Going above and beyond to scale, scope, and learning

In business strategy, there is a theory that helps us understand the establishment of functional structures to increase efficiency: Chandler’s theory, from Alfred Chandler.

The theory is explained by 3 words: Scale, Scope, and Learning. They have come to be considered the essential drivers of a firm’s operational performance.

The new digital age is now enabling new levels for those 3 drivers. AI-driven processes can be scaled up much more rapidly than traditional processes. It allows a much greater scope as it connects with other digitalized businesses. Finally, it will produce powerful learning opportunities and improved outcomes with more sophisticated models and tailored services.

In operating models powered by artificial intelligence, the benefits of scale can increase beyond the limits of conventional models, where traditionally, an increase in scale eventually leads to reduced effectiveness.

When an AI-driven firm competes with a traditional firm, serving the same customers with a similar value proposition but with a more scalable operating model, the AI-driven firm often gains a competitive edge due to its ability to efficiently scale up operations and adapt to market changes more rapidly.

A few examples: Amazon vs Retailers, Uber vs taxis, Netflix vs Video clubs, Ant Financial vs Traditional banks, etc.

Many people are yet in disbelief that a digital model will ever disrupt traditional model because AI-driven operating models initially take time to match the economic value generated by traditional scaled models, as they initially struggle with limited data ("cold start"), like the time it takes to get value from network effects, no until they reach a critical mass. When you unlock the power of multiplication, it will deliver far superior value and quickly overtake traditional firms.

I insist on my analogy of a production line: producing a product by hand is quick. However, producing the same product over a production line is much more efficient and will lead to faster growth. Yes, it takes time to scale, but once reaching the threshold that unlocks quicker gains, the growth is exponential.