Sunday, December 12, 2010

Capacity Value--From "Organzational Economics: The Creation of Wealth"

"Capacity is the second way that an organization’s processes create value.  Capacity could be defined as “creating more of the same.”  If an organization is successful at developing a new product or service, they will need to produce more of the product.  They have two ways to do this. 
First, they can try to increase their own capability.  For example, suppose a person, who can make $150 per hour, needs the lawn to be mowed.  One way the person can get the lawn mowed more quickly is to buy a wide self-propelled mower.  This means fewer trips around the yard, and more time to make more money.  The person has increased his or her lawn mowing capacity.  
Second, they can purchase the capability from others with almost equivalent skills.  The first organization is purchasing capacity from the second.  For the person who needs his or her lawn mowed is to hire someone else to do the job.  By hiring the capacity at a lower cost per hour, if the person spends an equal amount of time working, the person ends up with more money.  This is the reason that one of today’s fastest growing industries is the “Temp” agency.  This industry provides temporary help, from clerks, to MBAs, to mechanical engineers, to theoretical physicists, so that growth is adding to the capacity of an organization to handle the current business or a current development effort."

(Also see posts: The Concept of Value, Knowledge Value--From "Organizational Economics: The Formation of Wealth", and Political Value--From "Organizational Economics: The Formation of Wealth")

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