Advantages and Disadvantages of Scale

Challenges to Legacy Scale

• Scale of Distribution. With direct-to-consumer marketing enabled by the internet and platforms like Shopify, widespread retail distribution is no longer as effective an advantage. Clearly distribution matters, but there are ways to route around the big stores by going direct and creating demand that forces buyers to stock your product.
• Scale of Communication. New media behaviors by people, particularly search and social, are leading to communication channels where spending power is no longer a competitive edge as it was in television or print, where marketers cornered key inventory at advantageous prices. Platforms like Facebook enable millions of small businesses with personalization and targeting capabilities to discover customers and to be discovered. As content supported by advertising declines to less than a third from nearly two thirds (hello Netflix, HBO Max, Amazon Prime), scale of spending while still being important is losing its potency.
• Scale of Manufacturing. The "everything as a service" platforms from Amazon Web Services to Foxconn allow smaller companies to gain the edges of scaled manufacturing, distribution and technology without any of the legacy disadvantages of size.
• Scale of People. From IBM to GE to Unilever to Walmart there are hundreds of thousands of employees, and therefore the ability to recruit and grow a range of talent and offer career advancement. Scale of people continues to be important to execute complex and large tasks, but there are also new ways to re-aggregate talent. And a generation of talent wants to work in smaller and more entrepreneurial environments. In the post-COVID world as we move to unbundled workplaces there will be far more ways to build teams both globally and in real time than ever before.

Legacy scale still matters in most industries, and is critical in quite a few like semi-conductors. In fabricating advanced chips, a new fabrication plant can cost over 4 billion dollars, and there is no way around scale. Today TSMC (Taiwan Semiconductor Manufacturing Company) dominates due to its scale.

However, while we can never underestimate legacy scale, there are new forms of scale that every smart company recognizes and is expanding into.

The Rise of New Scale

While there is a diminishment of legacyscale, there is also a rise of new types of scale that are becoming increasingly important.

• Scale of Data. Increasingly, companies are realizing that collecting, refining and leveraging data is what is driving the modern fast-growing and highly valued companies from Amazon to Google to Uber. Data enables a new form of scale which is that of mass personalization.
• Scale of Networks. On the internet network effects play a dominant role in creating winners. Dominant platforms such as Facebook, Netflix and Tencent (WeChat) enjoy flywheel effects of more users attracting more users and therefore marketers and businesses.
• Scale of Influence. Today individuals have tens of millions of Instagram followers or leverage Twitter to reach hundreds of millions of people with single posts and tweets. If you look at scaled entities on social media, they are individuals. People are seen as authentic and certain folks like Elon Musk can move markets.
• Scale of Talent and Ideas. One of the lessons of history is that every advance in technology places a premium on superior talent. Technology is a lever, and when married with great talent a company can enjoy major scale effects.

A vivid example of how the new scale works is Kylie Cosmetics. Kylie cosmetics was launched by Kylie Jenner to sell lipstick. In less than two years Kylie Cosmetics sold 900 million dollars of product making the 21-year-old the fastest billionaire ever. Kylie Cosmetics had less than 50 full-time employees. It outsourced manufacturing to Seed Beauty, a contract manufacturer, and all e-commerce and fulfillment to Shopify. The single media channel besides PR that Kylie Cosmetics used was Kylie Jenner's Instagram account with 120 million-plus followers. (That's more than the ratings of the top 10 prime time television shows combined.)

This era of New Scale began to emerge in 2007 when the smart phone and social networks came to be. With mobile search, Facebook, Instagram, Twitter, You Tube, Shopify, Amazon Web Services and lots more, the ground was laid for the massive disruption of business in marketing today, which has further expanded via enabling technologies from Square to Stripe to Paypal to Etsy among many others.

If we look at how Dollar Shave Club and others took on Gillette, it was through a combination of YouTube advertising, contract manufacturing, direct-to-consumer selling and leveraging word of mouth on social media. Procter and Gamble's second-to-none expertise in brand building, distribution at Walmart and spending scale on television did not stop double-digit share declines when new approaches and mindsets were needed. P&G soon built and learned these skills, but it did result in an $8 billion write down for the Gillette acquisition.

The scale that many of today's successful marketers enjoyed were the old scale, which are not only diminishing but are seen as disadvantaged because not only are they not agile due to size but less authentic as a zone of control world is being replaced by a zone of influence world, and less customized as they struggle to use modern data, communication and manufacturing techniques.

So now they are aggressively buying the new companies as much for their expertise and talent as for the revenue and brands they have spawned. Coty spent over a billion dollars for half of Kylie cosmetics. Now, new and legacy scale merge.

But many companies that enjoy legacy scale and now incorporate data and network scale sometimes forget one other scalable element: talent and the influence and ideas talent begets.

Scaling Yourself

You are talent.

We are all gig workers, with some of us having longer and better paid gigs as the workplace becomes unbundled, companies work to manage variable cost (labor), half-lives of skills shorten, and measurement increasingly becomes real time.

To thrive you need to play the scale game.

Here are some suggestions on how to scale your talent:

a) Plan your career over a long-time scale (most college graduates will work for fifty years, until they are 70) and therefore work to remain relevant and reputable in the long run. (If you are 50, you have 20 years of work ahead of you and three to four significant shifts in the workspace, so stop thinking "I will be retired soon and not have to deal with this new nonsense.")

b) Scale up your skill set by setting aside time to learn, investing in education and raising your hand to new opportunities and assignments. Change sucks but irrelevance is even worse.

c) Scale your reputation recognizing that truth will out, and so do the right thing -- be generous, do not take short cuts and only burn bridges that allow poisonous snakes to cross. Today you can only use PR and game-playing to polish a rotten apple for a year or two before the rotten core thrusts through for all to see!

d)Scale through other people by helping, teaching and encouraging people. Nothing is as scalable as a unified team or people that believe in an idea. People are networks as much as any technology-based network. And when people you work with or you have helped grow, you scale in ways you yourself would never have scaled alone.

In the end scale happens when you think beyond yourself, beyond your existing mindset and beyond the boundaries of your category!

Photo at top courtesy of Rishad Tobaccowala.

Click the social buttons to share this story with colleagues and friends.
The opinions expressed here are the author's views and do not necessarily represent the views of MediaVillage.com/MyersBizNet.