Sunday, May 25, 2008

Economies of scale

I have just joined Deloitte & Touche USA LLP pvt. ltd. It is my first job. I am quite excited about it.
I observed some facts about Deloitte. I had read somewhere in wikipedia that economies of scale benefit manufacturing entities more than service ones. My scant knowledge about Deloitte and its competitors doesnot support that view. In auditing, the Big 4 (PwC,Deloitte, E&Y and KPMG) account for over 70% of auditing business in USA. All 4 firms have over a hundred thousand employees and revenues in excess of $ 20 billion.So, econoimies of scale probably works even better in services( atleast in some services) than in manufacturing .
Why is it so? Some bottlenecks that would inhibit productivity are certainly present. These are-
1- More bureaucracy
2- Greater costs of standardization
3- Repetition
4- Greater communication costs and greater chances of miscommunication

So, what are the positives. In manufacturing capital costs promote economies of scale. A machine costing $ 1 million can be 100 times more productive than one costing $100000 million. Hence, economies of scale comes into play. Thsi is however, not applicable,for a professional services firm like Deloitte. Here the means of production(value-addition) is the individual human being and hence, agglomeration is not possible.

The question comes into mind-what are the positives of large professional service firms?
I believe the answers are-

  1. They have huge data bases. Data is the back-bone of auditing and consulting business and a huge data base is certainly a great help.
  2. The large firms have excellent relationships with large clients. The clientsbelieve that that the large firms are better equipped to protect their confidential data. More importantly, the large firms have much better access to the firm's past data and this can help them in their present duties
  3. These firms have more in-house experts. This might lower the costs of skill transfer.
  4. They are able to offer a larger basket of services.
  5. Prospects of fast career growth and become partners

More experience, will certainly help me to better understand the impact of above-stated reasons and uncover new ones.

No idea can change your life

"Water , water everywhere ,not a drop to drink"
My predicament is similar. There are lots of news,reports, views ideas, but none appeals to me. A sense of intellectual ennui has grabbed me. I find this change interesting.
The catchphrase- "an idea can change your life" was something I liked a lot. And hence, on the suggestions of some friends, I modified it. And now, I have got a new issue to rant and philosophize about :)
We live our lives with some purpose. Even if we lack a purpose, the places where we work have some purpose . We spend lots of time there and wittingly or unwittingly, we share the same purpose.Letting go of that purpose, for some time leads us to live a new life. We see new things , which were blinkered by our purpose, we see different perspectives. We may connect better with people as we interact with them as people and not as instruments for some purpose. We see new aspects of ourselves, aspects which had become invisible under the shadow of the purpose. And sometimes, we realize that our purpose is no longer a reliable indication of our self.
No idea can certainly change one's life.