In Many Industries, Economies of Size Is Shifting to Economies of Numbers
06 Nov, 2012
For decades, “bigger is better” has been the conventional path to efficiency in industries ranging from transportation to power generation. New research from the Columbia University’s Business School shows a radical shift from building big to building small—a change that has profound implications for both established and emerging industries.
Many industry sectors are nearing or have reached a tipping point in which efficiency of unit size is being replaced by efficiency of numbers, the study’s authors say. Rather than relying on custom-built, large-scale units of production — e.g. massive thermal power plants — industries can benefit from a shift to small, modular, mass-produced units that can be deployed in a single location or distributed across many locations — e.g. photovoltaic (PV) panels mounted on utility poles.
This alternative approach to infrastructure design offers new possibilities for reducing costs and improving service, the researchers found. The authors identify three driving forces underlying this shift. The first deals with new computing and other technologies making high degrees of automation possible at a low cost. Secondly, the mass production of small, standardized units can achieve capital cost savings comparable or greater than those reached through large unit scale. The third driver has to do with small-unit scale technology and the fact that it provides significant flexibility.
For complete details on this research, conducted by Garrett van Ryzin, the Paul M. Montrone Professor of Private Enterprise at Columbia Business School, and others, visit: http://www.gsb.columbia.edu.