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4. The chapter notes there are key differences between economies of scale and learning effects. Let us put that into practice with a brief example. A company such as Intel has a complex design and manufacturing process. For instance, one fabrication line for semiconductors typically costs more than $1.5 billion to build. Yet the industry also has high human costs for research and development (R&D) departments. Semiconductor firms spend an average of 17 percent of revenues on R&D. For comparison the automobile industry spends a mere 3 percent of sales on R&D.44 Thus Intel’s management must be concerned with both scale of production and learning curves. When do you think managers should be more concerned with large-scale production runs, and when do you think they should be most concerned with practices that would foster or hinder the hiring, training, and retention of key employees?
By Strategic Management: Concepts 3rd Edition, by Frank Rothaermel
Expert Answer
Below is when the managers need to be more concerned with large-scale production runs –
- The huge amount of capital investment involved in designing and building the production lines
- The amount of complexity in the manufacturing processes and any possible deviations in the process that would lead to defective products
- The probability of longer lead times due to the possible issues in the longer production runs
- Difficulty in customizing the products
- Difficulty in supervision of the entire production lines
Below is when the managers need to be more concerned employee hiring, training and retention –
- Requirement of employees with various skills
- Identifying training needs and providing the required training for both the firm as well as individual development
- Learning curves of the employees
- Dissatisfaction among employees due to various motivational and hygiene factors which might result in below par performance and even leaving the firm
