Economies of Scope: A set of newly available strategic tools

In The Pan-Industrial Revolution, Richard D’Aveni acknowledges that every business leader is familiar with the term economies of scale but few fully appreciate the potential impact of economies of scope that are quite different. He observes:

“They arise when a company is capable of producing a wide range of products and product categories, thereby serving a broad array of markets, spanning customer types and geographies. This kind of broad-scope business model can produce enormous cost savings.

“When you can market, sell, and distribute a huge portfolio of goods while operating as a single business platform, the ratio of your overhead expenses to overall revenues becomes much smaller, greatly enhancing your profitability.

“When you can also manufacture a wide array of goods by processing a relatively simple array of raw materials in a single factory equipped with a few highly versatile machines, additional cost savings materialize, driving profits higher still.”

3D printing and other Additive Manufacturing (AM) technologies and tools enable companies to vastly expand their scope of operations without suffering any of the disadvantages such breadth formerly entailed. The single factory is by no means obsolete. It is best viewed as a versatile production center that can accommodate a much wider variety of  assignments. The AM process supports operational growth and diversification for a fraction of what traditional manufacturing would cost. Something to think about….

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Richard D’Aveni is one of the pre-eminent strategists of his generation. Best known for his work on hypercompetition, D’Aveni is Professor of Strategic Management at the Tuck School of Business at Dartmouth College, a winner of the prestigious A. T. Kearney Award for his research, and a consultant to organizations and individuals worldwide. He holds a PhD from Columbia University, and his undergraduate degree from Cornell University, as well as being a CPA and an attorney.

The Pan-Industrial Revolution: How New Manufacturing Titans Will Transform the World was published by Houghton Mifflin Harcourt (October 2018).

 

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