What Are Diseconomies of Scale?

Diseconomies of scale is the symmetry of economies of scale. Due to the expansion of production scale, the unit cost of products has increased. The term diseconomies of scale is derived from western economies of scale theory. The theory believes that when the scale of production expands, it begins to be the stage of scale economy, and then it is the stage of constant scale economy. If the scale of production continues to be expanded, after exceeding a certain limit, various disadvantages will occur, making the unit cost ratio of the same product The original production scale was increased when it was small, which resulted in scale diseconomy. It manifests as diminishing returns to scale, that is, after the production scale is enlarged, the increase in returns is smaller than the increase in scale, and even the returns are absolutely reduced, making the marginal returns negative. Diseconomy of scale can be divided into internal diseconomy and external diseconomy. Internal diseconomy, also known as internal diseconomy, means that due to the expansion of the scale of an enterprise, internal factors of the enterprise change, resulting in an increase in average cost and a decrease in revenue. External diseconomy, also known as external diseconomy, refers to the expansion of the entire industry and the increase in output, which makes the supply of labor, raw materials, and equipment tight, and environmental pollution, which causes the average cost of individual enterprises to rise and revenue to decrease. ^[1]

Diseconomies of scale

Diseconomies of scale come from

If the size of the business is too small,

Technical factors

The scale of the enterprise is adapted to certain technical conditions.

Business Group Expects Expansion to Develop

At the beginning of the three companies, the three companies had very few staff members. All of them were directly responsible to the person in charge. Although small in scale, any strategy could be implemented in a timely and effective manner, and problems could be feedbacked and resolved in a timely manner. In the four-year heyday of the three strains, there were at least tens of thousands of managers, distributors,

First of all, it is necessary for the decision makers of the enterprise to realize the importance of management from the concept. While the enterprise is on the scale, it is important to strengthen the basic management of the enterprise, to understand what stage the enterprise is in, and then to carry out targeted corporate management reform.

Secondly, for large-scale enterprises, they must build their operations on a repeatable or reproducible scientific and standardized management platform, establish a set of management models suitable for the company's industry and corporate characteristics, and focus on training a group of professional managers .

Third, establish a modern human resources management system to provide a continuous flow of human resources for the scale of the enterprise.

Fourth, a new matrix organization structure is adopted to form a competition mechanism within the enterprise to cultivate the entire company's competitiveness in the market.

Fifth, hire experts from the community, use external personnel from the branch to make suggestions for the company, and improve the efficiency of the matrix group through "borrowing brain engineering".

Sixth, the performance of reforms and innovations should be included in the evaluation of management personnel to motivate managers to innovate.

Through the implementation of the above plan, the circulatory system composed of various functional activities is improved, the operation speed is accelerated, and the cycle is shortened, so that various problems existing in the production and operation process are all exposed. Because the internal competition mechanism of the company solves the problem of asset abuse and limits the tendency to forgive mistakes to a certain extent; the bystander effect exerted by the "brain engineering" curbs the mutual protection and the formation of the corporate network; the performance of reform and innovation is included in the The evaluation content has forced managers to give up the behavior of spending more energy on internal work in order to meet the political standards of promotion, reducing the damage to the stimulus, especially the excessive concentration of power in the headquarters of large companies and the lack of awareness of risk management. problem.

For example, the development of a risky product requires the headquarters to make a decision and provide the development department with more than financial support. This will increase the cost of the head office. If people, talents and property rights are decentralized as much as possible, the headquarters will only conduct "consultations" The role of a "doctor" or "strategic consultant" can respond to new customer needs in a timely manner, take concrete actions faster, and use the above-mentioned means to create so-called "unexpected" expenses when establishing an integrated organization. To a large extent, it will become "expected", the pathogenic factors will be exposed phase by phase and full attention will be paid, and the prevention and treatment of scale diseconomy in the process of enterprise development and growth will become a matter of course. Chinese countermeasures

There are many reasons for the diseconomies of Chinese enterprise groups.

Diseconomies of China's steel industry

For example, the method of determining the economies of scale is unscientific, adopts extensive economic growth methods, and the group structure is not optimized enough.

Using scientific methods to determine economies of scale

From the perspective of the analysis of economies of scale, the marginal benefit is equal to the marginal cost, which can achieve the best results of input and output, but how to adapt the size of the enterprise group to this, for enterprise groups engaged in different industries and producing different products There are indeed many differences. It is generally constrained by the level of productivity development, industry or product production characteristics, and the way in which resources are socially allocated. The level of productivity development is the basis for the organization of production in the enterprise. The modern development of production technology, technical equipment, transportation methods, management methods, and information and technology has laid a foundation for large-scale production and management of enterprise groups and large-scale production lines. The application of automatic control technology and computer network technology provides a wide choice for enterprise groups to improve production efficiency, extend management range, and reduce production costs. The determination and measurement of economies of scale can generally be adopted: long-term average cost curve method, moderate survival method and statistical analysis method.

Achieving intensive economic growth

Chinese enterprises basically adopt extensive growth. Many state-owned enterprise groups have problems such as high resource consumption, slow capital turnover, high losses and waste, and low economic benefits. If speed efficiency is still pursued according to the previous extensive growth mode, a series of problems such as rising costs, rising prices, low quality, and market backlogs will arise, and the difficulties of enterprise groups will become increasingly serious. Transforming the growth mode and taking the road of connotative expansion of reproduction and intensive growth has become a top priority for enterprise groups. The key to intensive growth is to rely on technological progress. Enterprise groups should increase their research and development costs, because companies are closer to the market than scientific research institutes, and their research and development costs can be more directly translated into productivity, and their development projects are market-applicable and effective.

Optimizing Group Structure through Asset Restructuring

At present, many Chinese enterprise groups have messy internal asset relationships and business relationships. They are still using the management system of a single enterprise in the past. The relationship between centralization and decentralization is not handled well, and the identities and responsibilities of members at all levels are not clear. Therefore, it is necessary to choose an appropriate time for structural restructuring and give full play to the role of middle management in management. Asset reorganization is a better way to optimize the group structure. Simply put, asset reorganization is the re-optimization and combination of assets to improve asset utilization. Asset reorganization can occur within an enterprise or between enterprises. The former is called in vivo reorganization and the latter is called in vitro reorganization. Through asset reorganization, an enterprise group can streamline its internal asset relationships and business relationships, as well as the relationships between member enterprises, to standardize its organizational structure and improve the overall efficiency of the group.