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Scale No Longer a Competitive Advantage for the Enterprise

Since 1776, when Adam Smith published The Wealth of Nations, economists have been espousing the competitive advantages of “scale”, referencing to the almost guaranteed generation of revenue that enterprises enjoy when their sheer size provides a figurative barrier to a competitor’s innovation and price competitiveness.

A business’ size has become a predictor of their scale advantage, especially organizations such as utilities who can manage near-monopolies based on ownership of their established grids connecting homes and businesses. The perception of transition difficulty, stability and service issues requires competitors to work twice as hard to get into the game, let alone win. More recently, mobile phone companies have enjoyed this advantage.

Retailers such as a Walmart, Sam’s Club and Costco enjoy another variation of scale: their enormous buying power that allows them to decrease purchasing costs and thus retail prices.

These larger businesses also have the advantage of being able to attract top talent, offer 24-hour customer service infrastructures and product/service guarantees that smaller or newer competitors simply cannot afford.

Controlling Information: The Porter Model

In his article The Commoditization of Scale, blogger Maxell Wessel suggests that the scale advantage is created by the ability of these firms to control information. “It is no small task for a corporation to get information from the point of sale to internal procurement teams to a diverse manufacturing network. The corporations with the resources to coordinate these efforts enjoyed the benefits.” He suggests that it was the expense and complexity of information systems that preserved the profitability of scale.

Over the past three decades managers have been embracing Porter’s Value Chain that illustrated how the information and technology revolution created competitive advantages yet Mr. Wessle now asserts that such advantages are not sustainable.

The argument is that the same technology that created the costly, yet insurmountable information-automation advantage for the enterprise has now enabled cloud-based outsourced collectives that have equalized the playing field for all businesses entering the market.

Adding fuel to the debate, blogger Nilofer Merchant argues that in our social era, Porter’s Model is no longer an advantage. She argues that where we were once forced to spend hours in a BestBuy configuring a home theater system, today you can check into Pinterest and pin “the elements you liked, including information about your space or noise limitations (EG. One-bedroom apartment on busy street in New York), and then have a retailer give you a personalized, optimal configuration.”
The highly customized products once accessible to the wealthiest one percent of the population are now accessible – due to technology and social communication infrastructures – by the masses.

Is “scale” a dying competitive advantage?

Will “scale” remain a continuing business advantage where the barrier of entry is blocked by big business’ established and costly IT infrastructure and market reach? Where your competitors need huge cash reserves and many years to reverse engineer your success?

Or do you believe the social era’s new dynamics of fast, fluid and flexible will offset the prowess of scale?

  • Has the social era’s fast, fluid, and flexible paradigm eliminated the advantage of scale?
  • What’s the impact of cloud computing on the advantage of scale, if any?
  • Is there such a thing as a competitive advantage at all today?
  • Will sales strategies require a remodeling as a result?
  • Can any one strategy provide any form of competitive advantage as it did it the past?
  • Is the “customer experience” a common denominator in any stated advantage?

Join us Wed night at 8PM Eastern for our weekly #bizforum debate on Twitter when we’ll debate what enterprise executives must do to maintain their advantages. Help us frame the debate by posting your thoughts below.
Sam Fiorella – Sensei
Feed Your Community, Not Your Ego


Join the Conversation

BlueBirdBC 5pts

The picture you used reminded me of my time in Supply Chain Management in the beverage industry. Manufacturers realized a while ago that LEAN production strategies can make them more flexible and competitive over production lines that still count on long production runs and building huge inventories.

Using the flexibility of the smaller player, these manufacturers can match the price and service-level wars that customers like Walmart and Costco stage.

samfiorella moderator 5pts

 @Tweet4OK great insights - thanks for becoming part of the conversation.


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