THINK ACT

REPORT: THE MODULAR ECONOMY
THE MODULAR ECONOMY The division of labor in the world
economy continues apace. Small, agile, networked entities are
increasingly successful, but big industrial giants are also profiting
from the de-linking of the supply chain. In many sectors, clearly
defined interfaces make cooperation with suppliers and service
providers much easier than it used to be. The age of business ecosystems
has begun. It is an age of collaboration between companies of very
different sizes, and resurrecting one of the oldest questions in business:
“How big should my company be?” There is no one-size-fits-all
solution; rather, there are many different approaches to answering it.
By Thomas Ramge Illustration & photos Sarah Illenberger
Small versus big?
A whole new army of Davids is on the rampage, some
Goliaths are being slain, and small is the new big.
US journalist, law professor and star blogger, Glenn
Reynolds, has raised this subject a couple of times on
his blog, instapundit.com. During the middle of the
last decade, he pointed out that digital technology
and the Internet were creating new opportunities
for small businesses. Geeky students could run flourishing
online businesses from their dorm rooms, and
microbreweries were taking significant market share
from giants like Miller and Budweiser.
Reynolds described how 20th-century mass
production, with its obsessive quest for economies
of scale, no longer met the needs of 21st-century customers.
Small was suddenly cool and, as he pointed
out somewhat immodestly, a small blog founded in
2001 could attract more readers in a day than many
big local papers attracted in a week.
The army of Davids began making inroads into
big business. The image caught on, and in 2006
Reynolds summarized his thoughts on the shift of
power from big to small organizations in a small,
pamphlet-like book, The Army of Davids. This
promptly became a bestseller, and Reynolds became
the chief exponent of a new economic philosophy;
small is beautiful again, and the inexorable march
of big corporations since the industrial revolution
appears to have been halted. Economies of scale
are no longer compatible with economies of scope.
The mantras of 20th-century manufacturing were
past their sell-by date, Reynolds said. In the past,
if you doubled the number of items you made, you
reduced your unit costs by 20 to 30%, but what’s
the point when nobody wants to buy mass-produced
goods any more, and the act of consumption is
becoming increasingly individual? For Davids, tailormade
products are where the big opportunities lie.
One man, millions in profits
The list of small-company-made-good stories is a
long and rich canon. In 2007 the dating website
plentyoffish.com, based in its Canadian creator’s
home office, became what may have been the first
one-person company to make an operating profit of
more than USD 10 m.
24 THINK ACT SEPTEMBER 2011