Coase and effect

Ronald Coase wrote persuasively about the need to scale business. Based on the notion of Transaction costs” -those base costs needed to operate a business; overheads, distribution, sales teams and the like. It was perfectly suited to the industrial economy of the time, and the “organisation as machine” mindset with its bureaucracies, hierarchies and financial needs. 

Times have changed. Although large businesses still operate to a version of Coase’s thinking, the need has largely disappeared. “Transaction costs” have all but disappeared for new businesses, which changes everything. Suuccess today is imagination driven, purpose based and validated by the contribution it makes. Everything else is a purchasable commodity-including, unfortunately, many of the routine skills.

And the near religious pursuit of the orthodoxy is scale has unintended consequences as demonstrated compellingly by TalkTalk this week. If you put all your eggs in one basket-you better look after it as it becomes very attractive to others, and to more than conventional competitors.

Scale can also be negatively correlated to trust. Everything from automated call systems to the reluctance to accommodate individual preferences because it makes the scalable process less efficient. The danger of the terminal breakdown of engagement with staff and customers is significant. Witness the large high St Banks.

There has rarely been a more exciting time for smaller businesses. With the passion, purpose and connection that comes with the territory, they can now collaborate as never before using technology to negate the historic advantage of large businesses, and feed on their inherent weakness.

It requires imagination, boldness and probably a little facilitation. 

The opportunity is huge for those that do.

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