Scale effect and long-term planning
The more mass production is, the lower the unit cost of such products is, therefore a small firm is always less viable than a large one. Pay attention, who constantly needs help: small or big business? But why is this happening? It turns out that there is a scale effect. It is because of him that in the long run it is much more profitable to manufacture products at a large enterprise, i.e. when the production is consolidated, the unit cost of the product decreases. Therefore, it is very important to take this moment into account in strategic planning at the enterprise.
The effect of scale: the experience of various organizations
Successful development of an organization, whether it be a school or a private company, is difficult to imagine without preliminary planning and periodic revision of the strategy. If the school has 2,000 students, and not 500, then the program in it will most likely be much more effective, because more items will be introduced and new equipment will be purchased.But will it be easy to manage, and will not the effect of scale lead to the fact that children will be left to themselves? Similarly with telephone companies. Often, it is the regional telephone companies that provide the best communication, because they are “closer to their consumers” and can react in time to the slightest changes in market conditions. There is a so-called "norm of control". That is why there is antitrust law.
Analysis of the long-term strategic goals of the company
Planning for future scope begins with an assessment of the current state. After that, we need to find out whether there will be a positive or negative scale-out effect. If, after doubling the factors used, the output has more than doubled, then such an expansion of activity can be considered justified. For example, large-scale assembly of machines on the conveyor allows you to deepen the specialization, to purchase more powerful equipment and ultimately to get more net profit. In such industries, it is really better for a large firm to work, so it is imperative that it be closely monitored by the state in matters of setting prices for products.
Constant and negative economies of scale
But it happens that the doubling of production factors leads to a similar increase in output. In this case, there is no difference in whether one large factory will be built or two. For example, travel agencies often have the same cost per customer, regardless of their number. If we have used twice as many production factors, and the output has less than doubled, then the consolidation can generally be called inappropriate. This means that this area is associated with problems in coordinating tasks and non-observance of the norm of controllability. In this case, it is better to open several small firms that can be effectively managed.