The downside of Scale Enablers

In my previous post, I had described how structural capital can be used to have unlimited scale in a business. I had provided two examples – how Automatic Teller Machines were instrumental in scaling the operations of banks at negligible marginal cost and how the Internet itself had been used by Google to scale its advertising business to the point where it has become a near monopoly in a very short span of ten years. Readers will surely find other examples which fit the pattern of scale enablers. Here is one more - how about the invention of the moving assembly line in a manufacturing shop? The assembly line mechanism may be taken for granted in today’s manufacturing world but when it was first deployed by Henry Ford in the early 1910s, it revolutionized the automobile industry, enabling Ford to scale its manufacturing operations significantly and get a leg up on the competition within a short period of time. Note that scale enablers, by definition, need to create a massive impact for the firm that deploys them. For instance, all the scale enablers that I have described in the examples so far have created such a massive impact that they have become an industry standard – meaning that subsequent businesses have no option but to follow the scale enabling operational model of the leader. Here’s the proof - can you imagine a bank today that hopes to sustain and scale its operations without the help of ATMs? Can you imagine an automobile manufacturer producing cars without a moving assembly line in its plant? And can you imagine any Google competitor that can successfully best its advertising business without the help of the Internet? Even with the help of the Internet all of them are having a hard time at present – but that is another matter. The point I am trying to make is simply this - Scale enabling Intellectual Capital based on the deployment of Structural Capital is a sure recipe for the unlimited growth of any business.

Having being convinced of this fact, the question that naturally arises is – Is there any downside to scale enabling Intellectual Capital at all? Surely it cannot be a silver bullet. The answer in fact turns out to be in the positive. There is a downside to scale enablers and quite a significant downside. The problem with Structural Capital is that it does exactly what it is programmed to do. It is therefore both inhuman and unforgiving – and that is exactly its downside, especially when it has to deal with real human beings. This realization in fact dawned on me very recently while I was in the middle of one of my own experiences with scale enabling Intellectual Capital. However, let me illustrate this point using the same examples that I have used so far in describing Scale Enablers.

Let’s take the example of the ATM. Has it ever happened to you that an ATM has actually dispensed you the incorrect amount from what you requested and what has actually been debited from your bank account? The chances are quite rare that this could have happened to you, but have you heard or read about such incidents happening with others? What if the ATM dispensed the correct amount but the notes dispensed are soiled or even mutilated. This is more in the realm of possibility and this could have definitely happened to a few of us. More practically, have you ever had an ATM dispense you high denomination notes because it was out of smaller denominations? This has probably happened to all of us. All of these incidents lead to high customer dissatisfaction – the only problem is that the ATM cannot help you any further. If it was the bank teller, you could have a resolution there and then to these incidents, but when dealing with an ATM, resolving such incidents of Customer dissatisfaction are too time consuming and too costly. In fact more often than not, they go unmentioned and hence remain unresolved.

Let’s move to Google – I had mentioned how Google has become the undisputed king of the Internet advertising world using its scale enabling Internet interface that lets its Customers open an account, create ads, select distribution parameters, make payments, run those ads and browse through automatically collected and pre-analyzed ad diagnostics. However, have you had any reason to be dissatisfied with Google’s advertising service? You had better not, because if you were, you would have no idea whom to turn to. Google does not assign its Customers with a Relationship Manager who can be reached directly in times of a crisis. At best, you could reach Google’s Customer service and be confronted with its automated voice response system. Or you could drop Google an email? The resolution time and cost for both you and Google will be quite high though, because both of you would now have to work outside the boundaries of a scale enabling automated system whose marginal costs are designed to be next to zero.

The truth is that businesses that have driven their growth using the scale enabling Intellectual Capital model have first fine tuned their Structural Capital to be as close to being faultless as is humanly possible. This by itself is a capital intensive and time intensive process. Alternatively, other successful businesses have deployed “good-enough” systems and have backed up failure points in those systems with good old human capital – such as call centers, relationship managers, engagement managers, etc. The success of Intellectual Capital therefore depends on the quantum and mix of components deployed. Just as the secret to a good recipe is the right ingredients in the right proportions, so also the secret to business success with Intellectual Capital is a judicious mix of Human Capital, Structural Capital and Relational Capital. And that is exactly how I define Intellectual Capital in the first place.