Blog Feed Post

Manufacturing, the Smile Curve and Digital Transformation

The Internet of Things (IoT) is the perfect prescription for revitalizing the political poster child for the Manufacturing industry. I mean, what could be more exciting than to couple IoT (e.g., sensors, beacons, geographical positioning) with artificial intelligence to create manufacturing capabilities with lower costs, higher quality and more agile, than human-bound, manufacturing practices.

The chart in Figure 1 validates that point with the Manufacturing industry seen as one of the biggest beneficiaries of IOT.

Figure 1: BCG Perspective: Winning in IoT


However, businesses are learning that the value in a manufactured product is less in the actual manufacturing, and more in the product’s research and development, design, branding, marketing and services. The differentiating value in manufacturing is in helping distributors and customers to increase the utilization and utility of the products.

Stan Shih, the founder of Taiwan’s Acer Inc., illuminated this phenomenon in the early 1990s when he used the “smile curve” to emphasize where the value is generated in the manufacturing industry. The middle of the smile—the lowest point of value creation—is where the actual manufacturing takes place. The highest points of value creation are found at the corners—with R&D at the beginning and customer service and services at the end[1] (see Figure 2).

Figure 2: The Smile Curve


BusinessWeek recently confirmed these manufacturing value creation points in the “Factories Won’t Bring Back the American Dream” article. The article discusses the topic of manufacturing with respect to the Apple iPhone.

“In a 2010 study, the Asian Development Bank Institute pulled apart an iPhone and figured that the process of assembling it in China accounted for 3.6 percent of its production cost. The remaining 96.4 percent was paid to the parts suppliers, and Apple, as the creator, claimed the big profits. Net income at Apple, which does almost no manufacturing, was an impressive 21 percent of revenue in its last fiscal year, and its shares trade at 18 times earnings. Meanwhile, Taiwan’s Hon Hai Precision Industry Co., one of the companies to which Apple outsources its manufacturing, recorded net profit of 3.5 percent of sales.”

Apple captures 91 percent of global smartphone profits with a steady increase in the associated profit margins as compared to the actual manufacturer of the iPhones (see Figure 3).

Figure 3: Apple Captures 91 Percent of Global Smartphone Profits

One does not need to be a data scientist to understand upon which of these two lines one would want to base their business model.

So if the value to the Manufacturing industry is not in the actual manufacturing of the products, where then can IoT, data science and big data really help to power the manufacturing industry’s business model?

Where Big Data and IoT Can Impact Manufacturing Industry

The actual process of manufacturing may not be the most fruitful area upon which to focus a manufacturing company’s IoT and Big Data initiatives. Let’s review each of the key functions that comprise the manufacturing process (smile curve) to contemplate where and how IoT and Big Data can drive business value.

Additionally, we can create new manufacturing optimization opportunities by:

  • Embedding IOT sensors into every aspect of the product design, development, manufacturing, support and services in order to gain further insights into how to deliver greater customer value, how to reduce costs, how to extend market reach, and how to capitalize on new monetization opportunities.
  • Create a collaborative value creation “hub” that captures all the product performance and customer usage data and corresponding analytics so that you can re-apply these analytics across the manufacturing value-chain process.

Figure 4: Collaborative Value Creation Hub

Manufacturing Digital Transformation

In the same way that a caterpillar goes through 4 stages (i.e., egg, larva, pupa, adult) to reach butterfly metamorphosis, manufacturing companies don’t become digital overnight.  Manufacturing companies must also go through the digital transformation stages in order to metamorphosize into a digital company (see the 5 stages of the Big Data Business Model Maturity Index in Figure 5).

Figure 5: Big Data Business Model Maturity Index


Manufacturing companies must avoid the assumption that they key to leveraging IoT for manufacturing success starts with applying IoT to the manufacturing processes.  Instead, look at the larger value chain and identify opportunities (use cases) where the combination of IoT (data about machine performance and behaviors) and Big Data (data about human performance and behaviors) can impact the high-value activities of a manufacturing company as a whole.

As we learned about the smile curve: “the middle of the smile—the lowest point of value creation—is where the actual manufacturing takes place.  The highest points of value creation are found at the corners—the R&D at the beginning and the customer service at the end.”


Figure 1:  BCG Perspective: Winning in IoT

Figure 3:  Apple Captures 91 Percent of Global Smartphone Profits

[1] The Smile Curve

The post Manufacturing, the Smile Curve and Digital Transformation appeared first on InFocus Blog | Dell EMC Services.

Read the original blog entry...

More Stories By William Schmarzo

Bill Schmarzo, author of “Big Data: Understanding How Data Powers Big Business” and “Big Data MBA: Driving Business Strategies with Data Science”, is responsible for setting strategy and defining the Big Data service offerings for Hitachi Vantara as CTO, IoT and Analytics.

Previously, as a CTO within Dell EMC’s 2,000+ person consulting organization, he works with organizations to identify where and how to start their big data journeys. He’s written white papers, is an avid blogger and is a frequent speaker on the use of Big Data and data science to power an organization’s key business initiatives. He is a University of San Francisco School of Management (SOM) Executive Fellow where he teaches the “Big Data MBA” course. Bill also just completed a research paper on “Determining The Economic Value of Data”. Onalytica recently ranked Bill as #4 Big Data Influencer worldwide.

Bill has over three decades of experience in data warehousing, BI and analytics. Bill authored the Vision Workshop methodology that links an organization’s strategic business initiatives with their supporting data and analytic requirements. Bill serves on the City of San Jose’s Technology Innovation Board, and on the faculties of The Data Warehouse Institute and Strata.

Previously, Bill was vice president of Analytics at Yahoo where he was responsible for the development of Yahoo’s Advertiser and Website analytics products, including the delivery of “actionable insights” through a holistic user experience. Before that, Bill oversaw the Analytic Applications business unit at Business Objects, including the development, marketing and sales of their industry-defining analytic applications.

Bill holds a Masters Business Administration from University of Iowa and a Bachelor of Science degree in Mathematics, Computer Science and Business Administration from Coe College.

Latest Stories
This session will provide an introduction to Cloud driven quality and transformation and highlight the key features that comprise it. A perspective on the cloud transformation lifecycle, transformation levers, and transformation framework will be shared. At Cognizant, we have developed a transformation strategy to enable the migration of business critical workloads to cloud environments. The strategy encompasses a set of transformation levers across the cloud transformation lifecycle to enhance ...
Your job is mostly boring. Many of the IT operations tasks you perform on a day-to-day basis are repetitive and dull. Utilizing automation can improve your work life, automating away the drudgery and embracing the passion for technology that got you started in the first place. In this presentation, I'll talk about what automation is, and how to approach implementing it in the context of IT Operations. Ned will discuss keys to success in the long term and include practical real-world examples. Ge...
The challenges of aggregating data from consumer-oriented devices, such as wearable technologies and smart thermostats, are fairly well-understood. However, there are a new set of challenges for IoT devices that generate megabytes or gigabytes of data per second. Certainly, the infrastructure will have to change, as those volumes of data will likely overwhelm the available bandwidth for aggregating the data into a central repository. Ochandarena discusses a whole new way to think about your next...
So the dumpster is on fire. Again. The site's down. Your boss's face is an ever-deepening purple. And you begin debating whether you should join the #incident channel or call an ambulance to deal with his impending stroke. Yes, we know this is a developer's fault. There's plenty of time for blame later. Postmortems have a macabre name because they were once intended to be Viking-like funerals for someone's job. But we're civilized now. Sort of. So we call them post-incident reviews. Fires are ne...
Whenever a new technology hits the high points of hype, everyone starts talking about it like it will solve all their business problems. Blockchain is one of those technologies. According to Gartner's latest report on the hype cycle of emerging technologies, blockchain has just passed the peak of their hype cycle curve. If you read the news articles about it, one would think it has taken over the technology world. No disruptive technology is without its challenges and potential impediments t...
Hackers took three days to identify and exploit a known vulnerability in Equifax’s web applications. I will share new data that reveals why three days (at most) is the new normal for DevSecOps teams to move new business /security requirements from design into production. This session aims to enlighten DevOps teams, security and development professionals by sharing results from the 4th annual State of the Software Supply Chain Report -- a blend of public and proprietary data with expert researc...
CloudEXPO New York 2018, colocated with DevOpsSUMMIT and DXWorldEXPO New York 2018 will be held November 12-13, 2018, in New York City and will bring together Cloud Computing, FinTech and Blockchain, Digital Transformation, Big Data, Internet of Things, DevOps, AI and Machine Learning to one location.
CloudEXPO | DevOpsSUMMIT | DXWorldEXPO are the world's most influential, independent events where Cloud Computing was coined and where technology buyers and vendors meet to experience and discuss the big picture of Digital Transformation and all of the strategies, tactics, and tools they need to realize their goals. Sponsors of DXWorldEXPO | CloudEXPO benefit from unmatched branding, profile building and lead generation opportunities.
DXWorldEXPO LLC announced today that Nutanix has been named "Platinum Sponsor" of CloudEXPO | DevOpsSUMMIT | DXWorldEXPO New York, which will take place November 12-13, 2018 in New York City. Nutanix makes infrastructure invisible, elevating IT to focus on the applications and services that power their business. The Nutanix Enterprise Cloud Platform blends web-scale engineering and consumer-grade design to natively converge server, storage, virtualization and networking into a resilient, softwar...
The digital transformation is real! To adapt, IT professionals need to transform their own skillset to become more multi-dimensional by gaining both depth and breadth of a wide variety of knowledge and competencies. Historically, while IT has been built on a foundation of specialty (or "I" shaped) silos, the DevOps principle of "shifting left" is opening up opportunities for developers, operational staff, security and others to grow their skills portfolio, advance their careers and become "T"-sh...
Lori MacVittie is a subject matter expert on emerging technology responsible for outbound evangelism across F5's entire product suite. MacVittie has extensive development and technical architecture experience in both high-tech and enterprise organizations, in addition to network and systems administration expertise. Prior to joining F5, MacVittie was an award-winning technology editor at Network Computing Magazine where she evaluated and tested application-focused technologies including app secu...
DXWorldEXPO LLC announced today that Big Data Federation to Exhibit at the 22nd International CloudEXPO, colocated with DevOpsSUMMIT and DXWorldEXPO, November 12-13, 2018 in New York City. Big Data Federation, Inc. develops and applies artificial intelligence to predict financial and economic events that matter. The company uncovers patterns and precise drivers of performance and outcomes with the aid of machine-learning algorithms, big data, and fundamental analysis. Their products are deployed...
ICC is a computer systems integrator and server manufacturing company focused on developing products and product appliances to meet a wide range of computational needs for many industries. Their solutions provide benefits across many environments, such as datacenter deployment, HPC, workstations, storage networks and standalone server installations. ICC has been in business for over 23 years and their phenomenal range of clients include multinational corporations, universities, and small busines...
This sixteen (16) hour course provides an introduction to DevOps, the cultural and professional movement that stresses communication, collaboration, integration and automation in order to improve the flow of work between software developers and IT operations professionals. Improved workflows will result in an improved ability to design, develop, deploy and operate software and services faster.
Headquartered in Plainsboro, NJ, Synametrics Technologies has provided IT professionals and computer systems developers since 1997. Based on the success of their initial product offerings (WinSQL and DeltaCopy), the company continues to create and hone innovative products that help its customers get more from their computer applications, databases and infrastructure. To date, over one million users around the world have chosen Synametrics solutions to help power their accelerated business or per...