The Power of Doing More with Less
In business, efficiency often makes the difference between surviving and thriving. While economies of scale teach us how to reduce costs by producing more of the same, economies of scope show us how to reduce costs by producing more varied offerings from shared inputs.
In essence, economies of scope are about making diversification efficient.
š What Are Economies of Scope?
Economies of scope occur when a company can produce multiple products or services more cost-effectively together than it could separately. Instead of spreading fixed costs across a greater volume (as with scale), scope spreads those costs across a greater variety.
A classic definition:
āEconomies of scope exist when the total cost of producing two or more products jointly is less than the cost of producing them separately.ā
š§ The Strategic Logic Behind Economies of Scope
Economies of scope typically emerge in companies that:
- Share inputs (e.g., manufacturing, raw materials, distribution).
- Leverage intangible assets (e.g., brand, customer relationships, IP).
- Utilize cross-functional teams or multi-purpose infrastructure.
- Build platforms where one innovation or capability can be extended across products or markets.
In other words, scope makes diversification cheaperānot by chance, but by design.
š” Real-World Examples
- Amazon: Uses its vast logistics network, customer base, and technology infrastructure to deliver everything from books to groceries to cloud computing (AWS).
- Procter & Gamble (P&G): Shares R&D, packaging, and retail relationships across dozens of personal care and household product lines.
- Disney: Combines film IP, merchandise, theme parks, and streaming under a unified brand and storytelling universeāreducing marginal costs and increasing revenue per IP unit.
š Why It Matters: Competitive Advantage Through Versatility
Economies of scope offer multiple benefits:
| Benefit | Explanation |
|---|---|
| Lower Costs per Product | Shared assets reduce duplication (e.g., shared warehouse or ad spend). |
| Cross-Selling & Bundling | Ability to offer packages that increase customer value and reduce churn. |
| Resilience | Diversified offerings mitigate market-specific risks. |
| Innovation Flywheels | Learnings in one product line fuel breakthroughs in others. |
This is especially powerful in platform businesses, where marginal cost approaches zero, and new offerings can be launched on existing rails (e.g., Apple adding services to iOS hardware).
ā ļø When Economies of Scope Backfire
Scope isnāt always beneficial. In fact, many companies fall into the conglomerate trap, where diversification leads to complexity, brand dilution, or diseconomies.
Beware of:
- Managerial overhead that grows faster than revenue.
- Cultural mismatches between business units.
- Lack of focus leading to underperformance in core areas.
Scope must be coherent, not chaotic.
š§ Strategic Questions for Leaders
When considering expanding your scope, ask:
- Do we have underutilized assets that could serve other products or markets?
- Will this new product strengthen or dilute our brand and capabilities?
- Can we deliver it through existing channels without major overhead?
- Is the learning transferable between the new and existing lines of business?
š Final Thought
Economies of scope are not about doing more just to grow. They’re about doing more with what you already do well.
Used wisely, they allow businesses to unlock new markets, improve margins, and create flywheels of innovationāwithout proportionate increases in cost or complexity.
In an age of convergence and platform ecosystems, scope-based thinking will increasingly separate the multipliers from the stagnators.
Missed out on the over all series?
Murray Slatter
Strategy, Growth, and Transformation Consultant: Book time to meet with me here!
