Presentation on theme: "Value Chain Assignment"— Presentation transcript:
1Value Chain Assignment 2008 MBA/ENG 290GInternational Competition in Technology
2Team 1 Team 1: Cloud 1 Project: Software cloud Franck Formis - franck_formis[at]mba.berkeley.eduVincent Wai-Shan Ng - vincentng[at]berkeley.eduJameson Slattery - jameson_slattery[at]mba.berkeley.eduRobert Ka Chun Kong - rkong[at]berkeley.eduChuohao Yeo - zuohao[at]eecs.berkeley.edu
3PC Value Chain Analysis MBA 290G.19/24/2008Team 1:Franck Formis, Robert Kong, Vincent Ng, Jameson Slattery & Chuohao Yeo
4Acer value chain and its dependencies R&DComponentsManufacturerDistribution & MarketingApacerAQRKingdom Corp.Animeta SystemToshibaFujitsuSonyHitachiMitsubishiLite-OnIBMAmbitSumidaSanyoWistronBenQAMBITALiAegisSemiconductorYam Digital Tech.Legend Tech.RDC SemiconductorFeiya Tech.Channel Business Model – indirectResellers partnershipGlobal distributorAcer ComputerLogistron ServiceBroadwalk CapitalRed – heavy presence by AcerBlue – no or light presence by Acer
6Asus value chain and its dependencies R&D centerCore technology centerChipsLogic ICPCBConnectorsDRAMIntel, nVIDIA etcProcurement and material management centerMotherboardLED displaySound blasterEee PCEee PCUltra Mobile PCphoneSales, marketing and PM groupsSales, marketing and PM groupsRed – heavy presence by AsusBlue – no or light presence by Asus
7Dell Value Chain Red – heavy presence by Dell R&DComponentsDesignManufactureMarketing & SalesSupportCurrent portfolio of 1954 patentsUse a wide variety of Intellectual Property agreementsGlobal network of technology companiesLarge number of vendorsHWAMDIntelEMCSeagate…SWMicrosoftUbuntu (Linux)CitrixAmericasTexasAPJChinaIndiaSingaporeTaïwanCovers assembly, software inst., functional testing, and quality controlBuild-to-order modelOrganized in 3 BUs: Americas7 locationsEMEA3 locationsGaming desktop manufactured through Alienware (subsiduary)Direct sales modelDedicated salesTelephone-based salesOnlineIndirect salesVARs (Dell Partner Direct), main channel for outside U.SOrganized around customer segmentsSoftware & peripheralsServicesInfrastructure consulting servicesDeployment servicesAsset recovery & recycling servicesTraining servicesSupport servicesManaged servicesDell Connect through CitrixBuild-to-order / JIT inventory managementNo single customer accounted for more than 10% of consolidated net revenues during the last 3 fiscal yearsSupport services: Dell On Call, Dell Support Center, Business Support, Your Tech TeamRed – heavy presence by DellBlue – limited presence by Dell
8HP value chain and its dependencies R&DTestingComponentsAssemblySalesServicesSupport &PSGHP LabsODMsPSGODMsODMsCMsThird-party vendorsPSGCMsOEMsODMsDirectRetailersResellersDistribution partnersIndependent distributorsOEMsIndependent software vendorsSystems integratorsPSGTSGPSG – Personal systems groupTSG – Technology solutions groupRed – heavy presence by HPBlue – no or light presence by HP
9Manufacturing/ Assembly Lenovo PC Value ChainTechnology InputsR&DDesignManufacturing/ AssemblySales & MarketingSoftware & ServicesHW ComponentsAMDIntelSonySanyoSamsungSeagateWestern DigitalMicronTexas InstrumentsPanasonicHitachiToshibaFujitsuKingstonLenovo motherboardsSoftwareMicrosoftAdobeSymantecLenovo R&D centers located in China, Japan and the United StatesODM partners also participate in product R&DLeverage R&D investments of HW component and SW vendorsLenovo design centersStill reliant upon casings, etc. from component suppliersLenovo has 4 manufacturing facilities in ChinaEMS/ODM PartnersQuantaCompalWistronHon HaiInventecBackward integration into subassembly of PC componentsDirect (Web, telephone)Distributors, VARs, technology implementorsIBM Global ServicesRetail partnersTransaction and Relationship modes of sellingLenovo extended warranties and financingIncreasing emphasis on differentiating SW on top of WindowsChannel partners involved in reverse logistics14% of Lenovo’s annual purchases are from its leading supplier42% of annual purchases are from the company’s top 5 suppliersRed – heavy presence by LenovoBlue – limited presence by Lenovo
10Comparison of PC Value Chains Same core set of component and software suppliers across all PC vendorsMinimal feature differentiation across vendorsR&D still seen by most as a way to differentiate their productsStill little differentiationMinimal R&D investments compared to other high-tech industriesDell’s use of the direct sales model minimizes its reliance on distributors, retailers and other channel partnersHP and Lenovo are attempting to differentiate through softwareHP “skunkworks” team working on an alternative to WindowsLenovo could follow HTC’s strategy in mobile – develop a custom UI on top of WindowOustourced vs. in-house manufacturingAcer, Dell and HP outsource to EMS partnersAsus and Lenovo maintain manufacturing facilities while attempting to move up the value streamLenovo and HP are heavily reliant on “solution selling” – distributors, VARs and integration partners delivering PCs as a component of an overall service packageLenovo is particularly reliant on IBM Global ServicesHP Personal Systems Group relies on Technology Solutions Group and EDSConsumer PC players rely on retailers – Best Buy, Circuit City, other category killers
11Dell & Box.netA partnership to offer online storage services for Dell’s Inspiron Mini 9 (subnotebook)Dell’s bet on online computing revolution (Data Center)Potentially a similar spin-in strategy than Cisco ‘s (e.g. Andiamo, Nuova)Link alliance through partnership to limit risk (limited funding) instead of JV or M&AHarness R&D efforts and impact on capital marketsAndiamo (data storage) funded with $84m and spinned-in for $750mNuova (data center operating system) funded with $50m (2005) and spinned-in for $678mEvolution: 30% of link alliances ends-up in continuation by one partner…Consequences: 63% of link alliances ends-up in one-way skill appropriation
12Direction of PC industry Vertical dis-integrationMost components are commoditized and outsourcedFocus on marketing, branding and distributionMove from products to services (not only support)PC value chain gets subsumedOther parts play larger roles, needs for Corporate GovernanceR&DPC value chainSoftwareData centerEnd user
13Key linkages in value chain Companies provide support to their customers, or the next partner in the value chainFor example, if Dell sells through BestBuy, then BestBuy can provide support to the end user. If Dell sells the PC to end user directly, they have to provide customer support.Customer feedback or the last part of the value chain provide linkage and guidance to every other partner in the value chainEnd user preference directs R&D directions, component choices, and marketing strategies
14Team 2 Team 2: Cloud 2 Project: Software cloud David Exposito Cossio - david_exposito[at]mba.berkeley.eduRachel Vera Simon - rachel[at]ieor.berkeley.eduJon Wiesner - jon_wiesner[at]mba.berkeley.eduEmrehan Kirimli- emrehan[at]berkeley.edu
15Dell, HP, Acer, Asus, and Lenovo Team 2:Jon Wiesner, Rachel Simon, David Exposito Cossio, Yanpei Chen, Emrehan KirimliComparing PC Value ChainsDell, HP, Acer, Asus, and Lenovo
16Dell Inbound Logistics Outbound Logistics Marketing & Sales Service Firm InfrastructureVisionary founder. Worldwide operations. Currently cutting operating expenses: downsizing employees and facilities. Hedging activities protected from impact of weakening dollar.Human resource~ 90,500 (majority abroad); activities associated with recruiting, development, and compensation of employees.Technological Developmentincreased 22% this year to $610 million. Focus on shortening development cycle & tailoring regional solutions for international growth. Strengthening IT & sever offerings.Relationships over integration. Quality components. Flexible purchasing to adjust for cost, needs, quality, availability.ProcurementInbound LogisticsJust in time warehousing, minimal inventory; made-to-order for demand and no old technologyCustomized assembly of systems for user specsOutbound LogisticsDirect sales model – insight into customer needsOnline orderingMarketing & Sales#1 in personal PC systems in U.S., and #2 worldwideAdding new channelsAdjusting to new markets: payment upon deliveryServiceHigh quality support, customer access to help infoOperations
17Hewlett Packard Inbound Logistics Operations Outbound Logistics Firm Infrastructure6 business units. Highly decentralized. Presence globally. In the process of reducing the number of facilities to reduce costs.Human resourceemployees. Extensive training for sales force.Technological DevelopmentStrong R&D culture.$3.6B invested in 2007 (3,4% of net revenues). They capitalize with patents and licensing technology.Huge negotiating power. Always use secondary sources of supply. High volume to reduce costs.ProcurementOne of the biggest in High Tech industryInbound LogisticsManufacture high volume of basic product configuration to maximize efficienciesOperationsOutbound LogisticsExtremely complex to reach huge number of customersMarketing & SalesConsumer and commercial customers. Currently reinvesting in increasing sales forceHP offers consulting service and customer support. Very important for HP strategyService
18Acer Inbound Logistics Operations Outbound Logistics Marketing & Sales Firm InfrastructureSpun off manufacturing operations in Low capital costs business model.Human resourceOutside of administrative and management functions, all employees fulfill sales, marketing, customer service or R&D roles.Technological DevelopmentIncorporates advanced feature sets in high end brands. Focused on worldwide growth in notebooks and ultra-mobile devices.Seeking scale and efficiencies through acquisitions in major marketsProcurementOutsources manufacturingSpun off manufacturing operations in 2000Inbound LogisticsOperationsLean operating modelMinimize capital and operating expendituresOutbound LogisticsChannel Business ModelMarketing & SalesPurchased brand names in major markets (e.g., Gateway)Brand positioningServiceSmall investments in service offerings
19Asus Inbound Logistics Operations Outbound Logistics Marketing & Sales Firm InfrastructureBased in Taipei. Facilities in Taiwan, China, Mexico and Czech Republic. Presence globally.Human resource8885 employees. A world class R&D design team.Technological DevelopmentEmphasis on R&D, design. Simple, innovative products. Selected as 9th most growing tech company by Business Week.Big negotiating power. High volume to reduce costs.ProcurementProduction capacity: two million motherboards and 150,000 notebooks per monthInbound LogisticsOperationsIn the process of restructuring into three distinct operational unitsOutbound LogisticsGreat emphasis on Total Quality Management and fast deliveryMarketing & SalesA significant amount of money for marketing, advertise on green productsEmphasis on customer service. Trying to overcome the bad reputation in some countriesService
20Lenovo Inbound Logistics Operations Outbound Logistics Firm InfrastructureFour geographic segments, two major product groups. Presence globally. “Worldsourcing,” but mostly manufacture in China.Human resourceemployees, ~17000 in China, ~2000 in U.S.Strong commitment to talent management.Technological DevelopmentEmphasis on innovation – 17% annual R&D spending increase. Gains in market share driven by new products.Huge negotiating power in China. Committed to use diverse suppliers. Emphasis on trust, reciprocity, integrity etc.ProcurementTrying to manufacture closer to key customer base.Inbound LogisticsMajor push to streamline supply chain and decrease end-to-end cost.OperationsOutbound LogisticsRetail store network essential, especially in ChinaMarketing & SalesSponsoring Olympics etc. Vigorously trying to build the Lenovo brand.Emphasis on “customer intimacy” and support for SMB. Simplified product lines.Service
22Value Chain Dependencies Dell:suppliers as it adopts a just-in-time manufacturing approachcustomers as Dell uses a direct sales modelHP:suppliers as it uses many different parts to produce very different modelsservice as HP also delivers solutions with its big consulting division.Acer:suppliers as it outsources manufacturingAsus:consumers as Asus designs very innovative products according to the needsproduct design team and green productsLenovo:Chinese consumers and suppliers
23Dell & Box.net Partnership Why Partner?Allows Dell to continue to focus on product innovation and faster development cyclesLow barriers to entry ($200K) and insignificant revenue source (Dell would rather sell them servers)Fragmented competitors with better brand recognition in space (e.g., Google, Yahoo, Microsoft, Mozy, etc.)Doesn’t leverage Dell’s competitive advantage in manufacturing processesAllows Dell to focus service offerings on higher value enterprise customersBrand dilution
24Future Projections Possible directions of the industry: Scenario 1: China completely overtakes U.S. as the largest computer market – Lenovo has advantage.Scenario 2: U.S. remains the largest market – Dell has advantage.Scenario 3: Server/datacenter segment completely overtakes consumer segment in terms of volume – quickest innovator has advantage.Scenario 4: PC/cellular convergence, ultra-mobile PCs and ultra-capable cell phones – strong partnerships and large customer base has advantage.Possible changes in the value chain:Logistics know-how gradually spreads – even out the playing field there.Ever higher quality products reduce the need for extensive/expensive service.Commoditization of products means less brand differentiation.Efficient operations & manufacturing vital to establish cost/value differentiation.Marketing also vital – turning the PC into a fashion product like cell phones.
25Team 3 Team 3: Japan 1 Project: New Product for Japanese Company Gonzalo Antonio Baez Mendoza - gonzalobaez[at]berkeley.edu *Ryan Stanley - ryan_stanley[at]mba.berkeley.edu *Yanpei Chen - ychen[at]berkeley.edu *Brian Gawalt – gawalt[at]eecs.berkeley.eduSilvio Junqueira Filho - silvio_junqueira[at]mba.berkeley.edu *
26PC VALUE CHAINS Gonzalo Baez Yan-Pei Chen Silvio Filho Brian Gawalt Ryan StanleyMBA290G, Sep 24, 2008
27Acer Value Chain Multi-product and services + multi-brand strategy % of employees4%28%56%R&DDesign + Manufact.Marketing & SalesDistrib.Customer service + Sales supportEnd customerIn-house / MakeOutsourced / BuyMulti-product and services + multi-brand strategyTime-to-market, scale and focus on customer needs as KSFsSupply chain management business model
28HP Value ChainR&DServices and assemblyMarkt. & SalesDirect distrib.Customer service + Sales supportEnd customerR&DManufacturing & assemblyIndirect distrib.In-house / MakeOutsourced / BuyShifting towards higher margin businesses adding software and services to portfolioReducing real estate and other unprofitable capital employedVery dependent on key suppliers, such as Intel and Microsoft
29Asus Value ChainR&DTheir future:phonesDesign + Manufact.Low marginproducts outsourcedMarketing & SalesEurope est’d.Working onRussia, ChinaDistrib.Many productsstill OEM;joint distro nets for othersSupportExclusivecenters in IndiaEnd customerRecently spun off it’s 4C OEM businesses into two corporations, Pegatron (computer components) and Unihan (everything else)ASUS brand heavily vested in EeePC product lineUltimate strategy: compete on price thanks to new Intel direction80% of sales to top 3 customers (Apple)
30LenovoR&DCom-mittedto talentDev.Design + Manufact.Movingcloser to key cust. baseMarketing & SalesSponsorships (Olympics, etc)to build brandDistrib.Building retail store networkSupportSimpler productlines, SMB support, & “customer intimacy”End customerProcurement: Chinese roots grant large advantages in negotiationsPersonnel: 75% Chinese, 9% USTech. Dev.: Most market share gains driven by new products
31Dell Value Chain Mass customization and online ordering of products Build-to-orderMFGDirect SalesFewRetailersCustomer serviceEnd customerIn-houseOutsourcedMass customization and online ordering of productsDirect sales approach as a totally customer-driven systemCustomer service through outsourced call centers and repair agents31
32Dell & Box.net Partnership Dell Inspiron users get 2 GB of storage absolutely free by signing up for a Box.net account through a direct link on their new notebook.Box is offering affordable plans for users that need as much as 25 GB of online storage.Box.netR&DBuild-to-orderMFGDirect SalesFewRetailersCustomer serviceEnd customerIn-houseOutsourcedBox.net: Online storage feature added to Dell Inspiron by end userDell and Box.net have very different core products so theypartner to complement an overall competitive productInspiron + Box.net = NETBOOK32
33CompareContrastLenovo and Asus are both one-time OEM providers to giants trying to move ahead with their own brandingNot a great business for Ph.D.s!Established Brands vs. Emerging Brands grown from one-time OEM
34Where next? Supply chain + logistics management become critical Value-additive services as a differentiating factorCommoditization of hardware manufacturing/assemblyBranding/marketing strategy become more important in differentiating products
36Value Chain Analysis: Personal Computers Christian HuthLakshmi Jagannathan Christopher QuekDaisuke TanakaJohn Michael WyrwasWorldwide RankPC Brand Market Share (Gartner Q1 ’08)HPDellAcerLenovo19%16%10%7%
37HP Value ChainInbound LogisticsBuilding products to order – maximize manufacturing efficiencies by producing hi vol of basic product configurationsConfiguring products to order – for customer customizationJIT to minimize inventoryPurchase supplies from multiple vendorsDependent on Microsoft and IntelOperationsUtilizes its own manufacturing capacity as well as original design manufacturers and contract manufacturers for cost efficiencies and quicker go to marketHP is the largest customer for most of their suppliers – best terms and prices.Outbound LogisticsHP uses external partners for its outbound logistical needs.Marketing and SalesHP has various types of partners including retailers, VARs, distribution partners, OEMs, system integrators, and independent software vendors.ServiceHP Services competes in IT support services, consulting, integration, and outsourcing services.HP depends heavily on its partners – however HP is able to leverage its size to create favorable terms and pricesLike other competitors, they are heavily dependent on Microsoft and Intel
38HP Divisions Technology Solutions Group (TSG) (36% of revenue) Includes: Enterprise Storage & Servers (ESS), HP Services (HPS), HP SoftwareManages direct sales for volume and value productsManages enterprise and public sector customer relationshipsDrives HP’s vertical sales & marketing approach in communications, media and entertainment, financial services, manufacturing, and public sectorPersonal Systems Group (PSG) (35%)Manages SMB relationships and commercial reseller channelsImaging & Printing Group (IPG) (27%)Manages HP’s overall consumer related sales & marketing activitiesManages consumer channel relationships w/3rd party retail locationsManages direct consumer sales onlineHP Financial Services and Corporate Investments(2%)
40Dell Value Chain Inbound Logistics Dell employs a horizontal structure, outsourcing the production of the components that go into their final products.Dell relies on just in time delivery of components to keep inventory costs low.Suppliers are required to be within a certain geographic distance.OperationsDell’s manufacturing process involves assembly, software installation, and quality control.Each additional component that Dell assembles within the machine adds value to the final product.Outbound LogisticsDell uses an external partner to ship all finished goods to customers.Customer service issues related to shipping are handled by the external partner.Shipment data is shared between Dell and its partners to provide end customers with a high quality of service.Marketing and SalesDell sells its products using telephone, dedicated sales representatives, retail stores, website, and indirect channels.Dell markets to large customers via its sales force and to small customers via the web, TV and print advertising.ServiceDell offers bundled customer service and product support.Dell also offers additional warrantee coverage for an additional fee.The majority of Dell’s customer service centers are outsourced to low cost providers.
41Dell Value Chain and Supplier Relationships Suppliers:Dell’s horizontal integration makes the company dependant on its suppliers to provide high quality/low cost computer parts in a “just-in-time” delivery cycle. Any disruptions in component availability has serious implications for Dell’s profitability.Dell attempts to mitigate the power of suppliers by using multiple suppliers for the same components. This also reduces the risk that the company will experience a shortage of components.In the case of a single supplier (Intel) Dell usually negotiates long-tern deals to reduce the variation in its cost structure.Customers:Dell’s customers include governments, large corporations, and individual consumers.Dell generates significant revenue from government accounts. Maintaining these contracts is a crucial element to protect Dell’s profitability.Dell tries to reduce customer power by diversifying its sales across different customer segments and geographies. No single customer accounts for more than 10% of Dell’s net revenue.
42Acer Value Chain Inbound Logistics Product manufacturing is outsourced to ODM (original design manufacturer) companies in Taiwan (primarily Wistron, Hon Hai, Quanta, and Compal)Relies on just-in-time procurement (inventory turnover is ~25 days)Distributed procurement, fulfillment, and vendor managed inventory system by i2 Technologies, Inc.OperationsAcer focuses on the sales and marketing of its IT products and outsources all manufacturing.The company provides brand management and product development.Outbound LogisticsProducts are shipped from suppliers direct to Acer’s channels, hubs and hustomers.About 2/3 of sales are through subsidiaries such as Acer Europe AG (AEG) and Acer America.Marketing and SalesAcer sells its products through indirect sales partners, including distributors, resellers, and online retailers.Acer emphasizes that its strategy is not to do direct sales.Marketing is segmented by consumer and region with a multi-brand strategy.ServiceAfter-sales service is provided by regional subsidiaries, and overseen by regional corporate departments in EMEA, Pan America, Asia-Pacific, China, and Taiwan.
43Acer Value Chain and Supplier Relationships Suppliers:In 2000, Acer divested its majority ownership stake of Winston, its major supplier to focus on marketing and branding. Acer’s “New Channel” model focuses on a “Multiple-Suppliers, Multiple-Products, Multiple-Channels” strategy.Customers:Acer’s corporate strategy is to not compete with its channel partners, but rather create a win-win collaboration.
44Acer Example Supply Chain Centre for Research on Multinational Corporations (SOMO), 2005
45Asus Value Chain Asus’s value chain is focused on manufacturing Inbound LogisticsAsus has partly outsourced the production of components (chips, DRAM etc) to companies like Intel, AMD and nVidiaTimely delivery via external partners essential.OperationsManufacturing for branded products and contract manufacturing for other hardware companies like HP is done in separate companiesUnihan for PC-related manufacturingPegatron for casing, module and non-PC contract manufacturingAsus also has its own product developmentOutbound LogisticsFinished products are shipped by external partners to Asus reseller or other hardware companiesMarketing and SalesTwo different kinds of customersEnd consumer are served with branded products under the Asus name via reseller etc. (35% of sales)Contract manufacturing main part of business (65% of sales)ServiceAsus offers bundled customer service and product supportExtension of warranty is offered for an additional feeAsus’s value chain is focused on manufacturing
46Asus Value Chain Dependencies Suppliers:Supplier of raw materials (chips, DRAM, PCB etc.) like Intel, AMD, nVidia and QimondaClose relationship for product development necessary e.g. need to develop specific motherboard for each new chipCustomers:Before foundation of separate holdings in 2008 conflict of interestAs a contract manufacturer also own brand – competing for same end consumer with manufacturing customersInternal:Contract manufacturing business is competing for volume from branded-business therefore effective processes are ensured
47Lenovo Value Chain Inbound Logistics Operations Lenovo outsources components that go into its final products to companies such as Intel and some other companies in ChinaLenovo, like Dell, relies on speedy and just in time delivery of components and parts, keeping in mind low inventory costs, and customer’s satisfaction in terms of timely delivery of quality productsTransportation of these components and parts from outsourced companies is done by designated and committed transportation agencies that specialize and service just in this area; Lenovo micromanages these activities to a certain extent to make sure of its on timely deliverySome of its assets come from the acquisition from IBM (for ex: ThinkPad series)OperationsLenovo’s processes, including production and other operation processes are conducted in company-owned global ‘hubs’ of excellence around the worldMain manufacturing (of IT and hardware) hub, and property holding and management occurs in the Chinese MainlandProcurement Agency, group treasury, supply chain management, and other managerial processes occur mainly in Singapore (Lenovo’s base)Most of its other operations are distributed around the world, in Netherlands, Sweden, and HongKong, just to name a fewCommunication and collaboration amongst the different hubs is driven and managed by Lenovo’s strong management team
48Lenovo Value Chain Outbound Logistics Marketing and Sales Service Lenovo uses external partners such as UPS and Fedex to get its product to its customersLenovo and the external partners work together very closely in each step of the distribution process, thereby providing the customers with the best service and satisfactionAll shipping and distribution questions are addressed directly by LenovoCustomer Lenovo UPS/Fedex/External PartnersMarketing and SalesPromotion and Sales is done through a network of channel partners, retail stores, Teleweb, and Lenovo authorized dealers across the globeLenovo also promotes environmental friendly ‘green’ products- ThinkPad X300 series is the first notebook to earn ‘greenguard’ certificationAcquiring a reliable/well-known company such as IBM has helped boost its products, especially ThinkPad and IdeaPadTargets home users, small businesses, and large corporations, essentially covering the whole spectrumServiceBest-in-Class Service within company- 24/7 Technical/Sales Support centers across the globeProvides various channels for service around the world- Lenovo authorized service providers, partners, dealers, ‘SmartCentres’, and other repair/service locations
49Lenovo Dependencies in the Value Chain Suppliers:Since Lenovo is horizontally integrated, it depends on the outsourced companies for in time delivery of quality products; like many companies, keeping the customer always in mind, time and quality becomes very important for Lenovo. Therefore, it is very dependent on the timely delivery from the companies in this horizontally integrated systemManufacturing of most of its IT products is done in Chinese Mainland; therefore, relationship with China is criticalCustomers:Lenovo’s customers include home users, small businesses, and large corporationsLenovo’s main customer is in China, bring in a total revenue of about 37%; Since China is a major supplier and customer, Lenovo is dependent on China in both areas and directs a lot of its marketing and sales towards the Chinese marketOperations and MarketingSince Lenovo operates through different ‘hubs (countries) of excellence’ throughout the world to deliver its final products, it’s very much dependent on these hubs for excellent communication, collaboration and delivery of quality productsAny disruption/disagreement in this system is likely to cause big problemsSimilarly, marketing is done across the globe; Lenovo’s management of retailers and other service entities around the world in order to assure best quality and service for its customers becomes critical
50Comparison of the Value Chains Inhouse Manufacturing Outsourced ManufacturingCustomization as Added Value Less customizationWide Spectrum of Products Fewer ProductsFocus on Product Development CommoditizationMany Distribution Channels Fewer ChannelsCustomer Service as Added Value Fewer Services
51Dell and Box.net Background: Value Chain: Box.net is a company that provides online storage and file sharing solutions.Dell partnered with Box.net to provide expanded storage for Dell’s new “Netbook” class of portable computers.This partnership may be a test for a larger collaboration that involves all of Dell’s product lines.Value Chain:Box.net belongs in the Operations section of Dell’s value chain because it is a value added feature/service that Dell adds to the sum of the components that it assembles.
52Dell and Box.net Partnership vs. Build It Internally: Much Lower Cost: $200,000 to build a similar site does not capture all of the costs associated with providing this type of service. The data center infrastructure required to provide this service would represent huge capital investment for Dell.Even if Dell outsourced the data center requirements to a third-party, the company would have to bear the costs of support and site maintenance.Not a core competency for Dell:Dell has no experience providing data storage for end users and limited experience with software development.Software and Online services are not a key component of Dell’s low cost strategy so developing these products internally does not make sense.Partnerships are part of Dell’s Strategy:Dell is a horizontally integrated company that uses partnerships to keep costs low. Forming a partnership to control internal costs and overhead is in line with Dell’s overall strategy.
53Industry Future Direction Personal computer companies are looking for differentiation in a commodity marketplace.Contract manufacturingThere will be a continuation of the current trend of separation between the brands (marketing, sales, and support) and the manufacturing of personal computers and consumer electronics.CustomizationCompanies like Dell will have a renewed interested in providing custom products.Spectrum of productsComputers with new styles and designs will continue to differeniate commodity hardware, which will provide a benefit to companies with creative design teams.Convergence/ mobile applicationsThere will be a grayer line between laptops and cells phones. Laptop companies will partner with mobile companies, opening up a new sales channel and new economies of scale.Software, open sourceThere will be a move away from the standard Windows box to unique, application specific interfaces, making software development an important part of the value chain. This move is driven by open source operating systems and development tools.Increased serviceSome companies will see an opportunity in providing value added support and service to their hardware offerings. The customer relationship will continue past the point-of-sale.
55PC Value Chain: Acer, Asus, Dell, HP, Lenovo Group 5:Varun BoriahSonia FereresDilip JosephBrendan QuinnAda Zheng
56Generic PC Value Chain Component design Component manufacture Assembly OS /application softwareDistributionSalesSupport and integration
57.com Component design Component manufacture Assembly OS /application softwareDistributionSalesSupport and integrationHP.com
58Component manufacture Assembly OS /application software Distribution Component designComponent manufactureAssemblyOS /application softwareDistributionSalesSupport and integrationAsus (EEE PC)(in-house)(Atom / Celeron)Asus (in-house)OpenOffice / StarOffice / Microsoft / Google AppsAsusBest Buy, NewEgg, CompUSA, etc(through a very simple web page)ASUS
59Basically no core R&D ability. Component designComponent manufactureAssemblyOS /application softwareDistributionSalesSupport and integrationLenovoBasically no core R&D ability.Fully rely on Intel, AMD, Nvidia etc.Outsourced to Taiwan manufactures or hardware companiesRecently developed several types of products based on its own R&DPreviously manufactured by Taiwan OEMs and shipped to Shanghai to assemble; now the OEM assemble the final product and ship to the consumer directlyMicrosoftLinuxAnti-virus softwarePowerwordNo world HQ. put in place a distributed management structure that places operational hubs around the world.Separate channels for Personal and Commercial users;Self-owned distribution network built of Retailer, wholesaler, contractors, agent and specialty stores as well as online channelThink series: online direct sales+store sales+wholesalerLenovo series: own distribution channelTie 1 area: supported by Lenovo own team;Other areas: contract service agents
60subassemblies (box builds - like Hon Hai) Component designComponent manufactureAssemblyOS /application softwareDistributionSalesSupport and integrationDellCM & ODM: manufacturing of printed circuit board assemblies (PCBAs by SCI and Solectron),subassemblies (box builds - like Hon Hai)some final products (mainly notebook PCs- Quanta and Arima)hard drives (Seagate, Quantum, Maxtor and IBM),DRAM (Samsung, Toshiba, Micron), CD-ROM drives, semiconductors, add-on cards,monitors (Sony, Phillips, Nokia, Samsung)“Mass customization” conceptIntends to outsource most manufacturing to OEMs, especially in Asian areaIT Services: outside partners for system integration, installation, on-site repairs and consulting. Partners include Wang, Unisys, IBM and BancTec.Financial Services:Dell Financial Services (JV with CIT group)Direct sales strategy:Dell handles distribution and sales via dell.com(Although moving into traditional distribution via stores)Mass-customization: strong link with Assembly
61Component manufacture Assembly OS /application software Distribution Component designComponent manufactureAssemblyOS /application softwareDistributionSalesSupport and integrationAcer
62Differences: Design/Manufacture Design/Component Supplies Assembly All outsource component suppliersLenovo, HP, Dell, Acer all use both type of microprocessors, Asus only IntelAcer has a ODM of its own (majority-owner in Wistron) which supplies to Acer and others. Rest of companies outsourceLenovo started to do all themselves (get rid of ODMs) and only use CMsNobody develops application software, all outsourceOperating Systems: Asus sells EEE PC with linux by default, can buy windows for extra. The rest can supply both, but vast majority of client base is WindowsAssemblyDell’s “Mass Customization” or build-to-order supply chain
63Differences: Distribution/Sales Dell sells primarily through dell.com Dell, HP, Lenovo offer complete solutions for corporate business: from purchase, logistics, management, maintenance, support …as part of their core services.Last year HP, Lenovo and Dell supplied 87% of commercial enterprise computer market. (Source: Forrester Enterprise Hardware Survey Q3 2007)
64Differences: Services Dell, HP, Lenovo offer complete solutions for corporate business: from purchase, logistics, management, maintenance, support …as part of their core services.HP doing slightly worse but generally similar quality
65Cloud Computing: So what is it anyway? Software as a Service avoids the need for enterprises, SMBs and consumers to buy software and associated hardware infrastructureEg: salesforce.comHardware as a Service avoids the need for enterprises and SMBs to buy servers and storage devicesEg: Amazon EC2HaaSSaaSComp-onentsAssemblyOSAppSoftwareDistribution&SalesSupport&IntegrationPaaSInternet is the primary medium for sales, distribution and support.Support focuses on customer relationships and training, and not on managing hardware or software.Integration of PaaS and SaaS with each other and legacy apps.Platform as a Service enables custom application development without own OS, database, middleware, or hardwareEg: Google APIsHaaS : provides small chunks of storage to individuals, SMBs and enterprises. However, NOT a typical HaaS virtual storage providerSaaS : Edit and share documents onlinePaaS : APIs to mashup with other appsBuys servers, storage devices, network equipment, software, service from traditional vendorsLeases data center space. Buys power and bandwidthSource: Future View: The New Tech Ecosystems Of Cloud, Cloud Services, And Cloud Computing, August 2008, Forrester Research
66&Dell Inspiron Mini is promoted as a ultra-lightweight Internet access device. It has only 8GB storage as SSD is currently very expensive.Enhancing the Mini’s storage with Dell’s own online storage service takes time & money. Dell may lose time to market advantages.box.net is available right now. It works and is popular (1.6m users, 1m files a day). Dell does not have to worry about creating and testing a robust storage service.Cloud services is very nascent and hot area, in which Dell is currently behind. box.net provides an easy opportunity for Dell to experiment and join the cloud ‘crowd’.Dell does not have the full product portfolio or expertise to run a data center (as much as HP or IBM). Partnership with box.net buys time to develop its new Data Center services business.Once SSD prices fall further, the Insipiron Mini can simply use more SSDs and cloud storage becomes even less critical.
67& box.net is a cloud storage provider Main product features Leases space from Data Center/Colocation operatorRackspace, Power, Cooling, BandwidthBuys big storage appliances and servers from NetApp, HP, Dell, etc.Sells small chunks of storage to individual users and businesses through a web interfaceMain product features1 GB free, 7.95/monthData is stored in cloud and hence accessible from anywhereFiles can be edited online and shared with othersWhy did Dell partner with box.net?Dell Inspiron Mini is promoted as a ultra-lightweight Internet access device. It has only 8GB storage as SSD is currently very expensive.Enhancing the Mini’s storage with Dell’s own online storage service takes time & money. Dell may lose time to market advantages.box.net is available right now. It works and is popular (1.6m users, 1m files a day). Dell does not have to worry about creating and testing a robust storage service.Cloud services is very nascent and hot area. box.net provides an easy opportunity for Dell to experiment . Dell is behind.Dell does not have the full product portfolio or expertise to run a data center (like an HP or IBM).Once SSD prices fall further, the Insipiron Mini can simply use more SSDs and cloud storage becomes even less critical.
68The Future Future Markets: Going mobile – WiMAX, 3G, GPRS Revenue share with carriers: iPhone as an example“Netbook” as a 3rd market, in addition to desktops & laptopsNetbooks are currently given away for free with Vodafone 3G contractMeeting the requirements of developing marketsGrowing markets, new needsApply those new technologies to advanced marketseg OLPC (one laptop per child) leading to power consumption advances“Digital living room”PC as consumer entertainment device – Media CenterIntel Viiv, Microsoft Media Centre, integration with TVs and set-top boxes, etcMore informed customers
69The Future Changes to the value chain Hardware is commoditized; constant innovationCompanies will move up value chain towards servicesOffline services gain tractionE.g. IBM exited PC businessShift toward cloud computing and data centersSoftware as a service (SaaS)Should this be achieved through partnering or be developed in-house?Increase in ODMs versus CM and self-assembly unitsODMs and OEMs will start retailing and branding themselvesInternet based distribution gains more tractionGlobal Direct Distribution (GDD): products shipped from ODM to customerIntegration of various service applicationsE.g. box.net integrated with other cloud computing services to meet market needsNew business models based on revenue sharingThe hardware is given away for free
71Dell, HP, Acer, Asus, and Lenovo Value Chains Team 6Wan-Lin TsengToru YamagishiNuttapong ChentanezJim MillerAnkit Gupta
72Acer’s Value Chain Inbound logistics Manufacturing Outbound logistics Channel Business Model: cooperation with suppliers and channel partners in supply-chain managementManufacturingCompletely outsourcing the manufacturing sector to multiple vendors and suppliersOutbound logisticsEfficient inventory control: Products are shipped from ODM suppliers to distribution channels or customers directlyMarketing and salesFocuses on sales and marketing by outsourcing manufacturingLeading position in Europe, Middle East and AfricaAggressive M&As (Gateway and Packerd bell)Services (maintenance)Strict quality management and fulfillment of customer demandsEarly warning program to check the status of products at all times
73Dependency of Acer’s Value chain Outsourcing of manufacturing supports efficient inventory management, direct shipment from ODM manufacturersExpansion of business by M&As allows Acer to utilize scale economy for price negotiation with suppliers
74Asus’ Value Chain From OEM/ODM to brand name business Asus used to be the leading OEM/ODM manufacturer; not long ago, the company started to build its own brand nameOn July 2nd, 2007 Asus has its OEM/ODM and brand name business separatedInbound logistics-OEM/ODMBeing the middleman of its OEM/ODM clients and the suppliers, Asus gets components needed from suppliers directlyManufacturing-OEM/ODMManufacturing for its OEM/ODM clients, i.e. DellOutbound logistics-OEM/ODMShipping products directly to distribution channels or customers of OEM/ODM clientsMarketing and SalesProviding not only manufacturing skills but first class design of products
75Dell’s Value Chain Inbound logistics Manufacturing Outbound logistics Obtain components from external supplier at low cost, no inventory, and pay lateManufacturingOutsource most manufacturing except the final configurationOutbound logisticsMade to customer order and ship directlyReceive payment from customer instantlyMarketing and salesLarge chunk of revenue comes from business in US (51.1%)Focus on direct-sellling modelServices (maintenance)Infrastructure consulting, deployment, asset recovery & recycling, training, enterprise support, client support, managed lifecycle
76HP’s Value Chain Inbound logistics Manufacturing Outbound logistics Number of contract manufacturers (‘‘CMs’’) and original design manufacturers (‘‘ODMs’’) around the world to manufacture HP-designed products.ManufacturingPlants spread throughout the world; Try to be as JIT as possible.Outbound logisticsBesides traditional channel, individual distributors (in untapped markets), OEMs & independent software vendors (ISVs).Marketing and SalesManufacturing divisions of enterprise/ public sector, commercial and consumer markets, responsible for marketing as well.Services (maintenance)HP Services provides multi-vendor IT services, and collaborates internally with other divisions.
77Lenovo’s Value Chain Inbound logistics Manufacturing Channel business model: Integration with former IBM supply chain partners in ChinaManufacturingPartial ownership of ODM manufacturing in ChinaSubstantial ownership of worldwide fulfillment centersOutbound logisticsMixed channel structure: Products are shipped from ODM suppliers to fulfillment centers for final configurationThen to Lenovo/IBM distribution system or directly to customersMarketing and SalesAcquired IBM marque, sales and marketing operationConsumer, business, and government sales in ChinaInherited IBM’s corporate sales base in US and elsewhereR&DChina, Japan, and US: cutting-edge, high-end products
78How the Value Chains Differ Acer:Outsources all manufacturingGlobal direct distributionAsus:Brands own OEM. Doesn't outsource that much.Distribution through channels or direct to customersDell:Outsources most assembly except final configurationDirect distribution to customersHP :Most of the manufacturing in it’s own global locationsTraditional channel, individual distributors .Lenovo:Owns piece of ODM. Doesn’t outsource that much.Distributes through owned global fulfillment centers
79Dependency of Acer’s Value Chain Outsourcing of manufacturing support, efficient inventory management, direct shipment from ODM manufacturersExpansion of business by M&As allows Acer to utilize scale economy for price negotiation with suppliers
80Dependency of Asus’ Value Chain Emphasizing itself more as an ODM manufacturer than as an OEM manufacturer, Asus depends heavily on its R&D group for new design or ideasBeing aware of the stiff competition in the ODM/OEM industry from Chinese manufacturers, Asus decided to reposition itself in the value chain as a brand name manufacturerAsus’ dependency of suppliers and clients grows a lot due to the repositioning
81Dependency of Dell’s Value Chain Dell has large bargaining power over its suppliersNo inventory, parts shipped from suppliers when neededPay supplier about a month after parts shippedPerform final assembly internally for controlMost steps, however are out-sourced.
82Dependency of HP’s Value Chain OEMs distributors, and may also act as competitors.Standardization of parts, so single item may be used in multiple operating divisions.
83Dependency of Lenovo’s Value chain Based in China, near ODM manufacturers, which enhances control and saves on shipping.Owns a large share of its manufacturing supply chain, including a major ODM.Ships basic computers to manufacturing and fulfillment centers in China, Mexico, India, and Poland--near markets
84Dell & Box.netBox.net offers online file storage and file sharing serviceDell ships its Inspiron mini with free Box.net account in an attempt to enter “netbook” market.Box.net add values at the end of value chainThere is a huge advantage to be the first movers in this marketAsus already has similar product for its Eee customersDell would need to take time to develop a similar product itself
85Why Would Dell Create a Partnership vs. Do It Themselves? There is a huge advantage to be the first mover in this marketDell would need to take time to develop a similar product themselves
86Where do you think the industry is going? PC is becoming a commodityThere is no outstanding difference among PCs (except Mac)Cost advantage is critical in competitionDirect sales model is widely acceptedDell established direct sales model utilizing online distributionsOther PC makers have introduced direct model besides their traditional distribution channelsWhat are the key linkages in the value chain?Efficient supply chain management is criticalFor cost advantages, inbound logistics, operation and outbound logistics are linked closelyOutsourcing is a key connection in the value chain
87How the value chain "changing" over the next 5 years? Cost advantage will be more importantPC is a commodityDirect sales model will become more popularAs the online sales channel become popular, inbound logistics and operation will change to support the sales modelMore detailed customer services would be neededExpansion of business scaleTo take advantage of scale economy, more M&As will be conductedBy expansion of scale, PC companies’ negotiating power against suppliers will be strengthened
88Team 7 Team 7: Japan 2 Project: New Product for Japanese Company Anthony Goodrow - goodrow[at]berkeley.edu *Li-Chuan Liao - andrew_liao[at]mba.berkeley.edu *Sha Tao-shatao[at]berkeley.edu *Piyapat Tantiwong – piyapat[at]berkeley.edu*KC Chen - kc_chen[at]mba.berkeley.edu*
89Value Chain Dell, HP, Acer, Asus and Lenovo By Group 7:Andrew Liao, Anthony Goodrow, KC Chen, Piyapat Tantiwong, Sha Tao
90Q1: Value chain: Primary activities Inbound LogOperationOutbound LogMkt & SalesServiceHP-Purchase & consign RM/Goods for/from OEM-No plants-Outsourcing to OEM-No Inventory-OEM ship to retailers directly-Take care R&D and Mkt-Mkt cost = 12% revenueGeneral solution serviceDell-Build-to-order model-W/H & good Supply chain-Never outsourcingassembly-6M ft2 plant-Outsource to delivery serv. Company i.e. FedEx-Relatively small-Save sales channel costAcer-Strong EMEA and M&A, try to overpass HP in USAsus-Vertical Integ.-In-group SC-Purchase the rest outside-OEM subsidiary in group-Ship worldwide from China manufacturing-Active EMEA and APAC but unknown in USLenovo-Buy RM through similar supply chain as HP/Dell etc.-Own factory-Outsource only missing area-Ship directly to retailers-Inv. keep at retailersStrong Brand & mkt share-Good distn channel
91Q1: Value chain (Con’t): Support activities InfrastructureHRR&DProcurementMarginHP-Global sales & support offices-Strong retailer networkN/A- 3% rev.-Variety of product portfolio-Very strong cutting cost-Maintain CSR global retailer8%Dell-BTO model-Mature direct sale model saves inv./retailer cost-Strong control by Michael Dell< 1% rev.Seldom develop on its tech-Maintain CSR global vendor5.6%Acer-Strong EMEA and M&A, try to overpass HP in US-Italian CEO for EMEA development-Hugh success- Not tech advanced-Focus on layout Eng2.2%Asus-Compact indenp R&D, manu, and Mkt functions in group-Strong Eng team-On the way to innovation-Strong only layout Eng-EeePC-Not strong due to small mkt-purchase internally4.1%Lenovo-Took over global sales and strong retailers from IBM-Strong relationship w/ Chinese Government-Improve the design from IBM thinkpad1.1%
92Q2: Outsoucing strategy HPOutsourced nearly all of its manufacturing to Electronic Manufacturing Service (EMS) providers, like Foxconn.Focused on the R&D, marketing and services.This strategy saves HP factory overheads and labor issues.Dellassembled (low value added) PC by itself & hence dragged down the margin.AcerOutsourced.Low margin since it has just acquired E-machines and Packardbell and was looking to have global integration.Asusin-group outsourcing.strong R&D enables the company to do new product innovation.LenovoSaves the labor cost.But increases the factory related expenses, leaving margin at 1.1%.
93Q2 (Con’t): The US market These five companies principally have the similar operation and products.Top players in the industry and maintain a strong supply chain.Different margins regardless of operations strategy.Outsourcing strategy: HP and AcerIn-house manufacturing: Dell, Asus and LenovoWe can conclude that HP and Dell control US market, the largest and most profitable market.However, Acer is stronger than HP in the EMEA, but still generates lower margin as a whole.
94Q3: Summary of the customer/supplier relationships in the value chain. OEMSemiconductor(Intel, AMD)Motherboard(Asus)DellHPAcerLenovoRetailersEnd-User
95Q3(Con’t): The dependencies in each value chain Dell2nd largest computer manufacturerSuppliers: Build-to-order. Keep large inventory from OEMs (Original equipment manufacturer) due to In-house manufacturing strategy.Customers: End users mostly from directing selling, unlike other top computer manufacturers.HPLargest computer manufacturerSuppliers: Purchase components from OEMsCustomers: RetailersAcer3rd largest computer manufacturerCustomers: regional retailers, no inventory for Acer to holdAsus: Asus: computer motherboards (founders were from Acer)Organization restructured: Asus brand (first-party computers), Pegatron(motherboard, component OEM manufacturing), Unihan (PC cases and molding)Suppliers - vertical in-house supply chain, purchase raw materials outsideCustomers - Sony (Playstation 2), Apple (iPod, MacBook), Alienware, FalconNorthwest, Palm, HP (Compaq brand)Organization restructured: Asus brand (first-party computers), Pegatron(motherboard, component OEM manufacturing), Unihan (PC cases and molding)Suppliers - vertical in-house supply chain, purchase raw materials outsideCustomers - Sony (Playstation 2), Apple (iPod, MacBook), Alienware, FalconNorthwest, Palm, HP (Compaq brand)
96Q3 (Con’t): the dependencies in each value chain AsusComputer motherboards (Founders were from Acer)Organization structure: Asus brand (first-party computers), Pegatron (motherboard, component OEM), Unihan (PC cases and molding)Suppliers: Vertical in-house supply chain, purchase raw materials outside.Customers: Sony (Playstation 2), Apple (iPod, MacBook), Alienware, FalconNorthwest, Palm, HP (Compaq brand)Lenovo4th largest computer manufacturerSuppliers: Purchase components from OEMs (same as HP, Dell, Acer)Cusomters: Retailers, no inventory for Lenovo to hold (same as HP, Acer)Organization restructured: Asus brand (first-party computers), Pegatron(motherboard, component OEM manufacturing), Unihan (PC cases and molding)Suppliers - vertical in-house supply chain, purchase raw materials outsideCustomers - Sony (Playstation 2), Apple (iPod, MacBook), Alienware, FalconNorthwest, Palm, HP (Compaq brand)
97Q4:Dell vs. Box.netBox.net fits the technology development of Dell’s value chain
98Q4 (Con’t): Dell vs. Box.net Online file storage and sharing service Box.net is helping to put the “cloud” in Dell’s Inspiron Mini users.With only 4GB of built-in hard drive space in Inspiron Mini 9, Dell needed some way to boost capacity. So it placed a default Box icon on the desktop that leads to 2GB of free internet storage (twice the normal 1GB that Box provides for free) and expandable to 25GB.Individuals can safely and securely upload files of any type to their Box, including photos, videos, music, documents and presentations, and then access those files from almost anywhere on any device. Partnership strategyDell could efficiently leverage its resources and capital as well as focus more on their core technologyBox.net has mature technology in cloud computing which could save Dell’s time developing the similar one.Dell offer direct access to their data through OpenBox platform that provide users the easy way to add incremental storage and access to Box.net suite of sharing and collaboration tools.It provides users with an easy way to add incremental storage and access to Box.net's suite of sharing and collaboration tools.
99Q5: Future of PC industry More segmented, i.e. desktop, laptop, portable PC, low-priced PC for personal/home users and corporate PC and super servers (cloud computing) for business users. This trend is driven by:Technology improvementPC makers’ pursuit of differentiation in the front-end (marketing/service) of value chain since cost-down effect in back-end segments such as operation has been maximized.
100Q5 (Con’t): Future of PC industry & value chain Currently, the key linkage is between procurement and the segment from inbound logistics, operation to outbound operation.Cost advantage in operation by standardizing product.Differentiation through marketing and branding is not easy.Only Dell had differentiated itself using direct sell model.In the future, the key linkage would switching to marketing, R&D and operation.More segments mean more customized demands.Outsource operations.Focus on marketing and R&D function.Operating/logistics costs would not be the only concern.For example, as power and cooling costs outpace labor costs for producing and locating cloud-computing servers, countries with related and supporting industries such as PC cooling technology is preferred for outsourcing to countries with only low labor costs. Operation might remain outsourced but marketing and R&D functions would be taken into account and operating/ logistic costs would not be the only concern. For example, as power and cooling costs outpace labor costs for producing and locating cloud-computing servers, countries with related and supporting industries such as PC cooling technology is preferred for outsourcing to countries with only low labor costs.
106Comparing the value chains: Focusing on design and Marketing Lenovo – Stressing on design and PerformanceFocuses on design and assembly (outsources the manufacturing)Differentiates on design, performance and durabilityAcer – Leveraging its channelsDevelops and manages its channels to bring cost-effective products to market.Focuses on design, sales and marketing (outsources the manufacturing)Differentiation by brand and technology (multi-brand strategy)
107Comparing the value chains: Upstream vs Downstream Asus – Upstream StrategyProduces low-cost computers via an upstream integration of the value chainSells to large retailers or directly to large organizationsHP – Downstream StrategyOutsources the manufacturingDifferentiates on software and servicesSells mainly to retailers and resellers
108Comparing the value chains: Integration of the value chain Dell – Direct Customer ModelGlobal integration of the value chainHighly customizable productsSells directly to the customer
109Dependencies in value chain: DellCustomersLarge Business Customers.StrategyBuild to order. (Direct sales value chain)CostLow cost LeaderHPProductInnovative and different products.Largest seller of personal Computers.
110Dependencies in value chain: AcerSuppliersOutside suppliers.DistributorsDealers and Retailers.Customer baseLarge customer base in Developing countries.AsusProductLeader in Desktop PCs worldwide (Risk)LenovoDesktopsStrategy towards targeting remaining desktop customers.
111Box.net in Dell’s PC Value Chain Value Chain PositionBox.net is a storage service that is complementing part of a hardware function (storing)Box.net would be positioned in the Services part of the Chain ValuePartnership Value for DellNot part of the Core business: Online storage is not part of the busines for Dell – An important part of the strategy is deciding what not to doCost: Dell probably did not pay much to Box.net per computer sold – if they paid anything at all – so the price paid could be much less than the cost of developing the website, the servers and its maintenanceReduce liability: If the service does have problems and don’t work as expected at the end it is a third party the one that didn’t deliver so Dell won’t hurt its brandTiming: Dell arrived late to the Netbook game, so it had to act quickly. Developing the site plus explaining what it is and how it works could take valuable timeExpertise: Box.net already has the expertise of doing this business and will be able to deliver with less problems than a new venture would haveInstalled Base: box.net already has 2 million clients and this business works with scale – it will take sometime before Dell reaches 2 million clients for its Mini computerOutsourcing Philosphy: It is within Dell’s guts to outsource whatever is not part of their core business
112The PC Value Chain Where are we headed? The Internet is the new Computing PlatformThe Internet is quickly replacing both traditional hardware and software as more and more applications and capabilities are shifted from end-user machines to the webCloud computing and decentralization allows better services to be offered at lower cost and more reliablyWi-Fi is the new RAMAccessing the internet quickly and efficiently is now more important than traditional hardware such as hard disk space and RAMNetbooks allow ultra low cost entry into personal computing with the express purpose of web-surfing and accessing web-based applicationsPCs as a Commodity?As the price of PCs fall with netbooks and their capabilities are shifted to the net, differentiation will lose to price competition
113The PC Value Chain If PCs are losing, who is winning? Servers, routers and switchesDelivering web content to users is becoming the new competitive marketThe quality of the software or service still depends on the machine it runs on, only the location of that machine has changedCompanies will see growth in both the hardware and the software that manages and delivers the content of the internet to end usersThe most successful companies will be those that can transition their business to the production of IT equipment and software while maintaining a strong effort in low-cost PC manufacture. These are already their fastest growing sectors. Those that cling to high-end computing and branding will likely lose out.113
114Team 9 Team 9: Cloud 3 Project: Cloud Computing James Su - james_su[at]berkeley.edu *James An - jyan[at]berkeley.eduBoaz Ur - boaz_ur[at]mba.berkeley.edu *Zishan Khan - zishan_khan[at]mba.berkeley.edu *
115PC Value Chain 2008Group 9James AnZishan KhanJames SuBoaz Ur
117Differences in PC Value Chains Suppliers Assemblers ChannelsCustomerDellAsusAcerLenovoHPApple
118Financials of different PC Manufacturers You don’t have to build value at the component level to be profitableThese financials reflect the total business for the compared companies and not only the PC business.
119Dependencies in the Value Chain Suppliers Assemblers ChannelsComponentsIntel/AMDMicrosoftSeagateDellGatewayLenovoHPAcerAsusDirectDellLenovoCustomerRetailersComp USACircuit CityCostcoOnline (Amazon, Buy.com)Local Stores / Small ResellersSub-AssemblyFlextronicsSolectronIntel AcerAsusSub- AssemblyAcerMitac FICAsus
120Dell Forms a Partnership with Box.net “Box is the most secure, easy-to-use way to share and manage files online.” –from Box.net’s OverviewWhat the Partnership meansWith the purchase of a new Dell Inspiron Mini 9 Notebook, customers receive…2 GB of free online storage on Box.netDiscounts on plans of up to 25 GB on Box.netIn the PC Value ChainBox.net is a supplier. It provides a service which comes with the Dell laptop.
121Dell Forms a Partnership with Box.net – Cont’ Advantages to PartnershipDell saves costs in development of a website that offers the service.Box.net is widely-used with a customer base of 2 million and also has award-winning service. Offering their service may help with advertising efforts. It may also attract Box.net customers to buy Dell labtops.Partnership can be dissolved if it does not help Dell.DisadvantagesIf the service does not increase sales, Dell could potentially be making less on this labtop by working with Box.net.If it is successfully, Dell has limited control over how Box.net will develop and grow.
122Bargaining power of suppliers – Depends on supplier Where is the industry going? (A Porter’s analysis) and how will the value chain "changing" over the next 5 years?Bargaining power of suppliers – Depends on supplierSome suppliers have strong bargaining power that will probably maintain. Intel is one of these. Intel is still in the position to extract profits from the industry.Windows is gradually losing market share but in a slow pace.Other inputs are commodities. The only manufacturers that will be able to extract some premium prices are the ones who differentiate and build their own brands. Like WD.Bargaining power of retailers – Mostly lowResellers and retailers don’t own the customer. Since a PC is a mature product, many customers make decision and buy direct from manufacturers. Dell, Apple are in a position to continue their direct relationship.Retailers have some leverage in physical point of sale or in access to millions of customers. Costco for example can still bargain good deals with manufacturers because they have access to large and otherwise not accessible segments of the population.Smaller retailers have very low bargaining power so can’t extract much from the value chain.
123Intensity of rivalry – Very High Where is the industry going? (A Porter’s analysis) and how will the value chain "changing" over the next 5 years? – Cont’Intensity of rivalry – Very HighFor the PC wintel industry because it is standardized there is little difference between the machines except price.Apple differentiates itself completely and has growing market share.Apple also inspires the competition to go for more “designed” computers. The rivalry with Lenovo and Dell is intensifying as Apple’s market share grows.Threat of new entry - DependsThe threat of a new large manufacturer entering the market is pretty low.The threat of white labels entering / branded white labels is high and happens all the time, because they have very low costs and low barriers to entry.Threat of substitutes - GrowingSmart phones (such as the iphone) are becoming computing platforms and can threat PCs.
124Where is the industry going? Cloud computing and Saas may enable network computers. These machines – Netbooks - will mainly have a browser and communication. All the rest will be done on the web. They will require less local computing power, almost no local software and no OS (windows) and can be much cheaper.Google (chrome) and other rivals will attempt to enable this technology. Thus capturing more from the value chain.New business models might emerge in this model. Pay per use / Free (as based) / etc instead of the shrink-wrap software model used today.Even with existing computing technologies, Saas will play a growing role for the consumer.Open source software will continue to grow as an alternative for Microsoft office.Physical Design and performance will be key in high-end computers especially as Apple gets more market share.In terms of manufacturing, Dell and other will continue to grow their outsourcing in order to cut costs and because professionalism is growing.
125Team 10 Team 10: Ghana Project: Ghana Anirban Sen - asen[at]ischool.berkeley.eduElihu Luna - elihu_luna[at]mba.berkeley.eduRaluca Scarlat - raluca.scarlat[at]gmail.com *
126Team 10 VALUE CHAIN IN TECH Anirban Sen Elihu Luna-Thomas Raluca ScarlatYilun HuVALUE CHAIN IN TECH
127Value Chain: HP Palo Alto, Beijing, Bangalore, Haifa, Tokyo, Bristol HP direct salesContract ManufacturersRetailersPrimary DistributionHP LabsOriginal Design ManufacturersResellersOriginal Equipment ManufacturersPalo Alto, Beijing, Bangalore, Haifa, Tokyo, BristolDistribution Partners67% U.S.Independent DistributorsOriginal Equipment Manufacturers
128Solutions Based Value Chain: HP HP Services (Consulting and Outsourcing)Enterprise Storage and ServersHP Financial ServicesHP SoftwareCommercial ClientsPersonal Systems GroupImaging and Printing GroupEDSCorporate InvestmentsR&D
129Value Chain: Lenovo Invest Capture Demand Solution & Delivery Support Global SuppliersTech SupportGreat China, Asia, US, EuropeIndividual, Business, GovernmentExpansionGlobal AssemblyServiceGlobal LogisticsBoth these two Asian PC makers are expanding to the U.S. market by acquiring U.S. companies. Lenovo bought IBM’s PC business. Acer bought Gateway. They are both more on the assembly side and not much on the service/consulting side.R&DStrategySales & MarketingDistribution
130Value Chain: AcerInvestCapture DemandSolution & DeliverySupportGlobal SuppliersTech SupportGreat China, Asia, US, EuropeIndividual, Business, GovernmentExpansionGlobal AssemblyServiceGlobal LogisticsBoth these two Asian PC makers are expanding to the U.S. market by acquiring U.S. companies. Lenovo bought IBM’s PC business. Acer bought Gateway. They are both more on the assembly side and not much on the service/consulting side.R&DStrategySales & MarketingBoth these two Asian PC makers are expanding to the U.S. market by acquiring U.S. companies. Lenovo bought IBM’s PC business. Acer bought Gateway. They are both more on the assembly side and not much on the service/consulting side.Distribution
131Value Chain: Dell Infrastructure consulting Deployment Manufacture of Components by suppliers.Customized assembly of PCs as orders from buyers come inPurchase by PC UsersServices and SupportInfrastructure consultingDeploymentAsset recovery and recyclingTrainingSupportManaged ServicesDell Financial ServicesSoftware and PeripheralsCustom orders received and customer input.Sales and Marketing
132Value Chain: Asus Customer Software: 3D AutoCAD, Ultra Mobile PC Manufacture of Components by suppliers and subsidiaries:Chips, Logic IC, PCP, Connectors, DRAM3C: computer, communication, and consumer electronicsDecentralized Sales ForceCustomerSoftware:3D AutoCAD, Ultra Mobile PC
133Dell: Box.net partnership Purchases by PC UsersServices and SupportBox.net provides post purchase support. Users can create content on their computers and upload it to Box.net to be accessed from any location. Web applications also enable Dell to approach Box.net from the Software and Peripherals angle and customize different memberships to different customers.Dell may have decided not to pursue a web services strategy because it is not their core competency and they do not have the infrastructure to provide web services.
135Evolution of the Value Chain Just-in-time manufacturing and delivery of custom orders.Computers will not come pre-loaded with software that the customer will not use. Instead the applications will be delivered through the web only when needed by the customer.Companies will develop the key linkages between customer feedback and order completion, sales and marketing, and support. The post-purchase service and support linkage will grow as the hardware gets cheaper. Eventually, companies may monetize only the services portion and provide the actual computer for free!