as most of my (former ;-) design management students know I love to discuss the topic of “disruptive technologies”. disruptive technologies often occur when, in many cases, big, established companies get lost in anticipating market needs by “overshooting” customer expectations in terms of providing more features/benefits than actually necessary.
while discussing these phenomena, terms like “economies of scale”, “economies of scope” or “network effects” come to the agenda. while most designers won’t be confronted directly with these economic models it is still useful to understand the main ideas of these concepts. for example the idea of using modularity in car manufacturing as VW is practising it with the Audi A3, the Audi TT, the Golf, the New Beatle and the Skoda Octavia is a good example (PDF; 65 Kb) of integrating “economies of scale and scope” to design principles.
in their article: “The Big, the Bad, and the Beautiful” Tim Laseter, Martha Turner, and Ron Wilcox give a comprehensive and quick overview about these principles. here is a quote of their article which appeared in the winter 2003 issue of strategy + business. >>>:
“Wal-Mart Stores Inc. dominates the retail industry. The Microsoft Corporation controls the market for PC software. General Electric Company has generated superior returns for decades. Each one ranks, on the basis of annual revenues, as the largest company of its type. Are they succeeding because they are large, or are they large because they are succeeding?
Consider three New Economy survivors: Amazon.com Inc., eBay Inc., and Cisco Systems Inc. During the Internet boom, companies pursued growth and size as key elements of their business strategy. Most failed in that pursuit. Were the few that succeeded simply lucky, or did they understand something that their competitors did not?
Size does matter, but only if you understand why and use that knowledge to create a competitive advantage. Three theories support the bigger-is-better argument: scale economies, network effects, and economies of scope. Each theory derives its logic from a different source and applies only in certain circumstances. Pursuit of size without a clear understanding of these concepts can lead to oblivion rather than dominance.”
