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2018-08-25

The experience curve concept: the Use and limits for the Management of

The experience curve concept focuses on the relationship between the cost development of a product and the cumulative production quantity, which is interpreted as experience. Basically, it is assumed that the inflation-adjusted unit costs of a product can be reduced with the doubling of the cumulated production quantities between 10% and 30%.

 

The illustration to this issue.

As reasons for the experience curve effect learning curve effects, economies of scale and technical progress are valid.


The experience curve concept is the Management of different orientations:

  • The identified causes of this effect indicator for the identification of cost reduction potentials, and thus opportunities for cost planning and control.
  • It provides information to market and competitive conditions. So points can be continued for the assessment of experience effects in the industry to win and, if the information about the output quantities of the competition are available insight into the cost situation of erlangen.
  • In addition, they provide reference points for price determination and vendor selection.

Critical of the experience concept in terms of the following aspects:

  • The Cost of no General validity processes; empirically, other gradients are determined. Experience curve effects are the height of company-specific.
  • The use of market shares as an indicator for the cumulative amount in the competitor comparison is only in the case of the following assumptions are possible: homogeneous products, uniform prices, the same market the time from all the suppliers, production quantity = entry sales volume, etc.
  • The experience is diffused in an industry and the competitors can realize, even at low production volumes, experience curve effects.
  • It only applies to a given technology; new technologies establish curves for a new Experience.
  • The strategic logic leads to a prosecution of a volume of strategies, which can possibly lead to Overcapacity and falling returns.
  • As explanatory variables, only the cumulative production quantity, and no further variables will be used. Therefore, a precise attribution of effect is not possible. Strategy to derive recommendations, it is necessary to specify the conditions such as the growth of the market, price elasticity of demand, competitive reactions, etc.


Despite this criticism, the experience curve concept can be used as a heuristic Instrument for the strategic Management

  • on the one hand, a Basis for forecasting and
  • on the other hand, points for the formulation of recommendations for action in the context of competition provide guidance on strategic Considerations. The output quantities and market shares, an approximation is known, then costs and price ranges of competitors appreciate. Thus, strategic Considerations provide indications in the context of price.

The Text is taken from the recently published Textbook introduction to the Strategic Management of Professor Dr. Hans Corsten, and Dr. Martina Corsten (ISBN 978-3-8252-8487-9).

The strategy and its implementation are considered to be the king discipline of management. Strategic decisions have an impact on the success and the long-term Survival of a company. Therefore, strategic Management is today, in almost all of the companies an important part.

The book provides a comprehensible and compact in the field of strategic Management. It offers answers to fundamental strategic questions for a detailed presentation of the analysis instruments and the process of strategy development with the phases of planning, formulation, evaluation and selection, implementation, and control.

Article image: © I-and-You / pixelio.de

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