Balancing the Scale

Scale improves productivity but also increases bureaucracy

Scale can help a company to produce more output at lower average costs.

However, production at scale also leads to unhelpful bureaucracy. As production rises, more employees are needed and executives implement more rules to keep things under control. Increasing production tends to lead to higher cash flows, and managers who were previously focused on production, innovation and bottom line results start to shift their focus towards turf battles and extreme careerism.

If this reminds you of a certain tech company (Microsoft) then you would be right. Ballmer announced this month plans to restructure the company with the aim of overcoming its slow moving and bureaucratic culture.