In this BCG On Strategy series, I go chapter-by-chapter through the book: The Boston Consulting Group On Strategy: Classic Concepts and New Perspectives (2nd edition). Join me each week for BCG On Strategy at AaronHoos.com.
OVERVIEW: THE EXPERIENCE CURVE REVIEWED
Bruce Henderson wrote this chapter in 1973. In this chapter he builds off of the already familiar concept of learning curves to introduce the subject of experience curves. In short, experience curves demonstrate that the more experience you develop in a particular skill, the less the cost to perform.
HIGHLIGHTS
Henderson describes the learning curve as a somewhat familiar concept that was well-quantified in airplane factories during World War 2. Briefly, learning curve studies revealed that the rate of labor decrease was about 10 to 15% per doubling of experience.
With the experience curve, the effect is even more pronounced and impacts more than just labor costs. The BCG’s findings showed that every time volume doubles, costs (including labor costs, administration costs and more) fall by between 10 and 25%.
MY THOUGHTS
Since a growing experience base means lower costs, business owners who find their groove can benefit from competitive pricing and higher profitability.
So, here’s what your business should do: Get experienced! Formalize your processes into clear, distinct steps and turn them into habits so you can do them over and over. This will help drive down your costs while raising your productivity and, ultimately your profitability.
If you’re not sure how to do that, start by writing out your sales funnel and identifying those procedures and processes. Then, create a checklist as you perform your services or build your products.
Now that you have a big list of step-by-step procedures, just do them. Over and over and over and over. Yes, you should dial in some changes and innovation from time to time, your experience and productivity over time will make you more profitable.