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

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

2 Team 1 Team 1: Cloud 1 Project: Software cloud Franck Formis - franck_formis[at] Vincent Wai-Shan Ng - vincentng[at] Jameson Slattery - jameson_slattery[at] Robert Ka Chun Kong - rkong[at] Chuohao Yeo - zuohao[at] 2

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

4 Acer value chain and its dependencies R&DComponentsManufacturer Distribution & Marketing 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. Apacer AQR Kingdom Corp. Animeta System Red – heavy presence by Acer Blue – no or light presence by Acer Channel Business Model – indirect Resellers partnership Global distributor Acer Computer Logistron Service Broadwalk Capital 4

5 Example Source: 5

6 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 Sales, marketing and PM groups Eee PC Ultra Mobile PC phone Sales, marketing and PM groups Red – heavy presence by Asus Blue – no or light presence by Asus 6

7 Dell Value Chain R&DComponentsDesignManufacture 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 APJ 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 Red – heavy presence by Dell Blue – limited presence by Dell 7

8 HP value chain and its dependencies R&DTestingComponentsAssemblySales Support & Services PSG HP Labs ODMs PSG ODMs CMs Third-party vendors Direct Retailers Resellers Distribution partners Independent distributors OEMs Independent software vendors Systems integrators PSG CMs OEMs ODMs PSG – Personal systems group TSG – Technology solutions group PSG TSG Red – heavy presence by HP Blue – no or light presence by HP 8

9 Lenovo PC Value Chain Technology Inputs R&DDesign 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 Red – heavy presence by Lenovo Blue – limited presence by Lenovo 9

10 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 Dells 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 HTCs 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 10

11 Dell & A partnership to offer online storage services for Dells Inspiron Mini 9 (subnotebook) Dells 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 11

12 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 12

13 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 13

14 Team 2 Team 2: Cloud 2 Project: Software cloud David Exposito Cossio - david_exposito[at] Rachel Vera Simon - rachel[at] Jon Wiesner - jon_wiesner[at] Emrehan Kirimli- emrehan[at] 14

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

16 Relationships over integration. Quality components. Flexible purchasing to adjust for cost, needs, quality, availability. Procurement High quality support, customer access to help info Direct sales model – insight into customer needs Online ordering #1 in personal PC systems in U.S., and #2 worldwide Adding new channels Adjusting to new markets: payment upon delivery Customized assembly of systems for user specs Just in time warehousing, minimal inventory; made- to-order for demand and no old technology Dell Operations Outbound Logistics Service ~ 90,500 (majority abroad); activities associated with recruiting, development, and compensation of employees. Human resource Visionary founder. Worldwide operations. Currently cutting operating expenses: downsizing employees and facilities. Hedging activities protected from impact of weakening dollar. Firm Infrastructure increased 22% this year to $610 million. Focus on shortening development cycle & tailoring regional solutions for international growth. Strengthening IT & sever offerings. Technological Development Marketing & SalesInbound Logistics

17 Huge negotiating power. Always use secondary sources of supply. High volume to reduce costs. Procurement HP offers consulting service and customer support. Very important for HP strategy Extremely complex to reach huge number of customers Consumer and commercial customers. Currently reinvesting in increasing sales force Manufacture high volume of basic product configuration to maximize efficiencies One of the biggest in High Tech industry Inbound Logistics Operations Outbound Logistics Service employees. Extensive training for sales force. Human resource 6 business units. Highly decentralized. Presence globally. In the process of reducing the number of facilities to reduce costs. Firm Infrastructure Strong R&D culture.$3.6B invested in 2007 (3,4% of net revenues). They capitalize with patents and licensing technology. Technological Development Marketing & Sales Hewlett Packard

18 Seeking scale and efficiencies through acquisitions in major markets Procurement Small investments in service offerings Channel Business Model Purchased brand names in major markets (e.g., Gateway) Brand positioning Lean operating model Minimize capital and operating expenditures Outsources manufacturing Spun off manufacturing operations in 2000 Acer Inbound Logistics Operations Outbound Logistics Service Outside of administrative and management functions, all employees fulfill sales, marketing, customer service or R&D roles. Human resource Spun off manufacturing operations in Low capital costs business model. Firm Infrastructure Incorporates advanced feature sets in high end brands. Focused on worldwide growth in notebooks and ultra-mobile devices. Technological Development Marketing & Sales

19 Asus Big negotiating power. High volume to reduce costs. Procurement Emphasis on customer service. Trying to overcome the bad reputation in some countries Great emphasis on Total Quality Management and fast delivery A significant amount of money for marketing, advertise on green products In the process of restructuring into three distinct operational units Production capacity: two million motherboards and 150,000 notebooks per month Inbound Logistics Operations Outbound Logistics Service 8885 employees. A world class R&D design team. Human resource Based in Taipei. Facilities in Taiwan, China, Mexico and Czech Republic. Presence globally. Firm Infrastructure Emphasis on R&D, design. Simple, innovative products. Selected as 9 th most growing tech company by Business Week. Technological Development Marketing & Sales

20 Huge negotiating power in China. Committed to use diverse suppliers. Emphasis on trust, reciprocity, integrity etc. Procurement Emphasis on customer intimacy and support for SMB. Simplified product lines. Retail store network essential, especially in China Sponsoring Olympics etc. Vigorously trying to build the Lenovo brand. Major push to streamline supply chain and decrease end-to-end cost. Trying to manufacture closer to key customer base. Inbound Logistics Operations Outbound Logistics Service employees, ~17000 in China, ~2000 in U.S. Strong commitment to talent management. Human resource Four geographic segments, two major product groups. Presence globally. Worldsourcing, but mostly manufacture in China. Firm Infrastructure Emphasis on innovation – 17% annual R&D spending increase. Gains in market share driven by new products. Technological Development Marketing & Sales Lenovo

21 Value Chain Differences

22 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

23 Dell & 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.) Doesnt leverage Dells competitive advantage in manufacturing processes Allows Dell to focus service offerings on higher value enterprise customers Brand dilution

24 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.

25 Team 3 Team 3: Japan 1 Project: New Product for Japanese Company Gonzalo Antonio Baez Mendoza - gonzalobaez[at] * Ryan Stanley - ryan_stanley[at] * Yanpei Chen - ychen[at] * Brian Gawalt – gawalt[at] Silvio Junqueira Filho - silvio_junqueira[at] *

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

27 Acer Value Chain R& D Design + Manufa ct. Marketing & Sales In-house / MakeOutsourced / Buy Distrib. End customer 4%28% Custo mer service + Sales suppor t 56% % of employees Multi-product and services + multi-brand strategy Time-to-market, scale and focus on customer needs as KSFs Supply chain management business model

28 HP Value Chain R& D Services and assembly Markt. & Sales In-house / MakeOutsourced / Buy Direct distrib. End customer Custo mer service + Sales suppor t 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 Manufactur ing & assembly Indirec t distrib. R& D

29 Asus Value Chain Recently spun off its 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) R& D Thei r futu re: pho nes Design + Manufa ct. Low margin products outsource d Marketing & Sales Europe estd. Working on Russia, China Distrib. Many products still OEM; joint distro nets for others End customer Suppor t Exclusiv e centers in India

30 Lenovo Procurement: Chinese roots grant large advantages in negotiations Personnel: 75% Chinese, 9% US Tech. Dev.: Most market share gains driven by new products R& D Co m- mitt ed to tale nt Dev. Design + Manufa ct. Moving closer to key cust. base Marketing & Sales Sponsorship s (Olympics, etc) to build brand Distrib. Building retail store network End customer Suppor t Simpler product lines, SMB support, & custome r intimacy

31 Dell Value Chain Build-to- order MFG Direct Sales In-houseOutsourced Few Retailers End customer Customer service 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 R&D

32 Dell & Partnership Build-to- order MFG Direct Sales In-houseOutsourced Few Retailers End customer Customer service Online storage feature added to Dell Inspiron by end user Dell and have very different core products so they partner to complement an overall competitive product Inspiron + = NETBOOK R&D Dell Inspiron users get 2 GB of storage absolutely free by signing up for a 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.

33 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 Compare

34 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

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

36 Value Chain Analysis: Personal Computers Christian Huth Lakshmi Jagannathan Christopher Quek Daisuke Tanaka John Michael Wyrwas Worldwid e Rank PC Brand Market Share (Gartner Q1 08) 1.HP 2.Dell 3.Acer 4.Lenovo 19% 16% 10% 7%

37 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

38 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 HPs 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 HPs overall consumer related sales & marketing activities Manages consumer channel relationships w/3 rd party retail locations Manages direct consumer sales online HP Financial Services and Corporate Investments(2%)

39 HP Divisions TSG

40 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 Dells 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 Dells customer service centers are outsourced to low cost providers.

41 Dell Value Chain and Supplier Relationships Suppliers: Dells 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 Dells 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: Dells customers include governments, large corporations, and individual consumers. Dell generates significant revenue from government accounts. Maintaining these contracts is a crucial element to protect Dells 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 Dells net revenue.

42 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 Acers 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.

43 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. Acers New Channel model focuses on a Multiple-Suppliers, Multiple-Products, Multiple-Channels strategy. Customers: Acers corporate strategy is to not compete with its channel partners, but rather create a win-win collaboration.

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

45 Asus Value Chain 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 Asuss value chain is focused on manufacturing

46 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

47 Lenovo Value Chain Inbound Logistics 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 customers 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 Lenovos 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 (Lenovos 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 Lenovos strong management team

48 Lenovo Value Chain Outbound Logistics 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

49 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: Lenovos customers include home users, small businesses, and large corporations Lenovos 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, its 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; Lenovos management of retailers and other service entities around the world in order to assure best quality and service for its customers becomes critical

50 Comparison of the Value Chains Inhouse ManufacturingOutsourced Manufacturing Customization as Added ValueLess customization Wide Spectrum of ProductsFewer Products Focus on Product DevelopmentCommoditization Many Distribution ChannelsFewer Channels Customer Service as Added ValueFewer Services

51 Dell and Background: is a company that provides online storage and file sharing solutions. Dell partnered with to provide expanded storage for Dells new Netbook class of portable computers. This partnership may be a test for a larger collaboration that involves all of Dells product lines. Value Chain: belongs in the Operations section of Dells value chain because it is a value added feature/service that Dell adds to the sum of the components that it assembles.

52 Dell and 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 Dells low cost strategy so developing these products internally does not make sense. Partnerships are part of Dells 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 Dells overall strategy.

53 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.

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

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

56 Generic PC Value Chain Component design Component manufacture Assembly OS /application software DistributionSales Support and integration

57 HP Component design Component manufacture Assembly OS /application software DistributionSales Support and

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

59 Component design Component manufacture Assembly OS /application software DistributionSales Support and integration Lenovo 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 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 Basically no core R&D ability. Fully rely on Intel, AMD, Nvidia etc. Outsourced to Taiwan manufacture s or hardware companies Recently developed several types of products based on its own R&D Think series: online direct sales+store sales+wholesa ler Lenovo series: own distribution channel Tie 1 area: supported by Lenovo own team; Other areas: contract service agents

60 Component design Component manufacture Assembly OS /application software DistributionSales Support and integration Dell Direct sales strategy: Dell handles distribution and sales via (Although moving into traditional distribution via stores) Mass-customization: strong link with Assembly 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) 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

61 Component design Component manufacture Assembly OS /application software DistributionSales Support and integration Acer

62 Design/Component Supplies 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 Dells Mass Customization or build-to-order supply chain Differences: Design/Manufacture

63 Dell sells primarily through 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: Distribution/Sales

64 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

65 Support & Integration HaaS PaaS SaaS OS Comp- onents Assembly App Software Distribution & Sales Hardware as a Service avoids the need for enterprises and SMBs to buy servers and storage devices Eg: Amazon EC2 Software as a Service avoids the need for enterprises, SMBs and consumers to buy software and associated hardware infrastructure Eg: Source: Future View: The New Tech Ecosystems Of Cloud, Cloud Services, And Cloud Computing, August 2008, Forrester Research Platform as a Service enables custom application development without own OS, database, middleware, or hardware Eg: Google APIs 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. 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 Cloud Computing: So what is it anyway?

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 Minis storage with Dells own online storage service takes time & money. Dell may lose time to market advantages. 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. 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 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 & is a cloud storage provider 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 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 Minis storage with Dells own online storage service takes time & money. Dell may lose time to market advantages. 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. 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.

68 Future Markets: Going mobile – WiMAX, 3G, GPRS Revenue share with carriers: iPhone as an example Netbook as a 3 rd 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

69 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. integrated with other cloud computing services to meet market needs New business models based on revenue sharing The hardware is given away for free The Future

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

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

72 Acers Value Chain Inbound 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

73 Dependency of Acers 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

74 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 2 nd, 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

75 Dells Value Chain Inbound 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

76 HPs Value Chain Inbound 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.

77 Lenovos Value Chain Inbound logistics 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 IBMs corporate sales base in US and elsewhere R&D China, Japan, and US: cutting-edge, high-end products

78 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 its own global locations Traditional channel, individual distributors. Lenovo: Owns piece of ODM. Doesnt outsource that much. Distributes through owned global fulfillment centers

79 Dependency of Acers 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

80 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

81 Dependency of Dells 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.

82 Dependency of HPs Value Chain OEMs distributors, and may also act as competitors. Standardization of parts, so single item may be used in multiple operating divisions.

83 Dependency of Lenovos 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

84 Dell & offers online file storage and file sharing service Dell ships its Inspiron mini with free account in an attempt to enter netbook market. 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

85 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

86 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

87 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

88 Team 7 Team 7: Japan 2 Project: New Product for Japanese Company Anthony Goodrow - goodrow[at] * Li-Chuan Liao - andrew_liao[at] * Sha Tao-shatao[at] * Piyapat Tantiwong – piyapat[at]* KC Chen - kc_chen[at]*

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

90 Q1: Value chain: Primary activities Inbound LogOperationOutbound LogMkt & SalesService 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 ft 2 plant -Outsource to delivery serv. Company i.e. FedEx -Relatively small -Save sales channel cost General solution service Acer -Purchase & consign RM/Goods for/from OEM -No plants -Outsourcing to OEM -No Inventory -OEM ship to retailers directly -Strong EMEA and M&A, try to overpass HP in US General solution service 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 General solution service 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 dist n channel General solution service

91 Q1: Value chain (Cont): Support activities InfrastructureHRR&DProcurementMargin 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 -Very strong cutting cost -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 -Very strong cutting cost -Maintain CSR global vendor 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 -Very strong cutting cost -Maintain CSR global vendor 1.1%

92 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%.

93 Q2 (Cont): 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.

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

95 Q3(Cont): The dependencies in each value chain 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. Dell Largest computer manufacturer Suppliers: Purchase components from OEMs Customers: Retailers HP 3rd largest computer manufacturer Suppliers: Purchase components from OEMs Customers: regional retailers, no inventory for Acer to hold Acer

96 Q3 (Cont): the dependencies in each value chain 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) Asus 4 th 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) Le no vo

97 Q4:Dell vs. fits the technology development of Dells value chain

98 Q4 (Cont): Dell vs. Online file storage and sharing service is helping to put the cloud in Dells Inspiron Mini Inspiron Mini 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 has mature technology in cloud computing which could save Dells 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 suite of sharing and collaboration tools.

99 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.

100 Q5 (Cont): 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.

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

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

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

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

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

106 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)

107 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

108 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

109 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. Customers Largest seller of personal Computers.

110 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.

111 in Dells PC Value Chain Value Chain Position is a storage service that is complementing part of a hardware function (storing) 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 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 dont work as expected at the end it is a third party the one that didnt deliver so Dell wont 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: 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: 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 Dells guts to outsource whatever is not part of their core business

112 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

113 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.

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

115 115 PC Value Chain 2008 Group 9 James An Zishan Khan James Su Boaz Ur

116 116 PC Value Chain SuppliersAssemblersChannels Customer Components Intel/AMD Microsoft Seagate Sub-Assembly Flextronics Solectron Intel Acer Asus Dell Gateway Lenovo HP Acer Asus Sub- Assembly Acer Mitac FIC Asus White box makers Dell Lenovo Comp USA Circuit City Costco Online (Amazon, Local Stores / Small Resellers Direct Retailers

117 117 Differences in PC Value Chains SuppliersAssemblersChannels Customer Dell Asus Acer Lenovo HP Apple

118 118 Financials of different PC Manufacturers -You dont 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.

119 119 Dependencies in the Value Chain SuppliersAssemblersChannels Customer Components Intel/AMD Microsoft Seagate Sub-Assembly Flextronics Solectron Intel Acer Asus Dell Gateway Lenovo HP Acer Asus Sub- Assembly Acer Mitac FIC Asus Dell Lenovo Comp USA Circuit City Costco Online (Amazon, Local Stores / Small Resellers Direct Retailers

120 120 Box is the most secure, easy-to-use way to share and manage files online. –from Box.nets Overview a.2 GB of free online storage on b.Discounts on plans of up to 25 GB on Dell Forms a Partnership with What the Partnership means With the purchase of a new Dell Inspiron Mini 9 Notebook, customers receive… In the PC Value Chain is a supplier. It provides a service which comes with the Dell laptop.

121 Advantages to Partnership 1.Dell saves costs in development of a website that offers the service. 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 customers to buy Dell labtops. 3.Partnership can be dissolved if it does not help Dell. Disadvantages 1.If the service does not increase sales, Dell could potentially be making less on this labtop by working with 2.If it is successfully, Dell has limited control over how will develop and grow. 121 Dell Forms a Partnership with – Cont

122 Bargaining power of suppliers – Depends on supplier 1.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. 2.Windows is gradually losing market share but in a slow pace. 3.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 1.Resellers and retailers dont 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. 2.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. 3.Smaller retailers have very low bargaining power so cant extract much from the value chain. 122 Where is the industry going? (A Porters analysis) and how will the value chain "changing" over the next 5 years?

123 Intensity of rivalry – Very High 1.For the PC wintel industry because it is standardized there is little difference between the machines except price. 2.Apple differentiates itself completely and has growing market share. 3.Apple also inspires the competition to go for more designed computers. The rivalry with Lenovo and Dell is intensifying as Apples market share grows. Threat of new entry - Depends 1.The threat of a new large manufacturer entering the market is pretty low. 2.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. 123 Where is the industry going? (A Porters analysis) and how will the value chain "changing" over the next 5 years? – Cont Threat of substitutes - Growing 1.Smart phones (such as the iphone) are becoming computing platforms and can threat PCs.

124 1.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. 2.Google (chrome) and other rivals will attempt to enable this technology. Thus capturing more from the value chain. 3.New business models might emerge in this model. Pay per use / Free (as based) / etc instead of the shrink-wrap software model used today. 4.Even with existing computing technologies, Saas will play a growing role for the consumer. 5.Open source software will continue to grow as an alternative for Microsoft office. 6.Physical Design and performance will be key in high-end computers especially as Apple gets more market share. 7.In terms of manufacturing, Dell and other will continue to grow their outsourcing in order to cut costs and because professionalism is growing. 124 Where is the industry going?

125 Team 10 Team 10: Ghana Project: Ghana Anirban Sen - asen[at] Elihu Luna - elihu_luna[at] Raluca Scarlat - raluca.scarlat[at] *

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

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

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

129 SupportSolution & DeliveryCapture Demand Global Assembly Global Logistics Sales & Marketing Service Great China, Asia, US, Europe Individual, Business, Government Great China, Asia, US, Europe Individual, Business, Government Invest Expansion R&D Strategy R&D Strategy Tech Support Distribution Global Suppliers Value Chain: Lenovo

130 SupportSolution & DeliveryCapture Demand Global Assembly Global Logistics Sales & Marketing Service Great China, Asia, US, Europe Individual, Business, Government Great China, Asia, US, Europe Individual, Business, Government Invest Expansion R&D Strategy R&D Strategy Tech Support Distribution Global Suppliers Value Chain: Acer Both these two Asian PC makers are expanding to the U.S. market by acquiring U.S. companies. Lenovo bought IBMs PC business. Acer bought Gateway. They are both more on the assembly side and not much on the service/consulting side.

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

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

133 Dell: partnership Purchases by PC Users Services and Support provides post purchase support. Users can create content on their computers and upload it to to be accessed from any location. Web applications also enable Dell to approach 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.

134 Value Chain of PC Making Move up-stream

135 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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