In most companies, the reality of empowerment is far behind the rhetoric. But not at Morning Star. Business development specialist Nick Kastle draws a strong comparison between Morning Star and his former employer: “I worked at a company where I reported to a vice-president and a senior vice-president. Here you have to take the bus. You can`t tell anyone, “Do it.” You have to do whatever needs to be done. An economy of scale is the cost advantage that a firm has with increasing production of a good or service. There is a negative correlation between the volume of production of goods and services and the fixed unit cost of a business. In many cases, economy of scale is a generalization of economies of scale rather than an opposing concept. Strictly speaking, economies of scale allow a company to reduce production costs by spreading fixed overhead and other fixed costs across multiple units of a single product.

A scope advantage allows a company to reduce costs by spreading fixed costs across several different assets. When fixed costs are covered, the marginal cost of producing each additional computer processor typically decreases. At lower marginal costs, the additional units represent increasing profit margins. It offers companies the opportunity to lower prices if necessary, thus improving the competitiveness of their products. Warehouse-type retailers like Costco and Sam`s Club package and sell large items in bulk, thanks in part to economies of scale. Suppose ABC, a computer processor vendor, is considering buying processors in bulk. The manufacturer of the computer processors, the company DEF, declares a price of 10,000 US dollars for 100 processors. However, if ABC Company buys 500 computer processors, the manufacturer will offer a price of $37,500. If ABC Company decides to purchase 100 processors from DEF, the unit cost of ABC is $100.

However, if ABC buys 500 processors, the unit cost is $75. When I suggested to Rufer that Morning Star had learned to do without a manager, he immediately corrected me. “Everyone here is a manager,” he said. “We are rich in managers. The role of management includes planning, organizing, directing, human resources, and control, and everyone at Morning Star is supposed to do all these things. Everyone is the manager of their own mission. They are managers of the agreements they make with their colleagues, they manage the resources they need to do the job, and they are managers who hold their colleagues accountable. “Economies of scope help explain why most successful companies offer a wide range of related products and services. I believe the Morning Star model could work in businesses of all sizes. Most large companies are collections of teams, departments, and functions, not all of which depend on each other.

Regardless of the size of the enterprise, most units would only have to contract with a few others. With $700 million in revenue a year, Morning Star certainly isn`t a small company, but it`s not huge either. On the other hand, a company that benefits from economies of scale has lower average costs because costs decrease as the quantity produced increases. For example, a company may be able to produce 100 million computer chips at a much lower unit cost than 1 million chips. For each chip, the company must spend a certain amount of money on research and development (R&D) as well as setting up each factory. Once this is done, less money is needed to make additional chips. Economies of scale work best when fixed costs are high. At the end of the year, every employee in the company receives feedback from their CLO colleagues, and in January, each business unit is required to defend their performance over the past 12 months. Since the discussion on each unit can take most of a day, the process spans several weeks. Each presentation of the shares is in fact a report to the shareholders. Team members must justify their use of company resources, recognize gaps, and present improvement plans.

Because Morning Star is vertically and horizontally integrated, employees need cross-company information to calculate how their decisions affect other areas. Rufer knows that its employees will only think holistically about the company if everyone has access to the same system-wide data. Therefore, there are no information silos and no one questions the needs of others. Sole proprietorships are easy to set up and usually require only a small influx of upfront investments. It is common for SMEs to assume the status of sole proprietorship in the initial phase of their activity. Overhead costs are usually minimal due to the small size of the business, but if the business cannot make a profit and continues to accumulate debt, the owner is solely responsible for all outstanding debts. Sneakyness, politics, and sycophant behavior diminish dramatically when employees stop competing for promotions. Investors consider the size of the company when allocating investments in a company`s stocks or debt. They may perceive large companies as safer because they have significant resources that allow them to have a competitive ability and the ability to make a lot of money. When it comes to the pros and cons of large companies, the question is not whether it is better for you to start a large or small business, the question is how to use the size of your business for maximum success.

If you own a small business, there`s no point in talking about the pros and cons of large businesses without understanding that the factors that make large businesses work or fail are the real lessons you need to learn. The advantage of large companies is that they tend to be more established and have better access to financing. They also enjoy greater loyalty, which generates higher sales and higher profits than small businesses. As a small business owner, studying the benefits of large businesses can help you determine the optimal size of your business. Although Morning Star`s organization reduces administrative costs, it has its drawbacks. First of all, not everyone fits the Morning Star model. It is not so much a question of competence as of acculturation. A person who has worked for years in a highly stratified organization often has difficulty adapting. Rufer estimates that it takes an average of a year or more for a new employee to be fully functional in self-management. There`s no reason why the self-government model shouldn`t work in a much larger company, where Morning Star, for example, was a single department – as long as the other departments shared its management philosophy. It`s not too hard to imagine divisional representatives within a global giant negotiating the same intra-company deals that Morning Star`s business units forge every year.

In fact, the real question is not whether the model can evolve, but whether it can be adopted by a traditional, hierarchical organization. Again, I believe the answer is yes, but metamorphosis will take time, energy and passion. (See box “The Road to Self-Government.”) Each Morning Star employee is responsible for creating a personal mission statement that describes how he or she will contribute to the company`s goal of “producing tomato products and services that consistently meet our customers` expectations for quality and service.” Take Rodney Regert, who works at the Los Banos plant.