What Is The Experience Curve And Why It Matters In Business

The Experience Curve argues that the more experience a business has in manufacturing a product, the more it can lower costs. As a company gains un know-how, it also gains in terms of labor efficiency, technology-driven learning, product efficiency, and shared experience, to reduce the cost per unit as the cumulative volume of production increases.

Understanding the experience curve

The Experience Curve was developed in the 1960s by The Boston Consulting Group who observed the phenomenon in the manufacture of semiconductors. 

They found that the value-added production cost declined by as much as 20 to 30% each time the total manufacturing output doubled. In this context, manufacturing output was directly related to experience. In theory, experience then allows a company to further reduce production costs and gain a competitive advantage in the process.

In terms of the fundamental core processes that power the Experience Curve, consider the following:

  • Labor efficiency – employees who perform the same job repeatedly will naturally become more skilful and efficient. Confidence also grows and as a result, they make fewer errors which increases productivity.
  • Standardization and specialization – skilled employees with experience then contribute to standardizing processes. They also streamline the use of required tools, techniques, and materials.
  • Technology-driven learning – with more time, streamlined processes are fed into technology, further increasing the level of experience that a business has in manufacturing a product.
  • Product efficiency – when a company has enough experience to bulk produce goods and services, they achieve product and thus cost efficiency.
  • Shared experience effect – at this point, the company can apply their skill and experience in manufacturing one product into the manufacture of a related product. This potentially shortens the learning curve and fast tracks their ability to reduce costs with experience.

Examples of the Experience Curve

Perhaps the most well-known example of the Experience Curve can be seen in the development of the Model T Ford. 

With the benefit of 11 years of assembly experience, Ford cut production costs of the Model T and increased its market share from 10% to 55%. This was achieved by modernizing plants, vertical integration and eliminating model changes. Ford even went as far offering the Model T in black only, since black paint dried the quickest and therefore increased the speed of production.

Contact lens maker Bausch & Lomb consolidated their market position by computerizing lens design and expanding their plant to facilitate greater productivity. Arc welding supply company Lincoln Electric also encouraged experienced employees to create policies that would increase efficiency.

Limitations to the Experience Curve

The Experience Curve does suffer from limitations, particularly if certain aspects of the business are mismanaged. 

Potential limitations include:

  • A lack of mentors or skilled employees who can contribute their experience to improving company processes.
  • Mistaking the Experience Curve with future potential. While the curve does lead to reduced costs, it does not make any guarantees. Companies with poor management who suffer from negative external factors may find it difficult to reduce costs significantly.
  • Reliance on product relevancy. When a product becomes obsolete or falls out of favour with consumers, any cost reduction the company previously enjoyed will be eroded due to falling sales and lower profits. The company must then start the process again.

Key takeaways:

  • The Experience Curve refers to the graphic representation of the inverse relationship between the total value-added cost of a product and the experience the company has in manufacturing it.
  • The Experience Curve is powered by at least five fundamental mechanisms that emanate from a skilled and experienced workforce. 
  • The Experience Curve has several limitations because it relies on a skilled workforce and favourable product sales.

Connected Business Frameworks

Change Curve

The change curve is a model describing how people emotionally respond to change. The change curve model was created by Swiss-American psychiatrist Elisabeth Kübler-Ross to describe the five stages of grief terminally ill people go through. Further versions comprise eight stages that go from denial, anger, frustration, depression, acceptance, exploration, commitment and growth.


The S-Curve of Business illustrates how old ways of doing business mature and then become superseded by newer ways. The S-Curve itself is based on a mathematical concept called the Sigmoidal curve. In the context of business, the curve graphically depicts how an organization grows over a typical life cycle.

Technology Adoption Curve

In his book, Crossing the Chasm, Geoffrey A. Moore shows a model that dissects and represents the stages of adoption of high-tech products. The model goes through five stages based on the psychographic features of customers at each stage: innovators, early adopters, early majority, late majority, and laggard.

Product Life Cycle

The Product Life-cycle (PLC) is a model that describes the phases through which a product goes based on the sales of a product over the years. This model is useful to assess the kind of marketing mix needed to allow a product to gain traction over time or to avoid market saturation.

Creative Curve

In his book, The Creative Curve, Allen Gannett describes how popular ideas follow a relationship between familiarity and preference as an upside down U. That is the Creative Curve. When something is very new and unfamiliar, we don’t like it that much. Therefore, according to the Creative Curve, the ideas that become popular have a blend of familiarity and novelty. All ideas reach a point of overexposure where they become cliché, and they start to lose popularity and downfall until they grow out of date.

Other strategy frameworks

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