The Relationship between Unit Cost and Cumulative Quantity and the Evidence for Organizational Learning-by-Doing

• DOI: 10.1257/jep.26.3.203
• Publication Date: 2012-08-06T12:36:18Z
• Authors: Peter Thompson
• Keywords: Wright; Learning curve; Unit cost; Empirical evidence

The concept of a learning curve for individuals has been around since the beginning twentieth century. idea that an analogous phenomenon might also apply at level organization took longer to emerge, but it had begun figure prominently in military procurement and scheduling least decade before Wright's (1936) classic paper providing evidence cost producing airframe declined as cumulative output increased. Wright was careful not describe his empirical results curve. Of three proposed explanations relationships he observed between quantity produced, only one is unambiguously source organizational learning; others are consistent with standard static economies scale. It quickly became apparent notion by-product accumulated experience important consequences firm strategy. Boston Consulting Group (BCG) built its consulting business what branded curve, asserting reductions associated applied all costs, were “consistently 20—30% each time production doubled, [and] this decline goes on without limit” (Henderson 1968). Today, negative relationship unit costs best-documented regularities economics. Nonetheless, thesis conceptual transformation into profound strategic implications sufficiently supported direct evidence.