The experience curve
The concept of the experience curve is that businesses should be able to accurately predict a rate at which their costs are going to systematically decline. A business’s cost position should reflect their share of the market. The bigger the share, the more products they need to make and thereby lower the cost to make the products (Kiechel, 2010) Porter’s Five forces
Porter’s five forces are a framework for understanding industry competition and profitability through analyzing an industry’s underlying structure in terms of the five forces; threat of new entrants, bargaining power of buyers, threat of substitute products or services, bargaining power of suppliers and rivalry among existing competitors (Porter, 2008). “Industry structure, manifested in the competitive forces, sets industry profitability in the medium and long run.” (Porter, 2008).
1) How well does the experience curve (Kiechel) and Porter’s Five Forces satisfy the ‘strategist’ perspective?
The experience curve represents a tool for strategists to describe how costs develop in firms. In the strategist perspective the main focus is on the firm and how it gains its efficiencies. The experience curve helps the strategists to explain that how the costs decline as the firms are getting more experienced. The experience curve is also representing a strategy through the idea of reaching a position as getting the largest market share. The most successful firms in the experience curve model are the firms that have the largest market share and thereby also the lowest costs. The model predicts that a firm in that position will maintain its position. The experience curve was a good example of model that could explain success before it became a standard. The problem arose when everyone tried to use the strategy and drove each other out of business.
Porter’s five forces gives the strategist a framework to analyze the drivers of industry competition. “A company...
References: Power point slides from session 2a, 09/120/12 from bSpace, Soc119T
Dobbin & Joel (2000), Introduction: Economics meets sociology in strategic management, Advances in Strategic Management, Volume 17, p. 1-26.
Kiechel (2010), The Lords of Strategy, The Experience curve delivers a shock, Harvard Business Press, p. 31-45,
Porter (2008), The five Competitive Forces That Shape Strategy, Harvard Business Review, p. 78-93
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