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Why Scale is Losing Importance

By   /  September 12, 2013  /  No Comments

Greg Satell of Forbes recently wrote, “Digital technology has markedly evened out the playing field.”

Greg Satell of Forbes recently wrote, “Digital technology has markedly evened out the playing field. Startups become billion dollar companies overnight while venerable brands like Kodak and Blockbuster hit the skids. This turn of events presents considerable challenges for managers.  While there are still some advantages to scale, the disadvantages often outweigh them.  You have lots of customers, a large workforce and stodgy institutional investors to keep happy, all of which contribute to strategic rigidity.  To compete in the new economy, we need a new playbook.”

He continued, “Heads turned when Jeff Bezos bought The Washington Post for $250 million.  WaPo is, after all, a historic institution, founded in 1877 and famous for breaking stories like the Watergate scandal.  With 640 journalists and the clout that comes with a storied heritage, the paper exemplifies just the kind of scale advantages that Coase and Porter touted. Yet in 2011, the 6 year-old Huffington Post, with just a handful of journalists, sold for $315 million.  By any conventional measure, HuffPo is no match for WaPo in size or stature, but yet it is worth more. How could that be?”

Satell added, “I think a big part of the answer lies in something James Manyika, a Director of the McKinsey Global Institute, told me about data analytics.  He said that even firms of the same size, in the same industry with the same IT budget and competing for the same customers, vary markedly in their ability to use technology. Clearly, digital technology has enabled a new semantic economy where access and scale have been decoupled.  When access is universal, or nearly so, size doesn’t really matter.”

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Image: Courtesy Flickr/ epSos.de

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