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Many companies take built successful marketing and product strategies around the learning curve—the simple but powerful concept that product costs decline systematically past a common percentage each fourth dimension that book doubles. The learning-bend relationship is important in planning because it ways that increasing a visitor's production volume and market share will too bring cost advantages over the competition.

Nevertheless, other results that are not planned, foreseen, or desired may abound out of such a market penetration toll reduction progression. Reduced flexibility, a loss of innovative capability, and higher overhead may accompany efforts to cut costs.

A manager failing to consider the possible outcome of following a cost-minimizing strategy may find himself with few competitive options in one case he reaches the point where decelerating volume expansion prevents him from obtaining further significant cost reduction.

But if he tin place the probable consequences in advance, he can either anticipate them in his plans or cull an alternative strategy. In this commodity nosotros analyze those consequences and conclude that management cannot expect to receive the benefits of cost reduction provided past a steep learning-curve projection and at the same time expect to achieve rapid rates of product innovation and improvement in product performance. Managers should realize that the two achievements are the fruits of dissimilar strategies.

Proponents of the learning curve have developed the relationships between volume growth and cost reduction through the use of two distinct simply related approaches:

1. The learning curve (also called the progress function and starting time-upward office) shows that manufacturing costs fall as volume rises. It has typically been developed for standardized products similar airframes and cameras.

2. The experience curve traces declines in the total costs of a product line over extended periods of time as volume grows. Typically, it includes a broader range of costs that are expected to drop than does the learning curve, but disregards whatever product or process design changes introduced during the menses of consideration. Gas ranges and facial tissues are two major production lines on which experience curves have been adult.

The two approaches are sufficiently similar for many purposes of planning and analysis. As we shall demonstrate in due course, even so, changes in pricing policy and product design can create significant discrepancies. Care must exist exercised in choosing between the two related approaches.

Difficult Strategic Questions

Evidence on cost decreases in a wide range of products, including semiconductors, petrochemicals, automobiles, and synthetic fibers, supports the notion that total product costs, as well as manufacturing costs, decline by a constant and predictable percentage each time volume doubles. Because this volume/cost human relationship is reliable and quantifiable, it has appeal as a strategic planning tool for employ in marketing and financial planning, as well every bit in product. Moreover, a strategy that seeks the largest possible market share at the primeval possible date can gain not simply market penetration merely also advantages over competitors who have failed to achieve equal volume.

Examples of the economic effects of the learning bend can be found everywhere. The price of ferromagnetic retentiveness cores for computers plunged from 5 cents per bit (unit of memory) in 1965 to less than a half cent in 1973, thereby significantly reducing the costs of computers. In less than two decades of production DuPont reduced the cost of rayon cobweb from 53 cents a pound to 17 cents (values not adjusted for inflation). Airframe costs can drib more than 50% per pound during the three to five years of a high-book production run if the manufacturer tin can command the charge per unit of modification and sustain volume product.

In considering examples of independent activeness past one corporation, the most important is that of the Ford Motor Company in its early years. (The Ford case really shows an experience bend, but the signal it makes is equally valid for a learning-curve state of affairs.) During an initial period of less than two years, the average price of a Ford automobile was reduced from more than than $5,000 to about $three,000 through the introduction of a dominant production, the Model T. Then, as Exhibit I shows on a logarithmic scale, the company cutting the price of the Model T to less than $900 following an 85% feel curve. (To underline the contrasts in price, all the figures are translated into 1958 dollars.)

Showroom I Toll of Model T. 1909–1923 (Average List Toll in 1958 Dollars)

During this time span wages were increased more than threefold, the working day reduced past fiat from ten hours to eight, the moving associates line invented, and one of the nation's largest industrial complexes (River Rouge) created entirely out of retained earnings. We shall return to the Ford case presently.

The frequency with which this cost reduction/ volume increase pattern is constitute in exercise sometimes leads to the wrong impression that the learning-curve effect just happens. On the contrary, production design, marketing, purchasing, engineering, and manufacturing must exist carefully coordinated and managed. The producer cuts costs with a combination of effects; these include spreading overhead over larger volume, reducing inventory costs every bit the process becomes more rational and throughput time drops, cutting labor costs with process improvements, achieving greater segmentation of labor, and improving efficiency through greater familiarity with the procedure on the part of the piece of work force and management. The impetus toward lower costs and college volume is delicate, however, and if any one of the necessary weather is removed, a discontinuous return to higher costs may outcome.

The question management must ask in undertaking such a strategy is whether it fully anticipates or desires the implications that accompany results or that follow execution of the strategy. After the startup phase, doubling of volume has tremendous implications for the organization. Not all the changes it undergoes may be desirable. Management must anticipate the consequences so that it tin can plan for them, or else it should reject the strategy from the kickoff. Some of the questions that information technology must enquire itself are:

  • What is the practical limit to volume/toll reduction? Much of the empirical bear witness that has been presented in back up of the experience and learning curves ignores their limits, implicitly suggesting that cost reductions go on forever. How long can benefits be expected?
  • What design of changes in the organization accompanies progress along the learning curve? Clearly, a long sequence of price reduction has implications for the organization. How must information technology be inverse to bring such cost reductions about? What happens to overhead, the rate of innovation, manufacturing technology, inventory, the piece of work force, and the investment in establish and equipment?
  • What happens when the practical limits of cost reduction are reached? At this point, can the organisation modify its strategy from cost minimizing to production-performance maximizing? Or has the organization so changed itself that it loses the vitality, flexibility, and capability for innovation it needs for quick response? In more specific terms, take the quality of the manufacturing applied science, the fixed and variable toll structures, and the innovative powers of the work force and management deteriorated then much that the organization cannot brand a strategy change?

To explore these questions, we shall consider Ford's early on experience, particularly with the Model T. Then we shall examine other manufacturing cases—such as Television motion picture tubes, electronic components, and office equipment. The evidence suggests that with those products whose performance can exist improved significantly—typically involving complex manufacturing processes such as use of electronic equipment machinery—the incidence of production innovation establishes the limit to the learning curve.

The consequence of intensively pursuing a cost-minimization strategy is a reduced ability to make innovative changes and to respond to those introduced by competitors—although the amount of loss seems to depend on the degree to which the manufacturer follows such a strategy, and its intensity. The problem of strategy selection, then, is balancing the hoped-for advantages from varying degrees of toll reduction against a consistent loss in flexibility and ability to introduce.

From Model T to Model A

At Ford, the experience bend did not go on indefinitely; it governed but the Model T era. So Ford abandoned information technology for a operation-maximizing strategy by which the company tried to improve performance year by year at an always higher product price. The product was the Model A. However, Ford's long devotion to the experience-curve strategy made the transition to another strategy difficult and very plush.

Exhibit II shows volume and average prices of the Ford line for some threescore years in an feel-curve format. (The scale of the peak part is chronological; the bottom office is logarithmic.) Data on retail price trends, displayed by the ii curves, are related to both production-line variety and the charge per unit of product change. Information on the diversity of cycle bases and engines, the horsepower range offered, and the average vehicle weight illustrate how the number of options expanded, contracted, and expanded again. An indicator of the changes in models appears at the superlative of the exhibit. Taking these 3 types of data together—product line diversity, the rate of model change, and price trends—one tin can see that they changed concurrently, whether price is divers on a per-vehicle ground (the upper trend line) or on a per-pound footing (the lower).

Exhibit Two The Ford Experience Curve (in 1958 Constant Dollars)

Because manufacturing costs vary directly with weight, a comparison of the two trend lines in different periods is revealing. Later the Model T was discontinued in 1927, Ford raised the price of its motorcar from year to year, in contrast to the earlier menstruum. The increases were due mainly to design changes which were made to enhance comfort, performance, and safety, but which required more and more expensive materials and caused the price per pound to rise steadily. Considered over a number of years, these systematic annual changes correspond a tradeoff in favor of size, weight, and performance, as opposed to toll.

Every bit the exhibit shows, after an initial period in which several models were offered at the same time, the product line was consolidated in 1909 to the Model T. Ford's objective was to reduce the price of the automobile and thereby increase volume and market share. Earlier the Model T was conceived, when the to the lowest degree expensive Ford car was priced at $850 and tires alone price more than $lx a set, Henry Ford announced plans to sell autos at $400—although, he told reporters, "Information technology will take some fourth dimension to effigy what we tin can practice."

By 1907, subsequently the death of the former company president and the expulsion of dissident stockholder-managers who advocated high-priced cars, attending turned to product price reduction. The company felt confident in taking this step because of its success with the relatively inexpensive Model N in 1907 and later with the Model T, which was clearly a superior product.1

The company accomplished savings by building modern plants, extracting higher volume from the existing plant, obtaining economies in purchased parts, and gaining efficiency through greater division of labor. By 1913 these efforts had reduced production throughput times from 21 days to 14. Afterwards, production was speeded further through major procedure innovations like the moving associates line in motors and radiators and branch assembly plants. At times, however, labor turnover reportedly ran as high equally 40% per calendar month.2

Up to this point, Ford had accomplished economies without greatly increasing the rate of capital intensity. To sustain the toll cuts, however, the company embarked on a policy of backward and further forward integration in order to reduce transportation and raw materials costs, improve reliability of supply sources, and control dealer operation. The rate of capital investment showed substantial increases later 1913, rising from 11 cents per sales dollar that year to 22 cents by 1921. The new facilities that were congenital or acquired included blast furnaces, logging operations and saw mills, a railroad, weaving mills, coke ovens, a newspaper mill, a glass plant, and a cement plant.

Throughput time was slashed to four daysiii and the inventory level cut in half, despite the addition of big raw materials inventories. The labor hours required of unsalaried employees per 1,000 pounds of vehicle delivered barbarous correspondingly some 60% during this catamenia, in spite of the additions to the labor force resulting from the backward integration thrust and in spite of substantial employ of Ford employees in factory construction.

Constant improvements in the production process made it more integrated, more mechanized, and increasingly paced by conveyors. Consequently, the visitor felt less need for direction in planning and control activities. The percentage of salaried workers was cut from nearly 5% of total employment for 1913 to less than 2% by 1921; these reductions in Ford personnel enabled the company to hold in line the burgeoning fixed-cost and overhead burden.

The strategy of cost minimization single-mindedly followed with the Model T was a spectacular success. Simply the changes that accompanied it carried the seeds of trouble that affected the organization'south ability to vary its product, alter its price construction, and continue to innovate.

Cost of transition

In its attempt to keep reducing Model T costs while wages were rising, Ford continued to invest heavily in plant, property, and equipment. These facilities fifty-fifty included coal mines, rubber plantations, and forestry operations (to provide wooden car parts). Past 1926, nearly 33 cents in such assets backed each dollar of sales, up from twenty cents but 4 years earlier, thereby increasing fixed costs and raising the break-even indicate.

In the meantime, the market was changing. In the early 1920s, consumer demand began shifting to a heavier, closed trunk and to more condolement. Ford'due south main rival, General Motors, quickly responded to this shift with new designs. Ford's response was to add together features to the Model T which gradually increased the weight; betwixt 1915 and 1925 the weight of the car actually gained past virtually 25%, while engine power remained the aforementioned.

But the rate of product improvement halted the steady reduction of costs. Nevertheless, to maintain marketplace growth Ford further cutting the list price along the feel-curve formula. This created a astringent margin squeeze, particularly when unit sales began falling after 1923. As the rate of design changes accelerated and wage levels continued to ascent, manufacturing costs loomed always larger in the retail price. In 1926, the manufacturing costs of some models reached 93% of list price, and some models were really sold to dealers at prices below costs. (See Showroom Three for sales, manufacturing, and other data on Ford during the critical two decades.) Ford, unbeatable at making 1 product efficiently, was vulnerable to GM's strategy of quality and competition via superior vehicle performance. Equally Alfred Sloan, architect of GM'south strategy, later wrote:

Showroom III Ford Vital Statistics, 1910–1931 Sources: Ford Archives; Federal Merchandise Committee, Report on the Motor Vehicle Industry, 76th Congress, First Session (1940), House Document 468. Missing figures are non available.

"Mr. Ford…had frozen his policy in the Model T,…preeminently an open up-motorcar design. With its low-cal chassis, it was unsuited to the heavier closed body, and so in less than two years [by 1923] the closed body made the already obsolescing pattern of the Model T noncompetitive as an engineering blueprint…

"The old [GM] strategic plan of 1921 was vindicated to a 'T,' and then to speak, but in a surprising way equally to the particulars. The old master had failed to chief modify… His precious book, which was the foundation of his position, was fast disappearing. He could not continue losing sales and maintain his profits. And then, for technology and market reasons, the Model T cruel… In May 1927…he shut downward his great River Rouge plant completely and kept it shut down for well-nigh a yr to retool, leaving the field to Chevrolet unopposed and opening information technology up for Mr. Chrysler'south Plymouth. Mr. Ford regained sales leadership over again in 1929, 1930, and 1935, but, speaking in terms of generalities, he had lost the pb to Full general Motors." 4

A company that had developed and introduced eight new models during a four-year menses, earlier undertaking the price-minimization strategy, had subsequently so specialized its piece of work force, process technology, and direction that it consumed nearly a twelvemonth in model development and changeover. Equally an illustration of its specialization, in the course of the model change Ford lost $200 1000000, replaced 15,000 machine tools and rebuilt 25,000 more, and laid off 60,000 workers in Detroit alone.

So we see that when costs could not be reduced as fast as they were added through pattern changes, the feel-curve formula became inoperative. While this sequence should give pause to managers who wish to apply the feel bend to make product-line changes, it does not invalidate the principle of the learning curve, which assumes a standardized production.

Turn down of Innovation

The sequence of evolutionary development in production and procedure during the menstruum of the price-minimization strategy and the subsequent strategy transition is paralleled in the pattern of major Ford innovations. Exhibit Iv plots the frequency and significance of Ford-initiated innovations by type of awarding: product innovation, process innovation, and transfer of procedure engineering science to or from associated industries. The new methods and designs are those claimed past Ford. For our analysis, 4 independent industry experts evaluated the importance of each one and rated information technology on a scale of 1 to 5. The innovations range in significance from the introduction of the plastic steering bicycle (index average of 1) in 1921 to the invention of the power-driven final assembly line (index of five) in 1914. The vertical axis in Showroom IV provides a sum of the average points assigned to significant developments by 2-yr intervals in Ford's history.

Exhibit Four Innovation and Process Change at Ford

The showroom indicates that the intensity of innovative activity is closely related to major events in the unfolding of the price-minimization strategy. During the Model T period the activity shows a ripple effect. Installation of new product applications occurs in clusters with new model development and then declines in frequency as the blueprint is standardized, efficiency is refined, and the procedure is integrated into operations. Process innovations rise to a peak subsequently the menstruum of product innovation, equally the manufacturer rationalizes the process and reduces costs. (Compare the peak designated circled i with the peak designated squared 1, circled ii with squared ii, and and so on.) Equally the manufacturer works out these issues, he transfers process technology following the thrust into backward integration, and a third peak of activity occurs (triangled ii, triangled 3, and so on).

The exhibit suggests not only that the nature of innovation changes, but likewise that the intensity of innovative activity diminishes. Ford produced only 1 new product application or process technique during the seven years after 1932 that rated equally high on the scale as 4—the development of transfer machines. This stride toward farther automation took place in 1937.

The changes introduced to trim costs altered the innovative action in two ways. First, after 1926 the types of innovation peaked coincidentally. As operations became more elaborate and systemslike, product and process change developed intimate linkages; many different elements had to be altered simultaneously to innovate change. This relationship implies a high cost of change. Secondly, the nature of product innovation shifted. In the early years, a new model meant a complete transformation involving major innovation. Later, model change became an annual matter, and innovation centered on new features available across model lines rather than on new models. For instance, the Five-viii engine, whose development appears as a substantial cluster of innovations in Exhibit 4, was produced without substantial alterations for 18 years.

Not surprisingly, the 3rd form of innovation, technology transfers, increased in frequency through the period under consideration. This class had specially long-term value at Ford since it improved the manufacturing capability. Many of these transfers were accomplished in Ford's newly integrated feeder operations, such as one where engineering was applied to produce plate glass continuously.

Ford's experience demonstrates the important link between innovation and strategy. Innovation is not the pacing element; it is part of the strategy. Ford'due south choice of strategy made innovation more costly and a more serious organizational problem. Unfortunately, the cost-cut drives likewise led to weakening of the resources (the salaried employees) needed to initiate and carry out innovation. It is not surprising that the company took nigh a year to change over to the Model A.

With its new model, Ford rose again. Combining the old philosophy of cost reduction with the entreatment of an entirely new car boasting demonstrably high performance, the company wrestled the major market share from GM in 1930. Only its market share barbarous once more. Indeed, Chrysler, a distinct 3rd amongst auto makers during the 1920s, held second place alee of Ford during most of the Depression.

As information technology turned out, the company's highly specialized product procedure lacked the balance to handle the new production; for example, the visitor had overcapacity in wood (the Model T had many wooden parts) but undercapacity in drinking glass and body parts manufacturing. Moreover, every bit indicated by the information in Exhibit III, Ford never regained the loftier levels of labor and capital productivity of its heyday. Despite extensive investments in new plant and equipment, fifty-fifty in the highest volume twelvemonth for the Model A (1929), forty cents in found and equipment assets were required per dollar of sales, and almost 80 hours of direct labor were required per vehicle.

Ford did not ameliorate on these figures until the late 1940s, when new management restructured the company and made heavy constitute investments. From the time information technology introduced the Model A, Ford was compelled to compete on the basis of product quality and operation—a strategy in which it was not skilled.

Airframes, Computers, and then on

The Ford example provides a spectacular instance of one company's action in pursuing a price-minimization strategy to its end. Although this is an farthermost case in terms of strategy choices and investment magnitudes, the same forces and consequences can exist institute at stake in other industries. In some cases these forces and consequences are evident when a rapid rate of product change retards the inauguration of the learning curve, and in other cases the difficulties finish the downward trend. Consider:

  • Douglas Aircraft, once an extremely successful, loftier-book aircraft manufacturer, was forced into a merger in 1967 with the McDonnell Visitor by financial problems whose roots lay in poor control of airframe production costs under a fast-shifting atmospheric condition. On the assumption that it could reduce the costs of its new jet model following a learning-curve formula, Douglas had made certain commitments on delivery dates and prices to airline customers. But continued modification of its plans disrupted, equally Fortune put it, "the normal evolution of the earth-shaking learning bend."5
  • International Business Machines' schedules to deliver its new 360 series of computers a decade agone were thrown out of kilter. IBM'southward 1965 annual report described the situation this way: "Although our production of System/360 is building up rapidly and equipment shipped has been performing well, we had problems… Equally a effect nosotros found it necessary in Oct to propose customers of delays from our originally planned delivery schedules. The basic edifice blocks in the Arrangement 360 circuitry are avant-garde new microelectronic circuit modules requiring totally new manufacturing concepts." The snag was owing to the company'southward efforts to achieve loftier-volume production while it was undertaking major product innovation.
  • The price of Tv picture tubes followed the experience-curve pattern from the introduction of television in the late 1940s until 1963, the average unit price dropping from $34 to $8 (in terms of 1958 dollars). The advent of color TV ended the pattern, every bit the price for both black-and-white and color Boob tube tubes shot up to $51 past 1966. And then the feel bend reasserted itself; the toll dropped to $48 in 1968, $37 in 1970, and $36 in 1972. The transition was less traumatic than is sometimes the case considering the innovation was foreseen and the new product was sufficiently similar to the old one that manufacturers could apply their established techniques and facilities in making the color tube.
  • In some cases radically new technology or the cost of transition has forced many of the "sometime" manufacturers out of the business. Such has been the case in the shift from vacuum tubes to transistors, from manual to electric typewriters, and from mechanical calculators to electronic machines. The major producers of textile machinery for rug manufacturing, like Lansdowne and Crompton & Knowles, found their markets taken from them past the appearance of the new tufting applied science in carpets.

The reverse relationship betwixt production innovation and efficiency exists not but in instances where the impetus for change comes about subsequently a long and successful production run, as in the Ford case and in that of Volkswagen more than recently. Information technology can as well be found when the change is an unintended continuation of incertitude post-obit new model introduction, as happened in the foregoing airframe and estimator examples.

Common Elements of Change

To consider the sort of changes that tin can accompany a cost-minimizing strategy, information technology is useful to abstract that aspect of the Ford case. The kinds of changes that took place can be grouped into six categories—product, capital letter equipment and process technology, task characteristics and process structure, scale, material inputs, and labor.

Production:

Standardization increases, models change less frequently, and the product line offers less diversity. Equally the implementation of the strategy continues, the total contribution improves with acceptance of lower margins accompanying larger volume.

Upper-case letter Equipment and Procedure Technology:

Vertical integration expands and specialization in process equipment, car tools, and facilities increases. The rate of capital investment rises while the flexibility of these investments declines.

Chore Characteristics and Procedure Structure:

The throughput fourth dimension improves and the division of labor is extended equally the production process is rationalized and oriented more toward a line-flow performance. The corporeality of direct supervision decreases every bit the labor input falls.

Scale:

The procedure is segmented to have reward of economies of scale. Facilities offer economies of calibration, such as engine plants, are centralized as volume rises, while others, similar assembly plants, are dispersed to trim transportation costs. Spreading the college overhead over larger volume gains savings.

Fabric Inputs:

Through either vertical integration or capture of sources of supply, material inputs come under control. Costs are reduced by forcing suppliers to develop materials that encounter process needs and past directly reducing processing costs.

Labor:

The heightening rationalization of the procedure leads to greater specialization in labor skills and may ultimately lessen workers' pride in their jobs and concern for production quality. Procedure changes alter the skills requirements from the flexibility of the craftsman to the dexterity of the operative.

The same pattern of change in the half-dozen categories that characterizes the Ford history also describes periods of major cost reduction in other industries. For case, as light-bulb manufacturing progressed from a transmission procedure to an almost entirely automated 1, a similar pattern of production development, process elaboration, increment in majuscule intensity, and then on, was axiomatic.6 In areas as diverse as furniture manufacturing and commercial building construction, the bug of improving productivity and achieving innovation often hinge on changes similar in thrust to those at Ford. Life-bicycle studies of international merchandise in many products, such every bit chemicals and petrochemicals, demonstrate a coordinated blueprint of change involving product characteristics, scale, and toll competition that is consistent with the Ford case.

Studies of manufacturing engineering yield a common finding for electronics, chemical, and metalworking companies, among others, that certain conditions in a company, like its supervisory construction, product-line diversity, and utilization of technology, chronicle to characteristics of the manufacturing procedure. More than specifically, manufacturers with more efficient line flows accept different ratios of supervisory personnel to the work force, dissimilar levels of say-so, less product variety, and greater production standardization than manufacturers with more flexible production procedure structures.

Risks of Success

In analyzing the difficulties of Ford and other companies, we are not arguing that the pursuit of a cost-minimization strategy is inappropriate. The failure of many companies, especially small, innovative ones, tin exist traced to their inability to make the transition to high volume and cost efficiency. Nevertheless, management needs to recognize that conditions stimulating innovation are different from those favoring efficient, high-volume, established operations.

While there must be a theoretical limit to the corporeality by which costs can ultimately be reduced, a manufacturer reaches the applied limit beginning. Still, the practical limit is not reached because he has wearied his means of cutting costs; it is rather determined by the market'southward need for product modify, the charge per unit of technological innovation in the industry, and competitors' ability to use product performance as the ground for competing.

In determining how the learning-bend strategy should be pursued, management must realize that the risk of misjudging the limit rises direct with the successful continuation of the strategy. There are ii reasons for this seemingly paradoxical development: first, the marketplace becomes increasingly vulnerable to performance contest and second, attempts to go along reducing costs diminish the organization's ability to respond to this kind of competition.

The market place becomes more vulnerable to functioning competition considering the company must stake out an always-larger market share to maintain a constant, significant rate of cost cut. Demand must be doubled each time in social club to realize the same proportional cost reduction. As the market expands, it becomes harder to concord together and the contest is amend able to segment it "from the elevation," with a superior product or customized options. In one case this activeness is taken, the company on the learning curve must either abandon the earth-shaking volume bases of scale or introduce a major production improvement. Either step, or both, ends the cost-reduction sequence.

The unfortunate implication is that product innovation is the enemy of cost efficiency, and vice versa. To make the learning curve evolve successfully, the manufacturer needs a standard production. Under weather condition of rapid product change, he cannot slash unit output costs.

Managing Applied science

The role expected of technology is critical in the formulation of manufacturing strategy. Many a company has sailed into the unknown, trailing glowing reports about the R&D under way in its laboratories and the new products it is developing. However as well oftentimes the promises in annual reports to stockholders and in news releases are never realized. The problem hinges on difficulties in recognizing that a shift in strategy has a pervasive effect across the organization'south functional areas. The product department cannot follow a program of cost reduction along the learning curve at the same time that R&D or the marketing people are going full steam alee into new ventures that alter the nature of the product.

When a new product born of technology fails, management is often chided because it assertedly marketed the product poorly. The problem may have come up, however, from direction'due south failure to realize that its capabilities to handle innovation had weakened. Foresight is a matter of judging the challenge in terms of altered capabilities as well as technological changes and market place forces. In the Ford case the difficulties arose every bit much from what the organization did to itself as from GM'due south deportment. The ability to switch to a unlike strategy seems to depend on the extent to which the organisation has become specialized in following one strategy and on the magnitude of change it must face. An extreme in either factor can spell trouble.

Very petty is known nigh how to program for this blazon of technological change. But we tin bespeak to ii courses of action that some major companies have followed in avoiding the bug we have described. One is to maintain efforts to continue development of the existing high-volume product lines. This requires setting the manufacture pace in periodically inaugurating major product changes while stressing price reduction via the learning curve between model changes. This course of activeness—which IBM has followed in computers—is patently a plush option which only companies with big resources should undertake. It amounts to a conclusion to maintain comparatively less efficient operations overall.

The second grade of activity is to take a decentralized approach in which separate organizations or plants in the corporate framework adopt different strategies within the same line of concern. Several corporations in high-engineering science industries have taken this approach with success. One arrangement in the company volition pursue profits with a traditional product, like rayon, to the limit of the experience curve. At the same time a new, dissimilar system will undertake the development of innovative (perchance even competitive) products or processes, such as nylon. In taking this tack, some companies have shut down onetime plants and started up new ones instead of mingling dissimilar capabilities that are at various stages of their evolution.7

Neither of these courses of activity volition suit the needs of every organization, just some means of dealing with the result of technological change and strategy transitions should exist included in strategic planning.

1. Allan Nevins, Ford: The Times, the Homo, the Company (New York, Scribner, 1954), Affiliate XII.

2. Keith Sward, The Legend of Henry Ford (New York, Rinehart, 1948), p. 51.

3. See Factory Facts From Ford (Detroit, Ford Motor Company, 1924).

4. Alfred P. Sloan, Jr., My Years With General Motors (New York, Doubleday, 1964), pp. 162–163.

5. John Mecklin, "Douglas Aircraft's Stormy Flight Plan," Fortune, Dec 1966, p. 258.

half dozen. See James R. Vivid, Automation and Management (Boston, Division of Research, Harvard Business Schoolhouse, 1958).

7. For more on this arroyo, encounter Wickham Skinner, "The Focused Factory," HBR May–June 1974, p. 113.

A version of this article appeared in the September 1974 issue of Harvard Business Review.