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How small-scale economics is changing our lives

By Professor Stéphane Garelli - November 2012

When British economist E.F. Schumacher wrote his highly influential book "Small Is Beautiful" in 1973, he didn't realize it would take 40 years to be proved right. Now this small-scale economic revolution is turning into reality—not only in the corporate world, but also inside your home, if you have your own blog, 3-D printer or simple energy generator.

Micro-enterprises, households and individuals are generating more and more economic activity these days. Meanwhile, the large companies born after the first industrial revolution 250 years ago are losing some of their dominant role as employers, innovators and producers. 

The industrial revolution was based on economies of scale – the bigger the operation, the better. Now ordinary people are challenging the idea that size is important. It's becoming easier and increasingly profitable to create and distribute goods, services and information outside large organizations.

Welcome to this brave new world. It's global, it's accelerating, and it's a good thing. But why is it happening, and what does it mean for big established companies?

Why is it different?  

This new revolution has its roots in technology and communication. Just look at the explosion of blogs, social media, self-published books and online education. Look at 3-D printers, which could create a new world of small-scale digital production and repair businesses in areas such as jewellery, footwear, healthcare equipment and the car industry.

Or look at the energy sector. Households are starting to produce their own power via solar panels, small windmills or geothermal, sending this to the grid and slashing their electricity bills. In the Trianel project in Germany's North Rhine Westphalia region, a central entity manages a cluster of micro-level electricity generators. It's rather like what happened in computing when networked PCs took over from central mainframes.

In the past, companies made things for individuals and households to consume. But as more and more people make things themselves, the difference between producers and consumers is becoming blurred. This is not just a rich-country phenomenon. Emerging economies are seeing a similar revolution as mobile phones and microfinance help to lift people out of poverty.

Culture change  

The revolution is also cultural, reflecting a big generational shift in value systems. The bottom line is that today's younger generation is less keen to work for large organizations than its predecessors were.

This is partly because big companies are not creating jobs like they used to, as Europe's horrendous youth unemployment rates confirm. In addition, the rise of the internet and social media, together with broader technological changes, is encouraging the under-30s to do their own thing. They are often entrepreneurial and would rather start their own business than work for a global corporation.

They want – and increasingly can have – a working life outside the traditional company. And because they are hyperconnected with each other through social media, they do not feel alone.

Big companies are struggling…  

Most big companies have difficulties coping with this exciting new world, for at least three reasons.

First, competitor analysis is much harder. The biggest threat to some firms might not be a rival company, but someone at home developing a prototype with a 3-D printer. Likewise, energy companies are struggling to react to the growth in home electricity production.

Second, controlling the corporate image is much tougher. Until quite recently, companies used traditional print and broadcast media to send one-way messages about their products and brands to consumers. But in the age of social media, companies are part of rapid global conversations that they cannot control.

The third and most serious issue concerns talent. Big companies will find it harder to attract the best brains if these bright people have a good chance of doing well on their own or in a small venture. More people want the option of working from home, but big companies are generally ill at ease with the idea.

…but they will adapt  

Nevertheless, large companies will survive this new revolution. Big consumer brands will still do well, and size will still matter for business-to-business companies. But large firms will become more conservative and marketing-oriented, focused on product upgrades and mass marketing and distribution of goods.

Many of the disruptive innovations over the past decade – Facebook and Skype, for example – were developed by individuals or small firms rather than big companies. And this trend will intensify. Instead of spending heavily on R&D themselves, big companies will buy innovative small firms when their brainy founders decide to cash out.

A good thing  

This new age of micro-level production and services will shake things up, as all revolutions do. And the effects will be overwhelmingly positive. Simply by involving more people in the creative process, it will unleash an unprecedented drive for innovation. Whether people are alone or networked, using their own ideas or crowdsourced ones, they will find it easier to move from an idea to a prototype. Every sector of society will be affected: information, energy, manufacturing and probably also education.

Small is not just beautiful, it's also competitive!

Stéphane Garelli is the director of IMD's World Competitiveness Center and teaches on IMD's Orchestrating Winning Performance program.

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