The (In)Efficiencies of Scale (Part One)
I found the best piece in the series was penned by the whip-smart Ian David Moss ("Economies and Diseconomies of Scale in the Arts – Take Two"), and it was his post that inspired both me to both write an initial comment, and then to take on the subject more fully below.
You see, dear reader, like many of my fellow funders and financiers I’ve often touted the benefits of moving toward greater scale: improved operational efficiencies, greater programmatic reach, increased access to resources, heavier political punch. But I’ve also struggled with the oft recognized but seldom addressed reality that scale is not an answer in and of itself, and that sometimes scaled solutions leave even larger problems in their wake. Thanks to Ian, I think I got the mental kick in the epiphany I needed.
I hope you’ll enjoy this two-part miniseries on why I think scale sometimes, well, stinks up the joint.
The Mechanics of Moving Capital
I don’t care how you’re doing it, when it comes to getting money out the door it’s always easier to do it in big chunks. Whether you’re making a grant, extending a loan, or placing private equity, cost per transaction is lower if you make fewer, larger transactions. This is axiomatic.
There is an inherent bias, therefore, toward systems, institutions, organizations, or entities that can absorb cash and generate returns (whether social or financial) in said big chunks. In other words, “efficiency of delivery” is an important driver of seeking large-scale solutions in and of itself.
There’s also a bias within philanthropy, particularly within big-ticket philanthropy, to be associated with well-recognized, highly visible organizations. These tend to be larger organizations with board members and executive leaders who themselves are power brokers. Fewer larger gifts provide a direct, reputational benefit to those who bestow, and therefore figure directly into the calculus of supporting “scaled” solutions.
Finally, there are things that simply cannot be accomplished without being bigger. One must be able to aggregate capital and expertise in order to do things like build bridges and power plants, or maintain the military, or move the Temple of Dendur several thousand miles brick by ancient brick.
The problem is, we tend to conflate the concept of “scale” with the concept of “size.” Greater scale and greater size appear interchangeable, because they appear to accomplish the same things. Size, after all, implies the ability to aggregate more resources, take on larger projects, and confer reputational benefits.
But scale implies something more (or at least it should): that all the while we have been increasing size we have also been creating more complex systems of communication to manage within this infrastructure; that we have been seeking redundancies and weeding them out; that we have been discovering parallel processes and routinizing them; that we have built specialization and systemization. That we have become more efficient.
Therefore: Scale = Size + Efficiency.
The problem with this little equation is that there are trade-offs when building larger and more efficient systems.
For instance, most scaled solutions achieve efficiencies by reducing personnel (a real headache BTW for public and nonprofit folks with a mission-orientation towards employment and living wages, not to mention any entity employing unionized labor). Scaled systems also require more layers of management, firm hierarchies, task specialization, and centralization of resources and decision-making.
But the biggest problem with scaled systems is that they both rely upon and produce standardized outputs. Ian David Moss refers to them in his post as “TV dinners”—consistent, bland, normal. As a culture, we both fetishize standardized products, and despise them.
Stay tuned later in the week, when I’ll explain why the more we attempt “scaled investment” in the arts, the less art we’ll actually end up creating.