Helmer argues that an experience curve showing cost improvements over time does not by itself demonstrate a persistent relative cost advantage between competing firms.

Evidence 3 passages

• groundsUntitled source

  aligns with the no-arbitrage assumption of this book. Improvements that can be readily mimicked are not strategic because they do not contribute to increasing bar M or bar S in the fundamental equation of strategy, as these are long-term equilibrium values. But wait a minute. Aren't the step-by-step improvements that drive process power exactly what much of operational excellence is all about? Yes, they are, but this represents only the benefit side, which brings us to an power. The type of benefit it cites, evolutionary bottom-up improvement, stands at the heart of operational excellence. As such, it is quite common. The rarity of process power results from the infrequency of the barrier, an unyielding, long-time constant are the improvements in question. No matter how much you invest, or how hard you try, the desired improvements are constrained by a boundary of potential that is tied to time, as seen in the NUMI experience of GM. Perhaps the best way to think of it is this. Process power equals operational excellence, plus hysteresis. Having said that, such hysteresis occurs so rarely that

• groundsUntitled source

  I am in strong agreement with Professor Porter's sentiments. If one were to adopt a different definition of strategy, something like, everything that is important, then operational excellence would be strategic. As is though operational excellence, while important, hard to achieve and worthy of management mindshare, is not sufficient to gain competitive advantage. Professor Porter would not dispute this. The Experience Curve A concept known as the Experience Curve loomed large in the formative years of the Boston Consulting Group and Bain & Company's strategy practices. The Experience Curve was based on the empirical observation that many company costs seemed to follow a downward trajectory that falls within a specified envelope. For each doubling of units produced, what's meant formally by experience, the deflated cost per unit would be between 70% and 85% of what it had previously been prior to the doubling, referred to as slope. This view is not naive, as indicated by the histogram derived from data in a 1990 science article. In the sample shown in Figure 7.4 of the supplementary PDF, about 60% of their 108 examples

• groundsUntitled source

  exhibited slopes in the 70-85% range. You might be tempted to read these data as disproving my assertion that process power is uncommon. Rather you might say, it is a usual business condition driven by experience. Unfortunately these data simply underline the frequency of the benefits attending operational excellence. The improvements mapped above refer only to gains made over time. They tell us nothing about the relative position of multiple firms at a single point in time. For example, based on the experience curve, there would be no cost differences at any point in time between firms of different sizes, but all firms realizing similar year-to-year gains. Let's use a simple thought experiment to clarify my assertion that the gains over time indicated by the experience curve are widely shared amongst firms. If the relationship between experience held across all firms at a single point in time, then one would commonly expect a firm with a two times size advantage over its largest competitor to sustain operating margin gains of 15% to 30%. The rarity of such huge differences underscores an irony. The experience curve does not suggest power, but rather it indirectly testifies to Professor Porter's point, the ubiquity of competitive arbitrage. Routine. As mentioned before, while in graduate school I had the privilege of studying under Professor Richard R. Nelson. Dick is a fearlessly original thinker, and strategy was one of the many

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