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The experience curve was developed in 1966 by the Boston Consulting Group. It is a hypothesis that total per unit costs decline systematically by as much as 15-25% every time cumulative production doubles. Some firms have empirically confirmed it at various points in their history. The Costs decline due to a variety of factors such as the substitution of labor for capital, learning curve and technological sophistication. Author Walter Kiechel wrote that it reflected several insights, including:

  • A company can always increase its cost structure
  • Firms can achieve lower costs through a higher market share, attaining a competitive advantage
  • Competitors having varying costs position based on their experience
  • An increased focus on an empirical analysis of costs and processes, author Kiechel, refer this concept as “Greater Taylorism”. In 2010, Kiechel wrote that the experience curve was simply the most important concept in launching the strategy revolution, the strategy revolution then began to insinuate an acute awareness of competition into the corporate consciousness. Earlier before the 1960s, the word competition rarely appeared in the most prominent management literature, the U.S companies then faced considerably less competition and did not focus on the performance of peers. Further, the experience curve provides a basis for the retail sale of the business ideas that helps to drive the management consulting industry.

Experience Curve is a graph that depicts the experience effect as reflected in marginal costs and reduced average. Unlike, the learning curve, the experience curve takes into account both variables and fixed costs.

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