Tag: iPhone

OM in the News: Life Cycles and the Smartphone

When Steve Jobs demonstrated the first iPhone in 2007, the audience was amazed by features we consider mundane today

“Steve Jobs took to a stage a dozen years ago this week to introduce a revolutionary new product to the world: the first Apple iPhone,” writes The Wall Street Journal (Jan. 16, 2019). That groundbreaking device, and the competitors that followed, changed the way people communicated, ordered dinner and hailed a taxi. The technology world reoriented around the smartphone, supplanting the PC, MP3 players, the digital camera and maps. The mobile economy was born.

Today, it looks like the era of smartphone supremacy is starting to wane. The devices aren’t going away any time soon, but their grip on the consumer is weakening. A global sales slump and a lack of hit new advancements has underlined a painful reality for the matured industry: smartphones don’t look so smart anymore. Wristwatches can now text emojis. Televisions can talk and listen. Voice-activated speakers can order diapers.

The number of “connected” devices in use that can stream music, clock mileage or download apps has more than doubled to 14 billion in the past 3 years. Now the universe has expanded to voice apps, car infotainment centers and wearable devices. Like the arc of the PC, smartphones may be engaged in a race downward. Titans Apple and Samsung risk seeing their high-end phones become commoditized, as Chinese rivals Huawei and Xiaomi prove capable of making similar devices at lower prices.

More than half of the world’s population now owns a smartphone. While that leaves billions of potential first-time buyers in poorer areas, they offer lower profits. Meanwhile, the market in the U.S. has become saturated, as the improvements in the devices become more incremental and many consumers have decided they don’t need to get each new upgrade. In developed markets, smartphone usage may be reaching its upper limits, as some consumers pull back amid acknowledgment their phones can be addictive, spur anxiety, distract drivers and cast a pall of silence over the dinner table.

Classroom discussion questions:

  1. Referring to the product life cycle curve in Figure 2.5, where does the iPhone fit?
  2. Do your students agree that smartphones are “in a race downward”?

OM in the News: The City That iPhone Built

Foxconn iPhone workers walk between Zhengzhou Foxconn factories

It was 2010 and the iPhone was coming to a new industrial town on the edge of Zhengzhou, China that would be known as iPhone City. One year later, Foxconn, the manufacturer, said the iPhone factory complex had 100,000 workers. Today, it employs 250,000 at the plant. The company makes 150 million iPhones each year, along with 20 million iPads.

“With Apple embracing outsourced manufacturing in Chinese cities, the iPhone’s success in the decade since it launched has fueled China’s rise at the center of the global electronics supply chain,” writes The Wall Street Journal (July 5, 2017). The explosion of higher-tech manufacturing was encouraged by Beijing as leaders sought to move factories up the value chain from making plastic toys and clothes. That shift transformed the lives of millions of Chinese, bringing jobs but also leading to complaints from workers of repetitive labor, restrictive work rules and poor living conditions.

The move to Zhengzhou followed a spate of suicides in 2010 at Foxconn’s other iPhone factory in Shenzhen, along the coast where wages were higher. “We hold our suppliers to the standard we hold ourselves: They must treat everyone with dignity and respect,” said Apple. Apple said wages and working conditions at its suppliers have improved significantly in the past 5 years.

Like American company towns a century ago—Pullman, Ill., Hershey, Pa., and Henry Ford’s Detroit—iPhone City revolves mainly around a single product, and it depends on that product for its wealth. During last fall’s rush to make the iPhone 7, when Foxconn was short-handed, state-owned coal companies lent workers to Foxconn. In past years, the province issued quotas to local authorities stating how many workers they needed to produce for Foxconn.

Classroom discussion questions:

  1. Why doesn’t Apple manufacture iPhones in the U.S.?
  2. What has China’s government done to assist manufacturers such as Foxconn?

Good OM Reading: How the US Lost iPhone Production

Yesterday’s Sunday New York Times’ (Jan.22,2012) lead article tells the story of Steve Jobs speaking at a Silicon Valley dinner in front of President Obama. Obama interrupted Jobs to ask :”What would it take to make iPhones in the US”?  In the 1980s, Jobs had boasted that his Mac computer was “a machine made in America”. Today, almost all 70 million iPhones, 30 million ipads, and 59 million other Apple products are made overseas. Jobs’ answer to the Obama question was unambiguous: “Those jobs aren’t coming back”.

If you are teaching OM to a class of MBAs, the lengthy piece will make for great class discussion. It has a bit of every OM topic in our text, from supply chains, to global competition, to ethical issues regarding employee treatment,  to manufacturing technology.

Apple has benefited  the US economy in many ways, says one company exec. But he adds that curing unemployment is not Apple’s job. “Our only obligation is making the best products available”. Despite the 43,000 Apple employees in the US and 20,000 overseas, almost all 700,000 of the workers making Apple products work for Apple contractors in Asia and Europe.

Apple execs say going overseas is the only option. They tell the story of how the firm relied on a Chinese factory to revamp iPhone manufacturing just weeks before the product was due on shelves. The last-minute redesign (a Jobs idea) forced an assembly line overhaul. New screens began arriving at midnight. A foreman immediately roused 8,000 workers from their company dorm beds. Each employee was give a biscuit and a cup of tea and started 12-hour shifts to fit the new screens into frames. Within 96 hours, the plant was producing over 10,000 iPhones/day. “The speed and flexibility is breathtaking” says an Apple exec.

For Tim Cook, the new CEO, and architect of outsourcing production,  the focus is “Asia supply chains have surpassed what’s in the US. The result is we can’t compete at this point”.