Value Chain Assignment

Value Chain Assignment
2008 MBA/ENG 290G International Competition in Technology

Team 1 Team 1: Cloud 1 Project: Software cloud
Franck Formis - franck_formis[at]mba.berkeley.edu Vincent Wai-Shan Ng - vincentng[at]berkeley.edu Jameson Slattery - jameson_slattery[at]mba.berkeley.edu Robert Ka Chun Kong - rkong[at]berkeley.edu Chuohao Yeo - zuohao[at]eecs.berkeley.edu

PC Value Chain Analysis
MBA 290G.1 9/24/2008 Team 1: Franck Formis, Robert Kong, Vincent Ng, Jameson Slattery & Chuohao Yeo

Acer value chain and its dependencies
R&D Components Manufacturer Distribution & Marketing Apacer AQR Kingdom Corp. Animeta System Toshiba Fujitsu Sony Hitachi Mitsubishi Lite-On IBM Ambit Sumida Sanyo Wistron BenQ AMBIT ALi Aegis Semiconductor Yam Digital Tech. Legend Tech. RDC Semiconductor Feiya Tech. Channel Business Model – indirect Resellers partnership Global distributor Acer Computer Logistron Service Broadwalk Capital Red – heavy presence by Acer Blue – no or light presence by Acer

Example Source:

Asus value chain and its dependencies
R&D center Core technology center Chips Logic IC PCB Connectors DRAM Intel, nVIDIA etc Procurement and material management center Motherboard LED display Sound blaster Eee PC Eee PC Ultra Mobile PC phone Sales, marketing and PM groups Sales, marketing and PM groups Red – heavy presence by Asus Blue – no or light presence by Asus

Dell Value Chain Red – heavy presence by Dell
R&D Components Design Manufacture Marketing & Sales Support Current portfolio of 1954 patents Use a wide variety of Intellectual Property agreements Global network of technology companies Large number of vendors HW AMD Intel EMC Seagate … SW Microsoft Ubuntu (Linux) Citrix Americas Texas APJ China India Singapore Taïwan Covers assembly, software inst., functional testing, and quality control Build-to-order model Organized in 3 BUs: Americas 7 locations EMEA 3 locations Gaming desktop manufactured through Alienware (subsiduary) Direct sales model Dedicated sales Telephone-based sales Online Indirect sales VARs (Dell Partner Direct), main channel for outside U.S Organized around customer segments Software & peripherals Services Infrastructure consulting services Deployment services Asset recovery & recycling services Training services Support services Managed services Dell Connect through Citrix Build-to-order / JIT inventory management No single customer accounted for more than 10% of consolidated net revenues during the last 3 fiscal years Support services: Dell On Call, Dell Support Center, Business Support, Your Tech Team Red – heavy presence by Dell Blue – limited presence by Dell

HP value chain and its dependencies
R&D Testing Components Assembly Sales Services Support & PSG HP Labs ODMs PSG ODMs ODMs CMs Third-party vendors PSG CMs OEMs ODMs Direct Retailers Resellers Distribution partners Independent distributors OEMs Independent software vendors Systems integrators PSG TSG PSG – Personal systems group TSG – Technology solutions group Red – heavy presence by HP Blue – no or light presence by HP

Manufacturing/ Assembly
Lenovo PC Value Chain Technology Inputs R&D Design Manufacturing/ Assembly Sales & Marketing Software & Services HW Components AMD Intel Sony Sanyo Samsung Seagate Western Digital Micron Texas Instruments Panasonic Hitachi Toshiba Fujitsu Kingston Lenovo motherboards Software Microsoft Adobe Symantec Lenovo R&D centers located in China, Japan and the United States ODM partners also participate in product R&D Leverage R&D investments of HW component and SW vendors Lenovo design centers Still reliant upon casings, etc. from component suppliers Lenovo has 4 manufacturing facilities in China EMS/ODM Partners Quanta Compal Wistron Hon Hai Inventec Backward integration into subassembly of PC components Direct (Web, telephone) Distributors, VARs, technology implementors IBM Global Services Retail partners Transaction and Relationship modes of selling Lenovo extended warranties and financing Increasing emphasis on differentiating SW on top of Windows Channel partners involved in reverse logistics 14% of Lenovo’s annual purchases are from its leading supplier 42% of annual purchases are from the company’s top 5 suppliers Red – heavy presence by Lenovo Blue – limited presence by Lenovo

Comparison of PC Value Chains
Same core set of component and software suppliers across all PC vendors Minimal feature differentiation across vendors R&D still seen by most as a way to differentiate their products Still little differentiation Minimal R&D investments compared to other high-tech industries Dell’s use of the direct sales model minimizes its reliance on distributors, retailers and other channel partners HP and Lenovo are attempting to differentiate through software HP “skunkworks” team working on an alternative to Windows Lenovo could follow HTC’s strategy in mobile – develop a custom UI on top of Window Oustourced vs. in-house manufacturing Acer, Dell and HP outsource to EMS partners Asus and Lenovo maintain manufacturing facilities while attempting to move up the value stream Lenovo and HP are heavily reliant on “solution selling” – distributors, VARs and integration partners delivering PCs as a component of an overall service package Lenovo is particularly reliant on IBM Global Services HP Personal Systems Group relies on Technology Solutions Group and EDS Consumer PC players rely on retailers – Best Buy, Circuit City, other category killers

Dell & Box.net A 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&A Harness R&D efforts and impact on capital markets Andiamo (data storage) funded with $84m and spinned-in for $750m Nuova (data center operating system) funded with $50m (2005) and spinned-in for $678m Evolution: 30% of link alliances ends-up in continuation by one partner… Consequences: 63% of link alliances ends-up in one-way skill appropriation

Direction of PC industry
Vertical dis-integration Most components are commoditized and outsourced Focus on marketing, branding and distribution Move from products to services (not only support) PC value chain gets subsumed Other parts play larger roles, needs for Corporate Governance R&D PC value chain Software Data center End user

Key linkages in value chain
Companies provide support to their customers, or the next partner in the value chain For 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 chain End user preference directs R&D directions, component choices, and marketing strategies

Team 2 Team 2: Cloud 2 Project: Software cloud
David Exposito Cossio - david_exposito[at]mba.berkeley.edu Rachel Vera Simon - rachel[at]ieor.berkeley.edu Jon Wiesner - jon_wiesner[at]mba.berkeley.edu Emrehan Kirimli- emrehan[at]berkeley.edu

Dell, HP, Acer, Asus, and Lenovo
Team 2: Jon Wiesner, Rachel Simon, David Exposito Cossio, Yanpei Chen, Emrehan Kirimli Comparing PC Value Chains Dell, HP, Acer, Asus, and Lenovo

Dell Inbound Logistics Outbound Logistics Marketing & Sales Service
Firm Infrastructure Visionary 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 Development increased 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. Procurement Inbound Logistics Just in time warehousing, minimal inventory; made-to-order for demand and no old technology Customized assembly of systems for user specs Outbound Logistics Direct sales model – insight into customer needs Online ordering Marketing & Sales #1 in personal PC systems in U.S., and #2 worldwide Adding new channels Adjusting to new markets: payment upon delivery Service High quality support, customer access to help info Operations

Hewlett Packard Inbound Logistics Operations Outbound Logistics
Firm Infrastructure 6 business units. Highly decentralized. Presence globally. In the process of reducing the number of facilities to reduce costs. Human resource employees. Extensive training for sales force. Technological Development Strong 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. Procurement One of the biggest in High Tech industry Inbound Logistics Manufacture high volume of basic product configuration to maximize efficiencies Operations Outbound Logistics Extremely complex to reach huge number of customers Marketing & Sales Consumer and commercial customers. Currently reinvesting in increasing sales force HP offers consulting service and customer support. Very important for HP strategy Service

Acer Inbound Logistics Operations Outbound Logistics Marketing & Sales
Firm Infrastructure Spun off manufacturing operations in Low capital costs business model. Human resource Outside of administrative and management functions, all employees fulfill sales, marketing, customer service or R&D roles. Technological Development Incorporates 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 markets Procurement Outsources manufacturing Spun off manufacturing operations in 2000 Inbound Logistics Operations Lean operating model Minimize capital and operating expenditures Outbound Logistics Channel Business Model Marketing & Sales Purchased brand names in major markets (e.g., Gateway) Brand positioning Service Small investments in service offerings

Asus Inbound Logistics Operations Outbound Logistics Marketing & Sales
Firm Infrastructure Based in Taipei. Facilities in Taiwan, China, Mexico and Czech Republic. Presence globally. Human resource 8885 employees. A world class R&D design team. Technological Development Emphasis 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. Procurement Production capacity: two million motherboards and 150,000 notebooks per month Inbound Logistics Operations In the process of restructuring into three distinct operational units Outbound Logistics Great emphasis on Total Quality Management and fast delivery Marketing & Sales A significant amount of money for marketing, advertise on green products Emphasis on customer service. Trying to overcome the bad reputation in some countries Service

Lenovo Inbound Logistics Operations Outbound Logistics
Firm Infrastructure Four geographic segments, two major product groups. Presence globally. “Worldsourcing,” but mostly manufacture in China. Human resource employees, ~17000 in China, ~2000 in U.S. Strong commitment to talent management. Technological Development Emphasis 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. Procurement Trying to manufacture closer to key customer base. Inbound Logistics Major push to streamline supply chain and decrease end-to-end cost. Operations Outbound Logistics Retail store network essential, especially in China Marketing & Sales Sponsoring Olympics etc. Vigorously trying to build the Lenovo brand. Emphasis on “customer intimacy” and support for SMB. Simplified product lines. Service

Value Chain Differences

Value Chain Dependencies
Dell: suppliers as it adopts a just-in-time manufacturing approach customers as Dell uses a direct sales model HP: suppliers as it uses many different parts to produce very different models service as HP also delivers solutions with its big consulting division. Acer: suppliers as it outsources manufacturing Asus: consumers as Asus designs very innovative products according to the needs product design team and green products Lenovo: Chinese consumers and suppliers

Dell & Box.net Partnership
Why Partner? Allows Dell to continue to focus on product innovation and faster development cycles Low 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 processes Allows Dell to focus service offerings on higher value enterprise customers Brand dilution

Future 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.

Team 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.edu Silvio Junqueira Filho - silvio_junqueira[at]mba.berkeley.edu *

PC VALUE CHAINS Gonzalo Baez Yan-Pei Chen Silvio Filho Brian Gawalt
Ryan Stanley MBA290G, Sep 24, 2008

Acer Value Chain Multi-product and services + multi-brand strategy
% of employees 4% 28% 56% R&D Design + Manufact. Marketing & Sales Distrib. Customer service + Sales support End customer In-house / Make Outsourced / Buy Multi-product and services + multi-brand strategy Time-to-market, scale and focus on customer needs as KSFs Supply chain management business model

HP Value Chain R&D Services and assembly Markt. & Sales Direct distrib. Customer service + Sales support End customer R&D Manufacturing & assembly Indirect distrib. In-house / Make Outsourced / Buy Shifting towards higher margin businesses adding software and services to portfolio Reducing real estate and other unprofitable capital employed Very dependent on key suppliers, such as Intel and Microsoft

Asus Value Chain R&D Their future: phones Design + Manufact. Low margin products outsourced Marketing & Sales Europe est’d. Working on Russia, China Distrib. Many products still OEM; joint distro nets for others Support Exclusive centers in India End customer Recently spun off it’s 4C OEM businesses into two corporations, Pegatron (computer components) and Unihan (everything else) ASUS brand heavily vested in EeePC product line Ultimate strategy: compete on price thanks to new Intel direction 80% of sales to top 3 customers (Apple)

Lenovo R&D Com- mitted to talent Dev. Design + Manufact. Moving closer to key cust. base Marketing & Sales Sponsorships (Olympics, etc) to build brand Distrib. Building retail store network Support Simpler product lines, SMB support, & “customer intimacy” End customer Procurement: Chinese roots grant large advantages in negotiations Personnel: 75% Chinese, 9% US Tech. Dev.: Most market share gains driven by new products

Dell Value Chain Mass customization and online ordering of products
Build-to-order MFG Direct Sales Few Retailers Customer service End customer In-house Outsourced Mass customization and online ordering of products Direct sales approach as a totally customer-driven system Customer service through outsourced call centers and repair agents 31

Dell & 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.net R&D Build-to-order MFG Direct Sales Few Retailers Customer service End customer In-house Outsourced Box.net: Online storage feature added to Dell Inspiron by end user Dell and Box.net have very different core products so they partner to complement an overall competitive product Inspiron + Box.net = NETBOOK 32

Compare Contrast Lenovo and Asus are both one-time OEM providers to giants trying to move ahead with their own branding Not a great business for Ph.D.s! Established Brands vs. Emerging Brands grown from one-time OEM

Where next? Supply chain + logistics management become critical
Value-additive services as a differentiating factor Commoditization of hardware manufacturing/assembly Branding/marketing strategy become more important in differentiating products

Team 4 Team 4: SAAS 1 Project: SAAS applications
Lakshmi Jagannathan - ljaganna[at]eecs.berkeley.edu Christopher Quek - chris_quek[at]mba.berkeley.edu * John Michael Wyrwas - jwyrwas[at]berkeley.edu * Christian Huth - huth[at]berkeley.edu * Daisuke Tanaka – daisuke_tanaka[at]mba.berkeley.edu *

Value Chain Analysis: Personal Computers
Christian Huth Lakshmi Jagannathan Christopher Quek Daisuke Tanaka John Michael Wyrwas Worldwide Rank PC Brand Market Share (Gartner Q1 ’08) HP Dell Acer Lenovo 19% 16% 10% 7%

HP Value Chain Inbound Logistics Building products to order – maximize manufacturing efficiencies by producing hi vol of basic product configurations Configuring products to order – for customer customization JIT to minimize inventory Purchase supplies from multiple vendors Dependent on Microsoft and Intel Operations Utilizes its own manufacturing capacity as well as original design manufacturers and contract manufacturers for cost efficiencies and quicker go to market HP is the largest customer for most of their suppliers – best terms and prices. Outbound Logistics HP uses external partners for its outbound logistical needs. Marketing and Sales HP has various types of partners including retailers, VARs, distribution partners, OEMs, system integrators, and independent software vendors. Service HP 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 prices Like other competitors, they are heavily dependent on Microsoft and Intel

HP Divisions Technology Solutions Group (TSG) (36% of revenue)
Includes: Enterprise Storage & Servers (ESS), HP Services (HPS), HP Software Manages direct sales for volume and value products Manages enterprise and public sector customer relationships Drives HP’s vertical sales & marketing approach in communications, media and entertainment, financial services, manufacturing, and public sector Personal Systems Group (PSG) (35%) Manages SMB relationships and commercial reseller channels Imaging & Printing Group (IPG) (27%) Manages HP’s overall consumer related sales & marketing activities Manages consumer channel relationships w/3rd party retail locations Manages direct consumer sales online HP Financial Services and Corporate Investments(2%)

HP Divisions TSG

Dell 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. Operations Dell’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 Logistics Dell 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 Sales Dell 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. Service Dell 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.

Dell 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.

Acer 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. Operations Acer focuses on the sales and marketing of its IT products and outsources all manufacturing. The company provides brand management and product development. Outbound Logistics Products 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 Sales Acer 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. Service After-sales service is provided by regional subsidiaries, and overseen by regional corporate departments in EMEA, Pan America, Asia-Pacific, China, and Taiwan.

Acer 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.

Acer Example Supply Chain
Centre for Research on Multinational Corporations (SOMO), 2005

Asus Value Chain Asus’s value chain is focused on manufacturing
Inbound Logistics Asus has partly outsourced the production of components (chips, DRAM etc) to companies like Intel, AMD and nVidia Timely delivery via external partners essential. Operations Manufacturing for branded products and contract manufacturing for other hardware companies like HP is done in separate companies Unihan for PC-related manufacturing Pegatron for casing, module and non-PC contract manufacturing Asus also has its own product development Outbound Logistics Finished products are shipped by external partners to Asus reseller or other hardware companies Marketing and Sales Two different kinds of customers End 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) Service Asus offers bundled customer service and product support Extension of warranty is offered for an additional fee Asus’s value chain is focused on manufacturing

Asus Value Chain Dependencies
Suppliers: Supplier of raw materials (chips, DRAM, PCB etc.) like Intel, AMD, nVidia and Qimonda Close relationship for product development necessary e.g. need to develop specific motherboard for each new chip Customers: Before foundation of separate holdings in 2008 conflict of interest As a contract manufacturer also own brand – competing for same end consumer with manufacturing customers Internal: Contract manufacturing business is competing for volume from branded-business therefore effective processes are ensured

Lenovo Value Chain Inbound Logistics Operations
Lenovo outsources components that go into its final products to companies such as Intel and some other companies in China Lenovo, 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 products Transportation 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 delivery Some of its assets come from the acquisition from IBM (for ex: ThinkPad series) Operations Lenovo’s processes, including production and other operation processes are conducted in company-owned global ‘hubs’ of excellence around the world Main manufacturing (of IT and hardware) hub, and property holding and management occurs in the Chinese Mainland Procurement 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 few Communication and collaboration amongst the different hubs is driven and managed by Lenovo’s strong management team

Lenovo Value Chain Outbound Logistics Marketing and Sales Service
Lenovo uses external partners such as UPS and Fedex to get its product to its customers Lenovo and the external partners work together very closely in each step of the distribution process, thereby providing the customers with the best service and satisfaction All shipping and distribution questions are addressed directly by Lenovo Customer Lenovo UPS/Fedex/External Partners Marketing and Sales Promotion and Sales is done through a network of channel partners, retail stores, Teleweb, and Lenovo authorized dealers across the globe Lenovo also promotes environmental friendly ‘green’ products- ThinkPad X300 series is the first notebook to earn ‘greenguard’ certification Acquiring a reliable/well-known company such as IBM has helped boost its products, especially ThinkPad and IdeaPad Targets home users, small businesses, and large corporations, essentially covering the whole spectrum Service Best-in-Class Service within company- 24/7 Technical/Sales Support centers across the globe Provides various channels for service around the world- Lenovo authorized service providers, partners, dealers, ‘SmartCentres’, and other repair/service locations

Lenovo 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 system Manufacturing of most of its IT products is done in Chinese Mainland; therefore, relationship with China is critical Customers: Lenovo’s customers include home users, small businesses, and large corporations Lenovo’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 market Operations and Marketing Since 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 products Any disruption/disagreement in this system is likely to cause big problems Similarly, 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

Comparison of the Value Chains
Inhouse Manufacturing Outsourced Manufacturing Customization as Added Value Less customization Wide Spectrum of Products Fewer Products Focus on Product Development Commoditization Many Distribution Channels Fewer Channels Customer Service as Added Value Fewer Services

Dell 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.

Dell 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.

Industry Future Direction
Personal computer companies are looking for differentiation in a commodity marketplace. Contract manufacturing There 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. Customization Companies like Dell will have a renewed interested in providing custom products. Spectrum of products Computers with new styles and designs will continue to differeniate commodity hardware, which will provide a benefit to companies with creative design teams. Convergence/ mobile applications There 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 source There 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 service Some 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.

Team 5 Team 5: CVC Project: Corporate Venture Capital
Varun Suryakumar Boriah - varunboriah[at]berkeley.edu * Joseph Dilip Antony - dilip[at]berkeley.edu * Brendan Quinn - brendan_quinn[at]mba.berkeley.edu * Sonia Fereres-Rapoport - sfereres[at]berkeley.edu * Ada Zheng - ada_zheng[at]mba.berkeley.edu *

PC Value Chain: Acer, Asus, Dell, HP, Lenovo
Group 5: Varun Boriah Sonia Fereres Dilip Joseph Brendan Quinn Ada Zheng

Generic PC Value Chain Component design Component manufacture Assembly
OS /application software Distribution Sales Support and integration

.com Component design Component manufacture Assembly
OS /application software Distribution Sales Support and integration HP .com

Component manufacture Assembly OS /application software Distribution
Component design Component manufacture Assembly OS /application software Distribution Sales Support and integration Asus (EEE PC) (in-house) (Atom / Celeron) Asus (in-house) OpenOffice / StarOffice / Microsoft / Google Apps Asus Best Buy, NewEgg, CompUSA, etc (through a very simple web page) ASUS

Basically no core R&D ability.
Component design Component manufacture Assembly OS /application software Distribution Sales Support and integration Lenovo Basically no core R&D ability. Fully rely on Intel, AMD, Nvidia etc. Outsourced to Taiwan manufactures or hardware companies Recently developed several types of products based on its own R&D Previously manufactured by Taiwan OEMs and shipped to Shanghai to assemble; now the OEM assemble the final product and ship to the consumer directly Microsoft Linux Anti-virus software Powerword No 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 channel Think series: online direct sales+store sales+wholesaler Lenovo series: own distribution channel Tie 1 area: supported by Lenovo own team; Other areas: contract service agents

subassemblies (box builds - like Hon Hai)
Component design Component manufacture Assembly OS /application software Distribution Sales Support and integration Dell CM & 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” concept Intends to outsource most manufacturing to OEMs, especially in Asian area IT 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

Component manufacture Assembly OS /application software Distribution
Component design Component manufacture Assembly OS /application software Distribution Sales Support and integration Acer

Differences: Design/Manufacture Design/Component Supplies Assembly
All outsource component suppliers Lenovo, HP, Dell, Acer all use both type of microprocessors, Asus only Intel Acer has a ODM of its own (majority-owner in Wistron) which supplies to Acer and others. Rest of companies outsource Lenovo started to do all themselves (get rid of ODMs) and only use CMs Nobody develops application software, all outsource Operating 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 Windows Assembly Dell’s “Mass Customization” or build-to-order supply chain

Differences: 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)

Differences: 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

Cloud Computing: So what is it anyway?
Software as a Service avoids the need for enterprises, SMBs and consumers to buy software and associated hardware infrastructure Eg: salesforce.com Hardware as a Service avoids the need for enterprises and SMBs to buy servers and storage devices Eg: Amazon EC2 HaaS SaaS Comp- onents Assembly OS App Software Distribution & Sales Support & Integration PaaS Internet 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 hardware Eg: Google APIs HaaS : provides small chunks of storage to individuals, SMBs and enterprises. However, NOT a typical HaaS virtual storage provider SaaS : Edit and share documents online PaaS : APIs to mashup with other apps Buys servers, storage devices, network equipment, software, service from traditional vendors Leases data center space. Buys power and bandwidth Source: Future View: The New Tech Ecosystems Of Cloud, Cloud Services, And Cloud Computing, August 2008, Forrester Research

& 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.

& box.net is a cloud storage provider Main product features
Leases space from Data Center/Colocation operator Rackspace, Power, Cooling, Bandwidth Buys big storage appliances and servers from NetApp, HP, Dell, etc. Sells small chunks of storage to individual users and businesses through a web interface Main product features 1 GB free, 7.95/month Data is stored in cloud and hence accessible from anywhere Files can be edited online and shared with others Why 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.

The 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 & laptops Netbooks are currently given away for free with Vodafone 3G contract Meeting the requirements of developing markets Growing markets, new needs Apply those new technologies to advanced markets eg OLPC (one laptop per child) leading to power consumption advances “Digital living room” PC as consumer entertainment device – Media Center Intel Viiv, Microsoft Media Centre, integration with TVs and set-top boxes, etc More informed customers

The Future Changes to the value chain
Hardware is commoditized; constant innovation Companies will move up value chain towards services Offline services gain traction E.g. IBM exited PC business Shift toward cloud computing and data centers Software as a service (SaaS) Should this be achieved through partnering or be developed in-house? Increase in ODMs versus CM and self-assembly units ODMs and OEMs will start retailing and branding themselves Internet based distribution gains more traction Global Direct Distribution (GDD): products shipped from ODM to customer Integration of various service applications E.g. box.net integrated with other cloud computing services to meet market needs New business models based on revenue sharing The hardware is given away for free

Team 6 Team 6: SAAS 2 Project: SAAS applications
Wan-Lin Tseng - wendy_tseng[at]mba.berkeley.edu * Toru Yamagishi - toru_yamagishi[at]mba.berkeley.edu * Nuttapong Chentanez – nchentan[at]cs.berkeley.edu * Jim Miller – jdmiller[at]ischool.berkeley.edu * Ankit Gupta - ankitgupta[at]berkeley.edu

Dell, HP, Acer, Asus, and Lenovo Value Chains
Team 6 Wan-Lin Tseng Toru Yamagishi Nuttapong Chentanez Jim Miller Ankit Gupta

Acer’s Value Chain Inbound logistics Manufacturing Outbound logistics
Channel Business Model: cooperation with suppliers and channel partners in supply-chain management Manufacturing Completely outsourcing the manufacturing sector to multiple vendors and suppliers Outbound logistics Efficient inventory control: Products are shipped from ODM suppliers to distribution channels or customers directly Marketing and sales Focuses on sales and marketing by outsourcing manufacturing Leading position in Europe, Middle East and Africa Aggressive M&As (Gateway and Packerd bell) Services (maintenance) Strict quality management and fulfillment of customer demands Early warning program to check the status of products at all times

Dependency of Acer’s Value chain
Outsourcing of manufacturing supports efficient inventory management, direct shipment from ODM manufacturers Expansion of business by M&As allows Acer to utilize scale economy for price negotiation with suppliers

Asus’ 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 name On July 2nd, 2007 Asus has its OEM/ODM and brand name business separated Inbound logistics-OEM/ODM Being the middleman of its OEM/ODM clients and the suppliers, Asus gets components needed from suppliers directly Manufacturing-OEM/ODM Manufacturing for its OEM/ODM clients, i.e. Dell Outbound logistics-OEM/ODM Shipping products directly to distribution channels or customers of OEM/ODM clients Marketing and Sales Providing not only manufacturing skills but first class design of products

Dell’s Value Chain Inbound logistics Manufacturing Outbound logistics
Obtain components from external supplier at low cost, no inventory, and pay late Manufacturing Outsource most manufacturing except the final configuration Outbound logistics Made to customer order and ship directly Receive payment from customer instantly Marketing and sales Large chunk of revenue comes from business in US (51.1%) Focus on direct-sellling model Services (maintenance) Infrastructure consulting, deployment, asset recovery & recycling, training, enterprise support, client support, managed lifecycle

HP’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. Manufacturing Plants spread throughout the world; Try to be as JIT as possible. Outbound logistics Besides traditional channel, individual distributors (in untapped markets), OEMs & independent software vendors (ISVs). Marketing and Sales Manufacturing 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.

Lenovo’s Value Chain Inbound logistics Manufacturing
Channel business model: Integration with former IBM supply chain partners in China Manufacturing Partial ownership of ODM manufacturing in China Substantial ownership of worldwide fulfillment centers Outbound logistics Mixed channel structure: Products are shipped from ODM suppliers to fulfillment centers for final configuration Then to Lenovo/IBM distribution system or directly to customers Marketing and Sales Acquired IBM marque, sales and marketing operation Consumer, business, and government sales in China Inherited IBM’s corporate sales base in US and elsewhere R&D China, Japan, and US: cutting-edge, high-end products

How the Value Chains Differ
Acer: Outsources all manufacturing Global direct distribution Asus: Brands own OEM. Doesn't outsource that much. Distribution through channels or direct to customers Dell: Outsources most assembly except final configuration Direct distribution to customers HP : Most of the manufacturing in it’s own global locations Traditional channel, individual distributors . Lenovo: Owns piece of ODM. Doesn’t outsource that much. Distributes through owned global fulfillment centers

Dependency of Acer’s Value Chain
Outsourcing of manufacturing support, efficient inventory management, direct shipment from ODM manufacturers Expansion of business by M&As allows Acer to utilize scale economy for price negotiation with suppliers

Dependency 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 ideas Being 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 manufacturer Asus’ dependency of suppliers and clients grows a lot due to the repositioning

Dependency of Dell’s Value Chain
Dell has large bargaining power over its suppliers No inventory, parts shipped from suppliers when needed Pay supplier about a month after parts shipped Perform final assembly internally for control Most steps, however are out-sourced.

Dependency 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.

Dependency 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

Dell & Box.net Box.net offers online file storage and file sharing service Dell 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 chain There is a huge advantage to be the first movers in this market Asus already has similar product for its Eee customers Dell would need to take time to develop a similar product itself

Why Would Dell Create a Partnership vs. Do It Themselves?
There is a huge advantage to be the first mover in this market Dell would need to take time to develop a similar product themselves

Where do you think the industry is going?
PC is becoming a commodity There is no outstanding difference among PCs (except Mac) Cost advantage is critical in competition Direct sales model is widely accepted Dell established direct sales model utilizing online distributions Other PC makers have introduced direct model besides their traditional distribution channels What are the key linkages in the value chain? Efficient supply chain management is critical For cost advantages, inbound logistics, operation and outbound logistics are linked closely Outsourcing is a key connection in the value chain

How the value chain "changing" over the next 5 years?
Cost advantage will be more important PC is a commodity Direct sales model will become more popular As the online sales channel become popular, inbound logistics and operation will change to support the sales model More detailed customer services would be needed Expansion of business scale To take advantage of scale economy, more M&As will be conducted By expansion of scale, PC companies’ negotiating power against suppliers will be strengthened

Team 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*

Value Chain Dell, HP, Acer, Asus and Lenovo
By Group 7: Andrew Liao, Anthony Goodrow, KC Chen, Piyapat Tantiwong, Sha Tao

Q1: Value chain: Primary activities
Inbound Log Operation Outbound Log Mkt & Sales Service HP -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% revenue General solution service Dell -Build-to-order model -W/H & good Supply chain -Never outsourcing assembly -6M ft2 plant -Outsource to delivery serv. Company i.e. FedEx -Relatively small -Save sales channel cost Acer -Strong EMEA and M&A, try to overpass HP in US Asus -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 US Lenovo -Buy RM through similar supply chain as HP/Dell etc. -Own factory -Outsource only missing area -Ship directly to retailers -Inv. keep at retailers Strong Brand & mkt share -Good distn channel

Q1: Value chain (Con’t): Support activities
Infrastructure HR R&D Procurement Margin HP -Global sales & support offices -Strong retailer network N/A - 3% rev. -Variety of product portfolio -Very strong cutting cost -Maintain CSR global retailer 8% 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 vendor 5.6% 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 Eng 2.2% 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 internally 4.1% Lenovo -Took over global sales and strong retailers from IBM -Strong relationship w/ Chinese Government -Improve the design from IBM thinkpad 1.1%

Q2: Outsoucing strategy
HP Outsourced 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. Dell assembled (low value added) PC by itself & hence dragged down the margin. Acer Outsourced. Low margin since it has just acquired E-machines and Packardbell and was looking to have global integration. Asus in-group outsourcing. strong R&D enables the company to do new product innovation. Lenovo Saves the labor cost. But increases the factory related expenses, leaving margin at 1.1%.

Q2 (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 Acer In-house manufacturing: Dell, Asus and Lenovo We 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.

Q3: Summary of the customer/supplier relationships in the value chain.
OEM Semiconductor (Intel, AMD) Motherboard (Asus) Dell HP Acer Lenovo Retailers End-User

Q3(Con’t): The dependencies in each value chain
Dell 2nd largest computer manufacturer Suppliers: 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. HP Largest computer manufacturer Suppliers: Purchase components from OEMs Customers: Retailers Acer 3rd largest computer manufacturer Customers: regional retailers, no inventory for Acer to hold Asus: 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)

Q3 (Con’t): the dependencies in each value chain
Asus Computer 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) Le no vo 4th largest computer manufacturer Suppliers: 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)

Q4:Dell vs. Box.net Box.net fits the technology development of Dell’s value chain

Q4 (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 strategy Dell could efficiently leverage its resources and capital as well as focus more on their core technology Box.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.

Q5: 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 improvement PC 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.

Q5 (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.

Team 8 Team 8: Clean Tech Project: Clean Tech
Fuat Emin Celik - fuatecelik[at]berkeley.edu * Ignacio Contreras Delpiano - ignacio_contreras[at]mba.berkeley.edu * Camilo Mendez - camilo_mendez[at]mba.berkeley.edu * Francois Gallet - francois.gallet[at]berkeley.edu * Gopal Chaudhoory – gopalkc[at]berkeley.edu *

PC Value Chain MBA 290G Prof. Charles Wu
Fuat E. Celik Ignacio Contreras Francois Gallet Camilo Mendez Gopal Chaudhoory

The PC Value Chain Semiconductors Hardware Components
Sub-Assembly Intel, AMD, VIA, Samsung, Cypress Design Western Digital, Toshiba, Creative Labs Assembly ASUS, Intel (motherboards), Mitac, FIC Software - OS Sony, HP, Dell, Apple, Lenovo Software - Applications HP, Dell, MPC Branding and Marketing Microsoft Distribution Microsoft, CA, Oracle, Symantec Retail / Reselling Sony, HP, Dell, Apple, Lenovo Support & Services Ingram Micro, Tech Data, Dell (direct) Customer Walmart, Amazon, Best Buy, Circuit City IBM, HP, Accenture, Infosys Govs, Corps, SMBs, Consumers

The PC Value Chain Semiconductors Hardware Components Sub-Assembly
Design Assembly Software - OS Software - Applications Branding and Marketing Distribution Retail / Reselling Support & Services Customer

The PC Value Chain Semiconductors Hardware Components Sub-Assembly
Design Assembly Software - OS Software - Applications Upstream strategy: Low cost Branding and Marketing Differentiation: Brand + Design Differentiation: Brand + Design Value chain dominance strategy Distribution Retail / Reselling Downstream strategy: Services Support & Services Customer

Comparing the value chains: Focusing on design and Marketing
Lenovo – Stressing on design and Performance Focuses on design and assembly (outsources the manufacturing) Differentiates on design, performance and durability Acer – Leveraging its channels Develops 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)

Comparing the value chains: Upstream vs Downstream
Asus – Upstream Strategy Produces low-cost computers via an upstream integration of the value chain Sells to large retailers or directly to large organizations HP – Downstream Strategy Outsources the manufacturing Differentiates on software and services Sells mainly to retailers and resellers

Comparing the value chains: Integration of the value chain
Dell – Direct Customer Model Global integration of the value chain Highly customizable products Sells directly to the customer

Dependencies in value chain:
Dell Customers Large Business Customers. Strategy Build to order. (Direct sales value chain) Cost Low cost Leader HP Product Innovative and different products. Largest seller of personal Computers.

Dependencies in value chain:
Acer Suppliers Outside suppliers. Distributors Dealers and Retailers. Customer base Large customer base in Developing countries. Asus Product Leader in Desktop PCs worldwide (Risk) Lenovo Desktops Strategy towards targeting remaining desktop customers.

Box.net in Dell’s PC Value Chain
Value Chain Position Box.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 Value Partnership Value for Dell Not 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 do Cost: 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 maintenance Reduce 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 brand Timing: 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 time Expertise: Box.net already has the expertise of doing this business and will be able to deliver with less problems than a new venture would have Installed 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 computer Outsourcing Philosphy: It is within Dell’s guts to outsource whatever is not part of their core business

The PC Value Chain Where are we headed?
The Internet is the new Computing Platform The Internet is quickly replacing both traditional hardware and software as more and more applications and capabilities are shifted from end-user machines to the web Cloud computing and decentralization allows better services to be offered at lower cost and more reliably Wi-Fi is the new RAM Accessing the internet quickly and efficiently is now more important than traditional hardware such as hard disk space and RAM Netbooks allow ultra low cost entry into personal computing with the express purpose of web-surfing and accessing web-based applications PCs 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

The PC Value Chain If PCs are losing, who is winning?
Servers, routers and switches Delivering web content to users is becoming the new competitive market The quality of the software or service still depends on the machine it runs on, only the location of that machine has changed Companies will see growth in both the hardware and the software that manages and delivers the content of the internet to end users The 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

Team 9 Team 9: Cloud 3 Project: Cloud Computing
James Su - james_su[at]berkeley.edu * James An - jyan[at]berkeley.edu Boaz Ur - boaz_ur[at]mba.berkeley.edu * Zishan Khan - zishan_khan[at]mba.berkeley.edu *

PC Value Chain 2008 Group 9 James An Zishan Khan James Su Boaz Ur

PC Value Chain Suppliers Assemblers Channels Components Intel/AMD
Microsoft Seagate Dell Gateway Lenovo HP Acer Asus Direct Dell Lenovo Customer Retailers Comp USA Circuit City Costco Online (Amazon, Buy.com) Local Stores / Small Resellers Sub-Assembly Flextronics Solectron Intel Acer Asus Sub- Assembly Acer Mitac FIC Asus White box makers

Differences in PC Value Chains
Suppliers Assemblers Channels Customer Dell Asus Acer Lenovo HP Apple

Financials of different PC Manufacturers
You don’t have to build value at the component level to be profitable These financials reflect the total business for the compared companies and not only the PC business.

Dependencies in the Value Chain
Suppliers Assemblers Channels Components Intel/AMD Microsoft Seagate Dell Gateway Lenovo HP Acer Asus Direct Dell Lenovo Customer Retailers Comp USA Circuit City Costco Online (Amazon, Buy.com) Local Stores / Small Resellers Sub-Assembly Flextronics Solectron Intel Acer Asus Sub- Assembly Acer Mitac FIC Asus

Dell 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 Overview What the Partnership means With the purchase of a new Dell Inspiron Mini 9 Notebook, customers receive… 2 GB of free online storage on Box.net Discounts on plans of up to 25 GB on Box.net In the PC Value Chain Box.net is a supplier. It provides a service which comes with the Dell laptop.

Dell Forms a Partnership with Box.net – Cont’
Advantages to Partnership Dell 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. Disadvantages If 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.

Bargaining 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 supplier Some 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 low Resellers 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.

Intensity 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 High For 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 - Depends The 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 - Growing Smart phones (such as the iphone) are becoming computing platforms and can threat PCs.

Where 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.

Team 10 Team 10: Ghana Project: Ghana
Anirban Sen - asen[at]ischool.berkeley.edu Elihu Luna - elihu_luna[at]mba.berkeley.edu Raluca Scarlat - raluca.scarlat[at]gmail.com *

Team 10 VALUE CHAIN IN TECH Anirban Sen Elihu Luna-Thomas
Raluca Scarlat Yilun Hu VALUE CHAIN IN TECH

Value Chain: HP Palo Alto, Beijing, Bangalore, Haifa, Tokyo, Bristol
HP direct sales Contract Manufacturers Retailers Primary Distribution HP Labs Original Design Manufacturers Resellers Original Equipment Manufacturers Palo Alto, Beijing, Bangalore, Haifa, Tokyo, Bristol Distribution Partners 67% U.S. Independent Distributors Original Equipment Manufacturers

Solutions Based Value Chain: HP
HP Services (Consulting and Outsourcing) Enterprise Storage and Servers HP Financial Services HP Software Commercial Clients Personal Systems Group Imaging and Printing Group EDS Corporate Investments R&D

Value Chain: Lenovo Invest Capture Demand Solution & Delivery Support
Global Suppliers Tech Support Great China, Asia, US, Europe Individual, Business, Government Expansion Global Assembly Service Global Logistics Both 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&D Strategy Sales & Marketing Distribution

Value Chain: Acer Invest Capture Demand Solution & Delivery Support Global Suppliers Tech Support Great China, Asia, US, Europe Individual, Business, Government Expansion Global Assembly Service Global Logistics Both 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&D Strategy Sales & Marketing Both 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

Value Chain: Dell Infrastructure consulting Deployment
Manufacture of Components by suppliers. Customized assembly of PCs as orders from buyers come in Purchase by PC Users Services and Support Infrastructure consulting Deployment Asset recovery and recycling Training Support Managed Services Dell Financial Services Software and Peripherals Custom orders received and customer input. Sales and Marketing

Value Chain: Asus Customer Software: 3D AutoCAD, Ultra Mobile PC
Manufacture of Components by suppliers and subsidiaries: Chips, Logic IC, PCP, Connectors, DRAM 3C: computer, communication, and consumer electronics Decentralized Sales Force Customer Software: 3D AutoCAD, Ultra Mobile PC

Dell: Box.net partnership
Purchases by PC Users Services and Support Box.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.

Value Chain of PC Making
Move up-stream

Evolution 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!

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Value Chain Assignment

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Presentation on theme: "Value Chain Assignment"— Presentation transcript:

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