economies of scale with a “They’ll Never Notice” attitude leads to bad strategy.

Why?

Because when your grocery store turns out half its lights, you notice. – Mike Brown

The Brainzooming Group helps make smart organizations more successful by rapidly expanding their strategic options and creating innovative plans they can efficiently implement. Email us at brainzooming@gmail.com or call us at 816-509-5320 to see how we can help you devise a successful innovation strategy for your organization.

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Mike Brown

Founder of The Brainzooming Group, and an expert on strategy, creativity, and innovation. Mike is a frequent speaker on innovation, strategic thinking, and social media.

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2 Responses to “Bad Strategy and Economies of Scale”

  1. Oh my gosh Mike, don’t get me started! How many times do you think the average person complained about, say for instance gas prices in the past twelve months? Compare that to the number of times the same person complained about the ounce reduction in their favorite brand of potato chips or coffee or peanut butter or the number of yards of sealing tape that come on a roll that use to contain 60 yards and now contain 40? Manufacturers are still complying with weights and measurement standards as required by law, but are subtly changing packaging so consumers who don’t read labels keep on buying their product because they are “holding back price increases” or also subtly raising prices and changing ounces per package.  Big Oil Companies are not the only big bad wolves.

    • Anonymous says:

      You’re right Cheri, it’s a big move to do this. To the extent we eat less because portion sizes are smaller, that may be a good thing. But it’s obviously a very subtle way to deliver less value to a consumer without making it apparent.