Experience and Learning Curves

AuthorJames Gilbert, Monica Turner

Page 276

Experience and learning curve models are developed from the basic premise that individuals and organizations acquire knowledge by doing work. By gaining experience through repetition, organizations and individuals develop relatively permanent changes in behavior or learning. As additional transactions occur in a service, or more products are produced by a manufacturer, the per-unit cost often decreases at a decreasing rate. This phenomenon follows an exponential curve. The organization thus gains competitive advantage by converting this cost reduction into productivity gains. This learning competitive advantage is known as the experience curve, the learning curve, or the progress curve.

It is common for the terms experience curve and learning curve to be used interchangeably. They do, however, have different meanings. According to definitions by Hall and Starr, the experience curve is an analytical tool designed to quantify the rate at which experience of accumulated output, to date, affects total lifetime costs. Melnyk defined the learning curve as an analytical tool designed to quantify the rate at which cumulative experience of labor hours or cost allows an organization to reduce the amount of resources it must expend to accomplish a task. Experience curve is broader than learning curve with respect to the costs covered, the range of output during which the reductions in costs take place, and the causes of reduction.

The idea of "learning by doing" is intuitive. We often experience this effect when we take up a new sport or start to keyboard. Our skill levels increase rapidly with practice, up to a point, and then progress at a slower rate. Eventually, our golf score levels off around some value and our keystrokes per minute (without errors) levels off as well.

Organizational learning is complex in that we learn at many levels simultaneously. In organizations, procedures, norms, rules, and forms store knowledge. March states that managers of competitive organizations often find themselves in situations where relative position with regard to a competitor matters. This possible competitive advantage through enhanced learning is the essence of the study of experience and learning curves.

The analytical use of the concept for business purposes first surfaced in 1936 during airplane construction,

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when Wright observed that as the quantity of manufactured units doubled, the number of direct labor hours needed to produce each individual unit decreased at a uniform rate. The variation of labor cost with production quantity is illustrated by the following formula:

F = log F/log N

where F equals a factor of cost variation proportional to the quantity N. The reciprocal of F represents a direct percent variation of cost versus quantity.

This insight shows that experience-based learning is closely correlated with cumulative output, extending beyond changes in design and tooling. Wright found empirical evidence that as unit volume increases there are predictable corresponding reductions in cost. These data become central concepts for strategic and operational planning. There has been much discussion on the role of learning in business organizations. A seminal work in learning theory is the 1963 A Behavioral Theory of the Firm by Cyert and March. These authors viewed firms as adaptively-rational systems. This means that the firm learns from its experience. In its basic form, an adaptive system selects preferred states for use in the future. With experience, management uses decision variables that lead to goals and shuns those that do not lead to goals.

The learning curve model was...

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