What is a Learning Curve?
One important component of economies of scale is the Learning Curve, which explains how a more experienced value chain can produce lower costs over time.
Learning curves exist because as individuals and teams repeatedly perform the same tasks their efficiency at them increases, reducing the time and cost of executing those tasks.
Learning curves, therefore, may produce significant advantages in processes with a high content of repetitive tasks like those found in some manufacturing operations, and in some software applications where data is used to learn patterns.
For example, in machine learning applications where algorithms must be trained with data to do their job, larger data sets can help “age” the value chain faster, reaping the benefits of learning curves sooner. We cover data analytics and machine learning applications in more detail in the book.
Economies of scale and learning curves exist in almost every industry, but they don’t grow indefinitely. In fact, in many operations they may dissipate quite rapidly.
In the end, there’s only so much advantage that scale and experience can add, especially in a market with a number of equally-sized companies who relentlessly re-evaluate the optimal sizing and efficiency of their operations.