New Pet Idea

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.

7 thoughts on “New Pet Idea

  1. I’m having difficulty getting my head around this. I like the model, I’m just struggling with how well it “fits” a service compared with a product.

    In regards to terminology, “Implementation” really describes the entire process so “Installation” should be substituted for “Implementation” in the diagram. If your definition of “Implementation” includes conversion, integration, training, etc. then implementation should represent a much higher value to the customer.

    On-going support and Go-Live are supposed to be non-events. The customer would never appreciate the value of these two phases if the software product was well-developed and the implementation was perfectly executed. Where these two phases become highly-valued is when problems arise from either (1) the product, (2) the earlier phases not being completed properly or (3) the human aspects of involvement and “buy-in” in the initial phases and training–arguably the most valuable part of a VAR’s services offering.

    As always, Ed, you think outside the box and your ideas are thought-provoking. Keep up the good work.

    P.S. – You need to put in your model somewhere what the value of ITA Membership is (Hint: Priceless!) 🙂

  2. Thanks, Stuart. I appreciate your advancing my thinking on this. You have a great point on go-live, but I do think customers see value in on-going support of a well done implementation as this provides them with the opportunity to maximize the value uncovered in step on.
    I agree that “training,” or as I prefer to call it, knowledge transfer, is the most valuable long-term aspect of a partner’s offering.
    I hope others will weigh in on this.

  3. And if you’re a consultant who bills for their time you will see this curve inversely because the majority of the time is traditionally spent on the implementation part.

    The smile curve is another great way to debunk the labor theory of value.

    My definition of implementation does include conversion, integration and training. When determining value to solve and developing scope are done properly, Ed is exactly right in stating the implementation is the least valuable part to the customer.

    Until we can completely remove the human element from both software development and consulting I think that having a smooth Go Live will continue to have great value to the customer. From a customer’s perspective, Go Live is the most stressful part of the project. Minimizing that stress is valuable.

  4. This curve matches what we sometimes refer to as the love hate love relationship. During the discovery phases the prospect loves all of the goals that we may be able to help them achieve with the successful deployment of the software. The hate phase can develop during the implementation when the realization that to achieve some of these goals may require them to make some changes to their processes in order to achieve the initial goals set during the discovery phase. This can lead to resistance from the endusers because they have a different set of screens to use or maybe there are a few more mouse clicks then they had previously. These are just a couple of examples that can lead to an implementation getting bogged down because the focus shifts. It is now about the minutia of items like change, deadlines, resource availability, etc. that can impact how smoothly the implementation steps are performed. Once the implementation is complete and the software is in use you will see the nature of the relationship shift back over to the love side. This is because the focus now shifts back to the customer goals that were achieved. Assuming that the right solution was recommended in the first place you can anticipate that it will lead to discussions regarding new goals that they would like to achieve. It is my opinion that on-going support includes more than just a customer support desk to solve problems when they occur. It also includes account management, product portfolio, business process knowledge, etc. Based on this I would replace on-going support with the term relationship management. In other words, the courtship takes place during the first love phase, the hate begins during the implementation after the honeymoon has ended, upon completion of the implementation and after carefully considering the possible breakup it is decided that we do love each other and are good for each other so we really should work together to manage the relationship better so that everyone can live happily ever after.

  5. Tommy, I like your use of the term relationship. I’m not sure about “management”,though to go with it.

    How about “continuing relationship”? This term allows for multiple imputs as I have found that each person working at my client is a client and our job is to assist each and every user with having a “peak experience” by removing the barriers a poorly designed process keeps them from acheiveing.

    The result is we “Live together happily FOREVER After!” !

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