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Example of diseconomies of scale

Motorola was one of the fastest growing companies in the world in the mid 1980s. In 1995, it was ranked 24th on the Fortune 500 list. Until 1996, it was considered as the best-managed companies of the world with its sales doubling in size every five years. It had revenue of $27 billion dollars in 1995 and it was looked upon as a pioneer in the field of electronics. It made cellular phones, pagers, two-way radios, semi-conductors, etc. Motorola had unique self-directed teams and they were often pitted against each other. Motorola clearly was an economy of scale, while reaping enormous profits year after year, further propelling its economic growth. Then came the dark phase when it lost out its market share to a Finland based company called Nokia and a slump followed. Motorola had huge expectations from Iridium, its satellite world-wide telephone service, but it failed to take off and filed for bankruptcy. It also lost on its revenues and in 2000 Fortune 500 list, it was ranked 109th.
Many economists felt that Motorola failed to manage its huge success and did not correctly read the changing scenarios caused due to globalization. The production had become sluggish and as mentioned before, teams were often competing against each other. Since then, Motorola is on a revival path and in 2005, the results were heartening for Motorola again. It has gained a lot of ground and is trying to close in on its biggest rival Nokia.
Most diseconomies of scale are the result of the organization not able to manage itself on a large-scale. So, the best way to avoid being a diseconomy of scale is to monitor your business closely and be innovative before it is too late.

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