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Explaining the Smile Curve of Raghuram Rajan



  Dec 23, 2023

Explaining the Smile Curve of Raghuram Rajan



The smile curve is a concept that illustrates the value addition in different stages of a product’s lifecycle. Imagine a smiley face; the value addition is represented by the shape of the smile. The tips of the smile are high, indicating high value, and the bottom of the curve is low, indicating low value.

Let’s break it down:

High-Value Ends: These are like the corners of a smile, where the value is highest. For a product like an iPhone, this includes the creation of new ideas, designs, and unique software—things that require creativity and innovation.

Low-Value Middle: This represents the bottom of the smile where the value added is lower, typically manufacturing. It’s seen as less valuable because it’s more about following instructions to assemble the product, which many companies can do.

Full Curve Ownership: If a company wants to “own” the entire smile, it means they want to excel in both high-value creation (like research and development) and in efficient manufacturing.

In essence, a company like Apple focuses more on design and innovation at one end and marketing and selling at the other, both high-value stages, while outsourcing the manufacturing, the less valuable part, to other companies. SRIRAM’s


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