Seth Godin wrote an interesting entry called ‘Economies of small’ a few days ago. I have a view on the challenge of how people reason about economies of scope against economies of scale. Below is a paraphrased excerpt from my upcoming book “Built to Thrive”:
Scale: Most innovation approaches focus on the concept of staging. More contemporary methods are generally socially oriented as explained in A more socially aware society. The principle is that many ideas are collected and through a staged and methodical process thinned out to the point where the only idea left is the one worth implementing. This might work in the product world, but in services companies this approach is far too restrictive as services are delivered across a larger group of people and are generally more humanistic. Banks for example share customer interactions between digital channels and human based channels.
Scope: Delivering one great services concept (that starts in the form of an idea) presents the opposite approach as the previous. People are directed towards creating ideas based on an existing dominant idea. Allow them to socialize and you will find that many ideas will be developed from one great concept. Let’s take a basic example of banking; what is the dominant idea behind retail banking? You receive money from sources like the public and government and channel this to customers for a profit. That’s it. Developing this idea is the core to all inventions in banking.
Figure: When one great idea gets developed
Scale of scope: Let’s look at the alternative approach. If you already have a dominant idea, use this idea as the context for others to generate ideas. Most service companies already have great ideas and typically fine-tune the implementations of these ideas over time. To rethink operating approaches, business models or even the way in which the offering gets delivered to clients, new ideas can be generated to use the core capabilities of the business to drive new service inventions.