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Economy of scale for technology companies

Economy of scale for technology companies

Whether it’s a product or service technology company both have the strategy about how to achieve the economies of scale for their respective offerings. Product companies, evaluate on the basis of operational efficiency, market need, logistic costs, shelf life etc. However, evaluation criteria vary drastically for service-based revenue models.

The introduction of wide-bodied jets by the airlines enabled them to fly twice as many passengers with the same number of high-salaried pilots and flight engineers. Although not on the same scale, other reductions in maintenance and ground handling personnel were possible.

Relevance of EOS:

This is an important criterion to decide which approach should be taken in order to achieve maximum productivity and value. Consider top technology companies Google, Facebook, and Amazon, who are majorly into services business and after scaling them successfully moved into the technology product segment such as Google Pixel phone,  Oculus Go VR Headset, and Amazon Echo speakers. The idea is their products should revolve around the services these companies offer to add value and network effect.

Why it is important:

It should be a calculated strategic approach to achieving economies of scale for product or services and one should answer these questions to execute it successfully:

  • What if I do this?
  • What if I don’t do this, but somebody else does?
  • What if I stay ideal and do nothing?
  • Is bigger really better?
  • Who are my targeted market segment and its need?
  • Does this product or service add value to customer’s life?
  • Do I sell it at a premium or sell at the lowest price?

Economy of scale for technology companies

Jon Westenberg suggested 3 ways to scale, which could be applied to achieve economies of scale for a technology service by turning products into services, automating them, and reducing recurring technical work. However, one important point to consider while creating an automated process is, people are humans not just numbers. People care about the small things. They care about being treated like a real person instead of just another number. They care about being treated as though they actually matter.

Last minute thoughts:

Economies of Scale is not just a theory or target to achieve for business monetization by improving the efficiency and reducing the overheads. It a combination of product and service offering these days, where you leverage the benefits of being present in the value chain. The strategy shouldn’t be moving around those internal factors, however, to look around and create a value where business profit is either to create more user to the services or create more buyers for a product while balancing the production cost with the customer perceived value.

 

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Categories: dStrategy

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