Scale paradox: Difference between revisions
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[[File:Grima.jpg|thumb|A revenue generating business unit at its [[opco]] yesterday]] | |||
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The '''[[Scale paradox]]''': Paradoxically, the pursuit of economies of scale ''in itself'' increasingly undermines the natural economies of scale. There is a natural upper bound to the effective size of a firm, wherein the marginal cost of the machinery required to pursue economies exceeds the marginal benefit to be gained by realising those economies. This point - a point beyond which every financial services firm operates - is a kind of [[Schwarzschild radius]] with two consequences: | The '''[[Scale paradox]]''': Paradoxically, the pursuit of economies of scale ''in itself'' increasingly undermines the natural economies of scale. There is a natural upper bound to the effective size of a firm, wherein the marginal cost of the machinery required to pursue economies exceeds the marginal benefit to be gained by realising those economies. This point - a point beyond which every financial services firm operates - is a kind of [[Schwarzschild radius]] with two consequences: | ||
One, as a kind of event horizon; a point of no return wherein a critical mass of its resources have become so personally invested in pursuing economies that | One, as a kind of [[event horizon]]; a point of no return wherein a critical mass of its resources have become so personally invested in pursuing economies that the remaining heft of the organisation is powerless to stop them. Even while it looks on, these legions of bottom-line reducers will be furiously hacking through branches, cables and retaining walls on which its top line generators are sitting, the front office business units become anaemic, emaciated, cadaverous — no longer possessed of the sheer energy needed to resist these cankerous consultants as they saw away on the organisation's few remaining branches — on which they are all sitting. | ||
Two, at an unobserved point, the organisation will suffer a final collapse in on itself, undone by the sheer mathematics of its density. This may not be obvious to outside observers because its own gravity is now so dense no new information can escape | Two, at an unobserved point, the organisation will suffer a final collapse in on itself, undone by the sheer mathematics of its density. This may not be obvious to outside observers because its own gravity is now so dense no new information can escape, and that which does will be so distorted by the weft of management-speak in which all public announcements from the organisation have been infused. This is believed to have happened to Deutsche Bank in 2009. | ||
Revision as of 13:53, 17 September 2019
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Risk Anatomy™
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The Scale paradox: Paradoxically, the pursuit of economies of scale in itself increasingly undermines the natural economies of scale. There is a natural upper bound to the effective size of a firm, wherein the marginal cost of the machinery required to pursue economies exceeds the marginal benefit to be gained by realising those economies. This point - a point beyond which every financial services firm operates - is a kind of Schwarzschild radius with two consequences:
One, as a kind of event horizon; a point of no return wherein a critical mass of its resources have become so personally invested in pursuing economies that the remaining heft of the organisation is powerless to stop them. Even while it looks on, these legions of bottom-line reducers will be furiously hacking through branches, cables and retaining walls on which its top line generators are sitting, the front office business units become anaemic, emaciated, cadaverous — no longer possessed of the sheer energy needed to resist these cankerous consultants as they saw away on the organisation's few remaining branches — on which they are all sitting.
Two, at an unobserved point, the organisation will suffer a final collapse in on itself, undone by the sheer mathematics of its density. This may not be obvious to outside observers because its own gravity is now so dense no new information can escape, and that which does will be so distorted by the weft of management-speak in which all public announcements from the organisation have been infused. This is believed to have happened to Deutsche Bank in 2009.