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Experience Curves and Strategy

Dr. Galbraith, Mgt 455. Experience Curves and Strategy. Steam Turbine Generator Production Cost (1946 – 1963). Steepness of Experience Curves. Requirements for Steep experience Curves. Labor inputs Mass production of similar items or services Long production cycles

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Experience Curves and Strategy

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  1. Dr. Galbraith, Mgt 455 Experience Curves and Strategy

  2. Steam Turbine Generator Production Cost (1946 – 1963)

  3. Steepness of Experience Curves

  4. 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

  5. Why is this important strategically? • Understanding Future Prices • Managing internal costs • Understanding Competitive Strategy • Chalkboard discussion Future Photovoltaic Prices

  6. 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

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