The three elements of design
ascetics
function
cost of creating the product
technical economies of scale
the larger the business, the more it can afford to invest
specialisation economies of scale
the larger the workforce the more production can be split into different activities
purchasing economies of scale
the larger the business the more it can bulk order materials at a discount.
managerial economies of scale
specialists are employed by large manufacturers to supervise production
external economies of scale
whole industry grows in size so they can reduces unit costs over more products sold.
examples:
- research and development
- relocation of suppliers of parts
- investment in industry
Diseconomies of scale
A business grows so large that the costs per unit increase which occurs with
- poor internal communication
- poor employee motivation
- overtrading
benefits of staying small
+ product differentiation and a USP
+ flexibility in responding to customer’s needs
+ excellent customer service
benefits of economies of scale
- greater competitiveness leads to larger market share
- lower unit costs leads to higher profit margin
- shareholders receive larger dividends
problems of large market share
- higher risk of diseconomies of scale cannot react to change in markets
- adopt monopolistic tendencies and get fined by competition authorities
- lose sight of the customer, dissatisfaction, loss of sales and lower profits
