Are the economic concepts of scale and scope still relevant in 21st century economies? Provide scholarly evidence and practical examples to support your answer.
„Is the “new firm” small and flexible, engaged in a web of collaborations with other small enterprises, each specialized to perform at peak capacity? Or is it an ever expanding leviathan, bloated with acquisitions after a decade of unprecedented merger activity?‟
A quoted part of DiMaggio (2001, p.3) explains clearly the dilemma of the future firm of the twenty first century. He alleges that the only part where many scholars agree is that companies are interacting in a different way nowadays then what they used to. Daft (1993) expresses the need for new organizational forms, since they should co-evolve with the changing environment of organisations, as there has been a shift from industrial economy to knowledge economy (Carolla,2007). With unexplored new organisational forms, such as the prevalence of ‘digital ecosystem’, it is questionable if the same measurement methods can be used to estimate economies of scale and scope. Even, for example, in existing network industries, such as telecommunication industry, the model of measurement of scale and scope is questioned, because of the different structure of these networks (Liebenau, 2006). The main supportive arguments used below regard a decline in relevance of the concepts of scale and scope because of the change of organisational structure of firms. The prevalence of the economies of scale and scope is not questioned as the large-scale manufacturing companies involved in mass production and distribution will still exist. The concepts of theories of scope and scale have been analysed historically through altering models of main industries in centuries; prevailing more during formation of large-scale companies. Economies of scale occur when enlargement in size of a single operating unit, that produces or distributes a specific product, results in decrease of unit cost of that product (Chandler, 1990, p.17). Economies of joint production or economies of scope as Chandler (1990) denotes, occur when a single operating unit, or a process within it, is used to produce or distribute a variety of products. Therefore, scale is related to one type of product while scope concerns increase in diversity of the products. It is not the aim of this paper to consider new ways of measurement, or enter into cost assessing models developed by Hicks, Harrod or Solow.
With constant changes of the firms and their modes of existence, measurement models and methodologies of economies of scale and scope should be revisited. Why? DiMaggio (2003) mentions periodical titles to demonstrate the changes towards the ‘future firm’. He identifies changes such as: lower boundaries among companies, higher cooperation and more focus on the importance of creativity and knowledge in the future firm. .
The ‘old’ and the ‘new’ firm with economies of scale and scope
The main aim is to find out why economies of scale and scope were identifiable in the past centuries and why they might not be easily detectable or even suitable to use in the twenty first century. When the rationale behind the existence of concepts of scale and scope in the past is lucid, then a comparison with present usage of concepts of scale and scope will clarify their relevance. The Chandlerian case is discussed and analyzed as it gives a clear view of the industry historical evolution over time. Since it is just the beginning of the twenty-first century, one can only predict the ‘future firm’ and industry growth paths, by considering the historical evolution of firms. Chandler (1977; 1990) is used as a benchmark in visualizing the transformation of industries through centuries. During the transition from nineteenth to twentieth century as Chandler writes it in his Scale and Scope (1990, p.24): ‘The newly formed enterprises that...
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