Competitive Advantage: Economies of Learning

So far we have already covered how competitive advantage can emerge both from responsiveness to change (read here) and from economies of scale (read here). Just like economies of scale the economies of learning will enable a company to develop a competitive advantage by reducing the production costs.

There are several factors contributing to economies of learning, including:

  • employees learn to do their job more efficiently
  • less wastes and defects on products
  • better coordination of the different functions
  • faster production process

There are several examples of industries where economies of learning play an important role, including the software industry and high-tech sectors. According to Robert Grant “Japanese companies dominated the world market for active-matrix flat screens primarily because of unassailable cost leadership resulting from experience-based learning. The complexity of flat screen manufacture and the fact that a single chip defect may render an entire screen useless mean that yield rate is the key to cost advantage, and learning is the basis of high yields.”