Experience Curves and Strategy

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Experience Curves and Strategy

• Dr. Galbraith, MGT 455 Summer, 09

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Steam Turbine Generator Production Cost (1946
1963)
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Steepness of Experience Curves
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Requirements for Steep experience Curves

• Labor inputs
• Mass production of similar items or services
• Long production cycles
• Few radical product innovations
• Example Desktop Storage
• Rapid Process Innovation

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Why is this important strategically?

• Understanding Future Prices
• Managing internal costs
• Understanding Competitive Strategy
• Chalkboard discussion

Future Photovoltaic Prices
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Wrap Up

• Impact of experience can be quantified -
  empirical evidence shows that costs tend to
  decrease 20-30 as experience in producing a good
  or delivering a service doubles
• This relationship isn't automatic, rather it is
  the result of conscious actions taken by
  management to actively bring down costs over time
  
• As a company progresses down the Experience
  Curve, it should typically decrease its price
  point as well so as to increase its overall
  competitive position