The Economies of Scale
Historically, organizations sought competitive advantage through business models that exploited the Economics of Scale. Economies of Scale manifest themselves in cost advantages that enterprises can enjoy due to their scale of operation (typically driven by the volume of output), with cost per unit of output decreasing with increasing production. Organizations leveraged the world of "mass"—mass procurement, mass production, mass distribution, mass marketing, mass media—to erect insurmountable barriers of entry to competitors (see Figure 7.1):
Figure 7.1: Economies of Scale
Volume affords an enormous competitive advantage. As the Quantity (Q) or volume of items manufactured increases from Q1 to Q2, the Cost ($) of the item decreases from C1 to C2.
Over the long run, the Long Run Average Cost (LRAC) continues to decrease, though LRAC can creep back up due to inefficient overuse of resources (like overtime). Economies of...
