The New Experience Curve: To maintain a competitive edge, companies must balance and switch effectively between experience in fulfilling demand and experience in shaping demand.
While the original experience curve states that your unit cost will go down as you gain more experience in production, companies today might need an additional kind of experience to create and sustain competitive advantage.
Experience in fulfilling demand is the classic experience curve. This type of experience is the ability to produce existing products more cheaply and deliver them to a broader audience. This process is critical in stable, cost-sensitive, and production-intensive industries such as hard disk drives and laser diodes. Fulfilling demand experience is acquired through a logical deductive process involving capturing and analyzing cost data, identifying opportunities for improvement, implementing changes, and iterating, a process marked by repetition and incremental enhancements.
Experience in shaping demand focuses on creating markets for new products and services. This experience is characterized by successive "jumps" across experience curves, reflecting a company's ability to transition from one product generation to the next.
Exp curve
Shaping demand experience is acquired through an inductive process that involves sampling consumer behaviors, formulating hypotheses on unmet needs or possibilities enabled by new technologies, testing these hypotheses with new offerings, and iterating based on empirical results. This type of experience can be gauged by a company's product-introduction "clock speed" or by the percentage of sales derived from new products or services. Companies like ARM Holdings, Facebook, and Netflix exemplify successful demand shaping.
While both types of experience have always been necessary, the required speed of switching between the two has increased dramatically. The ability to develop and leverage existing and new product knowledge concurrently or to switch between them effectively over time is referred to as ambidexterity and has become more critical in today's rapidly changing markets.
Two experiences