Experience curve effects financial definition of Experience curve effects
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experience curve or
learning curve the cumulative process whereby, as the managers and labour force of a firm gain greater experience of a new technology by repetitive contact, they become more efficient at operating it, which enables unit costs of production to be reduced. Additionally familiarity with a technology and the development of associated skills and expertise can provide a platform for further technological advances. Thus, a firm's unique embodied experience can enable it to establish COMPETITIVE ADVANTAGES over rival suppliers.
Experience curve theory states that every time the same task is carried out, then the time taken to complete the task falls by some fixed amount. Thus if a task takes an hour to complete the first time, it will take some proportion less to complete the second time and a similar reduction will take place the fourth time, eighth time and so on, until a stable task time is achieved. Tasks are evaluated on their complexity, the more complex, the lower will be the rate of time reduction. See SPECIALIZATION, PRODUCTIVITY.
experience curve or
learning curve the process whereby managers and operators learn from experience how to operate new technologies more effectively over time such that a growing familiarity with, and the repetitive operation of, a new technology enables unit costs of production to be progressively reduced. See PRODUCTIVITY.
References in periodicals archive
--Global Brand Strategy--is to increase profitability by reaping cost reductions resulting from standardization, experience curve effects
and location economies.
Because companies pursuing this strategy thoroughly customize both their product offering and marketing strategy to match different national conditions, tending further to establish a complete set of value creation activities in each major national market, they are unable to realize value from experience curve effects and location economies.
Within the global strategy, companies focus on increasing value by reaping the cost reductions created from the experience curve effects and location economies.