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BCG Experience Curve I The Concept 1973

BCG Experience Curve I the Concept 1973

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187 views2 pages

BCG Experience Curve I The Concept 1973

BCG Experience Curve I the Concept 1973

Uploaded by

anahata2014
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Perspectives

R E P R I N T

1 2 4

The experience Curve Reviewed

investment is required in an amount commensurate with the marginal cost of capital.

I. The Concept

The business effects of this relationship are


summarized below:
Market Share
Costs are inversely proportional to market
share. High market share should produce low
cost.
Growth
Relative costs should improve if growth is faster than competitors.
Debt Capacity
Relative debt capacity should increase with no
loss of safety if market share increases.
Shared Experience
Cost will decline proportionately faster or slower when cost elements are shared between
more than one product.
Cost Control
Cost declines are predictable and therefore
should be the basis for cost control and management evaluation.
Product Design
Choice of design element alternatives can be
determined by whether initial experience is
high or low compared to future volume
expected.
Make or Buy
Choice of make or buy should be determined
by relative experience between your experience and supplier experience differential if
you make.
Procurement Negotiation
The value to the supplier of large scale procurement can be calculated. Also the rate of normal cost change for the supplier can be calculated.
Market Potential
By comparing market elasticity with cost
decline, the market potential can be approximated.

Costs of value added decline approximately 20


to 30 percent in real terms each time accumulated
experience is doubled.
The above relationship plotted on ratio paper
(i.e., logarithmic coordinates) appears as follows:

COST

1.00
.80
.64
.50

10

20

40

60

TOTAL EXPERIENCE

If the growth rate is constant, then annual physical volume grows at the same rate as total experience. The approximate ratios are shown below.
Annual Approximate Annual Years to Double
Growth Rate
Cost Decline
Experience 19 %
19 %

5 - 71/2 %

12 %

31/2 - 5 %

6 %

1/2/3 - 21/2 %

12

2 %

1/2 - 2/3 %

36

Such cost declines are after removing inflation.


They continue indefinitely as long as the growth
rate continues.
If the growth stops, costs continue to decline,
but the rate of decline is cut in half each time the
accumulated experience doubles.
Such cost declines do not occur automatically.
They require management. In particular, added

T H E B OSTON C ON S U LTI NG G ROU P

Perspectives
R E P R I N T

The experience Curve - Reviewed


Product Line Breadth

1 2 4

The experience curve cost effects are an observable fact. They can be confirmed by observation.
The principal problems encountered in application
are those of defining cost elements and in defining
the measuring unit of experience.

The total economic effect of product line


extension can be evaluated by interaction of

Bruce D. Henderson

the experience and volume of combined cost


elements.

The Boston Consulting Group, Inc. 1974

$10.00

77% Slope

$1.000

FORD MODEL T
PRICE EXPERIENCE CURVE
1909 - 1916
$100
10.000

100.000

AVERAGE PRICE PER UNIT

1958 DOLLARS

$10.000

$1.00

WORLD SHIPMENTS
OF INTEGRATED CIRCUITS
LEARNING CURVE
10

1.000.000

100

1.000

10.000

MILLIONS OF UNITS - CUMULATIVE

ACCUMULATED UNITS

Source: Automobile Manufacturers' Association


VALUE OF MARKET SHARE

VALUE OF MARKET GROWTH

DU

ST

CO

RY

PA

NY

PRICE PER UNIT

PRICE PER UNIT

IN

PR

IC

CO

ST

LOSS
GROSS PROFIT
MARGIN

c
b

FIRST YEAR

5% GROWTH

5th YEAR

30% GROWTH

ACCUMULATED VOLUME

ACCUMULATED VOLUME

Source: Texas Instruments Incorporated, First Quarter and Stockholders Meeting Report, April 18, 1973.

T H E B OSTON C ON S U LTI NG G ROU P

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