(Abstract) 100 Great Business philosophy: Concept 23: experience curve

Concept 23 experience curve

The increase in the number of products makes workers more experienced-experienced service companies can reduce costs and increase revenue.

Concept

In the middle of 1860s, Boston consultants (BCG) noted that the cost per product per unit could be reduced by 25 percentage points for every doubling of the production level of a semiconductor manufacturer. They concluded that they had gained valuable experience and were able to work more efficiently.

As a slightly different variant from the traditional "economies of scale" principle, this view emphasizes a broad and strategic meaning for employee experience and requires which workers should be hired, the number of products to be produced is considered.

However, the empirical curve effect is not common in all companies and industries. Although it is generally believed that the cost is reduced by 20-30% when the production experience is doubled, many service companies differ greatly from this data, and some costs are only reduced by 5%. People think this is because different production processes provide different opportunities for increasing experience. When the demand for products is relatively fixed, or the product production process is time-consuming and complex, it is impossible for many companies to significantly increase the production level. It should also be noted that some companies have no resources to increase their production capacity.

Even so, the empirical curve is valuable to every company, even for companies that cannot increase production. Experience can be obtained indirectly, such as reading books, watching video materials, or being "Guided" by experienced people ". Alternatively, companies can hire experienced workers in the industry (although they have to pay high salaries ). In addition, inexperienced companies can use innovative technologies to produce new products, change market preferences, and make their competitors experience obsolete.

Practical application highlights

§ Encourage employees to regard their work as a positive learning experience.

§ Determine when it is not suitable for increasing product output-if the demand is fixed, increasing production will result in waste.

§ Find out the reason why employees leave your company and avoid the loss of employees in a large area.

§ In addition to gaining direct experience at work, employees are provided with opportunities to gain indirect experience (such as through reading and education ).

(Abstract) 100 Great Business philosophy: Concept 23: experience curve