PREDICTIONS – 10 Years Later - Santa Fe Institute

2. NEEDLES IN A HAYSTACK
a trimester’s delay should decrease exponentially with time. In other
words, delivery delays hurt the most at the time of introduction. Later
on, further delays cost less. This result should not come as a surprise to
business people.
What may surprise most people is the second case, improving the
performance in order to keep the same price. The performance enhancements
required from a trimester’s delay go through a bell-shaped
evolution. Naturally as shipments are delayed the performance must be
increased. This increase is larger every year as we approach the middle
of the learning curve. From then onward, however, the product will require
less and less improvement in its performance for comparable
delays. This can be understood in terms of the MIPS/$ growth curve
starting to flatten out after that date, and consequently a slippage in delivery
would require a smaller improvement in performance than it
would have previously.
The Industry Learning Curve
Most industrial knowledge has been acquired on the job. As a consequence,
such knowledge is characterized by unquestionable validity but
also by a lack of analytical formulation. Unquestionable truths are intriguing
because they signal an underlying law. In my search for
guidelines for successful business decisions, I found that mathematical
manipulations of the logistic function yield pairs of relationships between
price and time, performance and time, or price and performance.
While I was carrying out those manipulations I stumbled onto a fundamental
piece of industrial knowledge: the economies of scale.
Economies of scale say that the more units you produce of a product
the less it costs to produce a unit. Production costs decrease with volume
for a variety of reasons: automation, sharing overhead, reducing
material costs through wholesale prices, and general process optimization
resulting from experience acquired while producing. A major part
of the cost reduction can be attributed to learning in some way or another.
The concept of economies of scale is taught qualitatively in business
schools by means of the volume curve, which shows that costs per unit
decrease as a function of the volume of units produced. This curve
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