For decades, “bigger is better” has been the conventional path to efficiency in industries ranging from transportation to power generation.
Food once grown on small family plots now comes overwhelmingly from factory farms. Vessels that carried 2,000 tons of cargo have been replaced by modern container ships that routinely move 150,000 tons. But now, new research shows, we are on the cusp of a radical shift from building big to building small—a change that has profound implications for both established and emerging industries.
Many industry sectors are nearing or have reached a tipping point in which efficiency of unit size is being replaced by efficiency of numbers, according to a recent study by Garrett van Ryzin, the Paul M. Montrone Professor of Private Enterprise at Columbia Business School, Caner Göçmen, Ph.D. candidate at Columbia Business School, and Eric Dahlgren and Klaus S. Lackner of Columbia University’s School of Engineering and Applied Science. Rather than relying on custom–built, large–scale units of production — e.g. massive thermal power plants — industries can benefit from a shift to small, modular, mass–produced units that can be deployed in a single location or distributed across many locations — e.g. photovoltaic (PV) panels mounted on utility poles.
Conventional wisdom holds that capital cost per unit of capacity decline with increasing unit size. Other efficiencies of unit size arise from manufacturers’ ability to spread out the fixed–costs components of production, as well as factors such as operator labor and design costs. This alternative approach to infrastructure design offers new possibilities for reducing costs and improving service, the researchers found.
The authors identify three driving forces underlying this shift.
