BASIC STRATEGY GUIDE: STEP 28
Measure the Economies of Scale (i.e., Productivity, Inputs/Outputs, over time) the Company is creating with its employees (Inputs). The Company tracks the Economies of Scale, measured by numbers of employees per unit of Output, in each organizational unit of the Company over a period of years. The Company may expand this analysis to do similar Economies of Scale estimates for the other two Input Building Block costs, Purchases, and Capital.
In the majority of industries, People are the most important of the Company's Building Block costs in the measurement of Economies of Scale. The Company would be more likely to achieve its optimal Economies of Scale by having the capability and will to measure the Productivity of its functional cost departments regularly.
What to Watch For:
In most cases, a period of three years is sufficient to measure the development of Economies of Scale.
Neither Super-economies nor Diseconomies of Scale are sustainable over the long term. Super-economies are usually short term phenomena brought about by new technology. Diseconomies are more common and can be longer lasting, if not addressed.
In most industries, the industry market share leader does not lead the industry in Returns on Investment. In order to create effective Economies of Scale, a company must set aggressive targets for increases in Productivity.
For helpful context on this step:
Symptoms and Implications:
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