The Experience Curve, developed by Bruce Henderson and the Boston Consulting Group (BCG) in the 1960s while analyzing overall cost behavior. The premise of the Experience Curve is that for each doubling of "experience," there is a predictable reduction in our organization's unit production costs. Experience Curve In fact, research by BCG in the 1960s and 70s observed experience curve effects for various industries that ranged from 10-30%.
This classic Experience Curve is based on an experience in fulfilling demand. It remains valid today, especially in industries that are relatively stable, cost-sensitive, competitive, and production-intensive. With that said, in 2013, BCG published new thought leadership that modernized the Experience Curve to account for a second type of curve—one where experience is based on shaping demand. This adjustment is driven by how today's business climate is characterized by higher volatility, less stable industry structures, and much more frequent product launches driven by the Digital age and emerging technologies. The ability to gain and leverage experience on both curves is called ambidexterity. Ambidexterity is a powerful source of competitive advantage.
This presentation discusses both types of Experience Curves. Other topics covered include Henderson’s Law, Industry Diversity and Dynamism, and Experience Curve Effects.
This PPT provides a comprehensive analysis of the BCG Experience Curve, detailing its impact on cost reduction and competitive advantage. It includes a deep dive into Henderson’s Law and the mathematical underpinnings of the curve. The presentation also explores the eight primary drivers behind Experience Curve effects, such as technology-driven learning and product redesign. Key questions are posed to help executives evaluate the balance between fulfilling and shaping demand in their industries. Real-world examples, like Facebook's strategy to outpace Myspace, illustrate the practical application of these concepts. This resource is essential for leaders aiming to leverage experience for strategic gains.
Got a question about the product? Email us at flevypro@flevy.com.
Source: Best Practices in Experience Curve, Ambidexterity PowerPoint Slides: BCG Experience Curve PowerPoint (PPT) Presentation Slide Deck, PPT Lab
This PPT slide outlines key factors contributing to experience curve effects, emphasizing how learning and familiarity with products lead to improvements over time. It presents 3 main reasons: Product Redesign, Network-building and Use-cost Reductions, and Shared Experience Effects.
Product Redesign highlights that as manufacturers and consumers gain experience with a product, they identify areas for improvement. This iterative process enhances the manufacturing workflow, leading to better product quality and efficiency. The implication here is that continuous feedback loops between users and producers can drive innovation and cost-effectiveness.
The section on Network-building and Use-cost Reductions illustrates how increased product usage leads to greater efficiency. As more consumers engage with a product, they become adept at utilizing it, which can lower operational costs. The example of social networks like Facebook underscores this point, showing that the value of a network grows exponentially with the number of users, thereby reducing the cost per user.
Shared Experience Effects indicate that efficiencies can be transferred across products when they share common resources or activities. This suggests that organizations can leverage insights gained from one product to enhance others, creating a synergistic effect that amplifies overall performance.
The concluding note hints at potential disruptions to the experience curve, suggesting that technological changes can halt progress. This serves as a cautionary reminder for executives to remain vigilant about external factors that may impact their operational efficiencies. Understanding these dynamics is crucial for companies aiming to optimize their product strategies and drive sustained growth.
Did you need more documents?
Consider a FlevyPro subscription from $39/month. View plans here.
For $10.00 more, you can download this document plus 2 more FlevyPro documents. That's just $13 each.
Costing Procurement Strategy Business Transformation CEO M&A (Mergers & Acquisitions) Target Operating Model Management Accounting Activity Based Costing Business Case Development
![]() |
Receive our FREE presentation on Operational Excellence
This 50-slide presentation provides a high-level introduction to the 4 Building Blocks of Operational Excellence. Achieving OpEx requires the implementation of a Business Execution System that integrates these 4 building blocks. |