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• New production processes. Process innovations and improvements can be an important source of cost reductions, especially in capital-intensive industries. The low-labor-content semiconductor industry, for instance, achieves experience curves at 70 percent to 80 percent from improved production technology by devoting a large percentage of its research and development to process improvements. Similar process improvements have been observed in refineries, nuclear power plants, and steel mills, to mention a few.

• Getting better performance from production equipment. When first designed, a piece of production equipment may have a conservatively rated output. Experience may reveal innovative ways of increasing its output. For instance, capacity of a fluid catalytic cracking unit typically "grows" by about 50 percent over a ten-year period.2

• Changes in the resource mix. As experience accumulates, a producer can often incorporate different or less expensive resources in the operation. For instance, less skilled workers can replace skilled workers or automation can replace labor.

• Product standardization. Standardization allows the replication of tasks necessary for worker learning. Production of the Ford Model T, for example, followed a strategy of deliberate standardization; as a result, from 1909 to 1923 its price was repeatedly reduced, following an 85 percent experience curve.3 Even when flexibility and/or a wider product line are important marketing considerations, standardization can be achieved by modularization. For example, by making just a few types of engines, transmissions, chassis, seats, body styles, and so on, an auto manufacturer can achieve experience effects due to specialization in each part. These in turn can be assembled into a wide variety of models.

• Product redesign. As experience is gained with a product, both the manufacturer and customers gain a clear understanding of its performance requirements. This understanding allows the product to be redesigned to conserve material, allow greater efficiency in manufacture, and substitute less costly materials and resources, while at the same time improving performance on relevant dimensions. The change from wooden to brass works of clocks in the early 1800s is a good example; so are the new designs and substitution of plastic, synthetic fiber, and rubber for leather in ski boots.

• Incentives and disincentives. Compensation plans and other sources of experience can be both incentives and disincentives. Incentives can change the slope of the learning curve, as shown in Figure 18-5. This is referred to as a "toe-down" learning curve where a more favorable learning process can occur. In Figure 18-6, we have a "toe-up," or "scallop," learning curve, which is the result of disincentives. After the toe-up occurs, the learning curve may have a new slope that was not as favorable as the original slope. According to Hirschmann,4

2. Reprinted by permission of Harvard Business Review. From Winfred B. Hirschmann, "Profit from the Learning Curve," Harvard Business Review, 42, no. 1 (January-February 1964), p. 125. Copyright © 1964 by the Harvard Business School Publishing Corporation; all rights reserved.

3. Reprinted by permission of Harvard Business Review. From William J. Abernathy and Kenneth Wayne, "Limits of the Learning Curve," Harvard Business Review, 52, no. 5 (September-October 1974), pp. 109-119. Copyright © 1974 by the Harvard Business School Publishing Corporation; all rights reserved.

4. Reprinted by permission of Harvard Business Review. From Winfred B. Hirschmann, "Profit from the Learning Curve," Harvard Business Review, 42, no. 1 (January-February 1964), p. 126. Copyright © 1964 by the Harvard Business School Publishing Corporation; all rights reserved.

FIGURE 18-5. A "toe-down" learning curve.
FIGURE 18-6. A "toe-up" learning curve.

Developing Slope Measures

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