mistergough

Dis-Economies of Scale

The bigger an organisation gets the less it can benefit from the individual consumer and the more it can benefit from other large organisations.

Last night’s programme on the car insurance industry showed how kickbacks from paint and parts manufacturers brought in substantial profits. Insurance companies can’t get this kind of return from individual consumers. They don’t scale this way.

So the insurance companies work hard on their relationships with the paint and parts manufacturers. Not so hard on their relationships with the individual consumers. And an extra £10 on an insurance premium might not mean that much to each person. A £100 million kickback is worth the effort.

Public services work the same way. The doctor had no time for our suggestion that giving up dairy might help our daughter’s eczema. We did it anyway. No more eczema. Prescribing drugs brings all sorts of rewards to doctors. Suggesting we might treat ourselves doesn’t scale so well.

This is an inherent problem of scale. The larger an organisation gets the more it needs to relate to other large organisations. And the less the individual matters.