Wednesday, November 29, 2006
Help - How Does Scale Work?
To the reader who keeps searching for the relationship between scale economies and returns to scale:
Managerial diseconomies are one of numerous sources of diminishing returns to scale. A factory can operate at 100% capacity utilization, yielding economies of scale, for example, but only if it's managers don't suck (it's lines don't break down, etc...).
When managers start to suck (think Microsoft and buggy, crappy, bloated, awful, cheesy, intrusive software), returns don't scale anymore (ie, the positively sloped section of the U shaped graph).
And the same is true of markets, networks, and communities...but more on that later.