While listening to a recent podcast from the Cato institute on the value of globalization, I was introduced to something called the Stan Shih Smile Curve of Value.
The idea is that the lowest value item in the production chain is the manufacturing of the product. This is why, for example, that the while every iPod and iPhone are considered to be manufacturing imports we should not care. The real value of the product is in the development and end-use. It is estimated that of the $400 price of an iPhone a mere $5 goes to manufacturing in China, about $45 goes to Japan for parts, the other $350 to the US or, in this case, Apple. This is why every iPod and iPhone say, “Designed by Apple in California. Assembled in China.”
Anyway, this got me to thinking about what this curve would look like for software implementation firms. Here is what I came up with:
What this shows is that the value to the customer is actually delivered at the extremes of the relationship.
What are your thoughts? I am just beginning to play with this model, so it is very open to criticism.