Experience Curve 02 06 01

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The Economic Context for Strategy: 

The Economic Context for Strategy

PRODUCT LIFE-CYCLE: 

PRODUCT LIFE-CYCLE

Sales Volume Over Time: 

Sales Volume Over Time Time Sales Embryonic Growth Mature Decline Profits

Continued Growth: 

Continued Growth Time Sales Embryonic Growth Mature Decline Rejuvination

The Product Life Cycle: 

The Product Life Cycle

Variations on Business Life Cycle: 

Variations on Business Life Cycle $ $ $ $

Market Segments in Business Life Cycle: 

Market Segments in Business Life Cycle $ Composite PLC Time M10 M10 M20 M20 M30 M30 M40

Products in Business Life Cycle --Warner-Lambert Company: 

Products in Business Life Cycle --Warner-Lambert Company Dispos- able razor Easprin E.P.T. Plus Bubblicious Angiocath II Listerine Surgical Gloves Norlestrine Bromo-Seltzer 1 2 3 4 5 6 7 8 9

EXPERIENCE CURVE: 

EXPERIENCE CURVE

Experience Curve: 

Experience Curve Based on observations of cost of manufacturing aircraft. For every doubling in volume produced, X% of cost was reduced. Ct = C0 (Pt /P0)-a Where Ct is cost at time t Pt is production volume at time t. a is an industry constant

Experience Curve: 

Experience Curve Cost Accumulated Volume

Experience Curve: 

Experience Curve Cost Accumulated Volume 1 10 100 1000 $1.00 $0.50 $10.00 $30.00 Log-Log

Experience Curve Examples: 

Experience Curve Examples

Experience Curve: 

Experience Curve Cost Accumulated Volume (millions of units) 1 10 100 1000 $1.00 $0.50 $10.00 $30.00 Integrated Circuits 1964-74 70% Slope

Experience Curve: 

Experience Curve Cost Accumulated Volume (millions of units) 1 10 100 1000 $400 $200 $800 $1000 3-ton Split System Air Conditioners 1957-74 80% Slope

INTEL #2716--A 16K EPROM: 

INTEL #2716--A 16K EPROM Price 1-79 1-80 1-79 1-80 Cost 1-81 3-81 Cumulative Experience Price Index Cost Index (on different scales)

Cost Experience for Steam Turbine Generators: 

Cost Experience for Steam Turbine Generators COST/ Megawatt Steam Turbine Generators Log Industry Cumulative Megawatts of Generators Delivered 70% slope 200 MW units 400 MW units 600 MW units 87% slope

Price Experience Curves for Japanese Motorcycles (1959 to 1974): 

Price Experience Curves for Japanese Motorcycles (1959 to 1974) Average Price ( 000 1965) Cumulative Volume (million units) 1 10 100 80 60 40 20 Slope 76% 126-250 cc 51-125 cc <50 cc Slope 81% Slope 88%

Slide21: 

Photovoltaic modules, 1976-1992 (William and Terzian 1993).

Experience Curve Components: 

Experience Curve Components

Experience Curve Components: 

Experience Curve Components Learning Specialization of Labor Product & Process Improvements Methods & Systems Rationalizations Economies of Scale Know-How

GROWTH/SHARE MATRIX: 

GROWTH/SHARE MATRIX Product Life Cycle Meets the Experience Curve

BCG Growth/Share Matrix: 

BCG Growth/Share Matrix Relative Market Share Relative Market Growth Low High Problem Child High Rising Star Low Cash Cow Dog

BCG Growth/Share Matrix: 

BCG Growth/Share Matrix Relative Market Share Relative Market Growth High High Low Low Problem Child (Top Executive Version)

BCG Growth/Share Matrix Development Path: 

BCG Growth/Share Matrix Development Path Relative Market Share Relative Market Growth High High Low Low Rising Star Problem Child Cash Cow Dog

BCG Growth/Share Matrix Cash Flow: 

BCG Growth/Share Matrix Cash Flow Relative Market Share Relative Market Growth High High Low Low Rising Star Problem Child Cash Cow Dog $ $ $ $ $ $ $

BCG Matrix: 

BCG Matrix Mark II

BCG Matrix II: 

BCG Matrix II Number of Approaches to Achieve Advantage Size of the Advantage Many Small Fragmented Few Stalemate Large Specialization Volume

BCG Matrix II: 

BCG Matrix II Number of Approaches to Achieve Advantage Size of the Advantage Many Small Fragmented Few Stalemate Large Specialization Volume

Industry Value Chain: 

Industry Value Chain Manufacturing Product and service flow R & D Engineering Production & Manufacturing Marketing Sales & Distribution Service Disposal Administrative & other Indirect Value Added

The Experience Curve & The Value Chain: 

The Experience Curve & The Value Chain R & D Production & Manufacturing Subassembly Marketing Sales & Distribution Retailing 95% 75% 70% 90% 85% 95%

Slide36: 

THE END THE END