The experience curve (BCG)

The experience curve connects accumulated output with the possibility of lower unit cost. It supports a low-cost strategy—and may strengthen a focused position—but only when the organisation captures and protects the learning created by volume.

When to use it

Consider it whenever market-share growth could produce a sustainable cost advantage.

Origins

Industrial learning curves predate Boston Consulting Group. Early aircraft-production studies found that each doubling of cumulative output could reduce labour time per unit by roughly 10–15 per cent. BCG broadened the observation from labour to the total value-added cost of standard products and connected it to competitive strategy.

The experience curve became an important assumption behind BCG’s Growth/Share Matrix: if accumulated experience lowers cost, relative market share may indicate relative cost position.

What it is

The original learning insight was that repetition improves task performance. Early aviation evidence suggested a 10–15 per cent reduction in labour time after cumulative production doubled.

The experience curve

Cumulative volume

BCG studies across consumer and industrial sectors proposed a broader ‘law of experience’: the unit cost of value added to a standard product commonly falls by a constant percentage—often 20 to 30 per cent—whenever cumulative output doubles.

Important mechanisms include:

Labour efficiency:

workers and managers learn better sequences, shortcuts and problem-solving methods.

Process efficiency:

workflows become standardised, balanced and less wasteful.

Technology efficiency:

automation and improved equipment reduce inputs or increase throughput.

Design and sourcing:

accumulated knowledge can simplify products, improve yields and strengthen purchasing.

BCG’s strategic interpretation was more distinctive than the underlying observation. If cumulative volume creates cost leadership, a company may rationally prioritise share and production before short-term profit, then use lower cost to reduce price, expand volume and reinforce the advantage.

Relative market share and the experience curve effect: an example