1. Managing Digital Organizations Case Study: DELL & Cisco Team 6 04/25/05 Arsalan A. Lodhi Pankaj Luthra Daniel M. Li

2. Managing Digital Organization | DELL Inc – Company Profile  52wk range:32.71 – 42.57  Historical Perspective: established - 1984  Total Employees: 55,200 YearStock Price Range 1990-199112.00 – 33.50 1995-1996 77.37 – 61.88 (2:1 stock split on 10/95) 2000-200144.06 – 28.50 2004-200535.50 – 39.16 Splits:10-Apr-92 [3:2], 30-Oct-95 [2:1], 09-Dec-96 [2:1], 28-Jul-97 [2:1], 09-Mar-98 [2:1], 08-Sep-98 [2:1], 08-Mar- 99 [2:1]

3. Managing Digital Organization | DELL Inc - TIMELINE 1983--Michael Dell starts business of pre-formatting IBM PC HD’s on weekends 1985--$6 million sales, upgrading IBM compatibles for local businesses 1986--$70 million sales; focus on assembling own line of PC’s 1990--$500 million sales; with an extensive line of products 1996--Dell goes online; $1 million per day in online sales; $5.3B in annual sales 1997-- Dell online sales at $3 million per day; 50% growth rate for 3 rd consecutive year, $7.8B in total annual sales. 2005--$49.2B in sales

4. Managing Digital Organization | DELL Inc – Company Comparison DIRECT COMPETITOR COMPARISON DELLHPQIBMSUNWIndustry Market Cap:89.29B60.17B121.16B11.79B112.93M Employees:55,200151,000329,00132,600341 Rev. Growth (ttm):18.70%9.40%8.00%-2.20%6.20% Revenue (ttm):49.21B81.85B96.95B11.20B116.36M Gross Margins (ttm):18.32%23.87%37.42%40.88%23.94% Net Income (ttm):3.04B3.50B8.25B645.00M-153.00K Above Data shows DELL is a perfect example of a Lean Machine  Enterprise System: servers, workstations, storage, network products  Client Systems: notebooks, PC, printing, imaging systems, software and peripherals  Dell Financial Services (DFS) – joint venture with Citi group

5. Managing Digital Organization | DELL Inc – The Success Secret  Internet coupled with Direct Business Model - sell directly to end customers instead of intermediate distributors, resellers.  Virtual Integration - using sophisticated CRM, SCM systems at respective ends as well their integration - already integrated with 38 procurement and ERP systems across all its clients - vendors – Ariba, SAP, PeopleSoft, J.D. Edwards – Dell integrated with their ERP ( Source: Rob Rosenthal, Dell’s B2B web site strategy, October 2003, IDC #30202 )  Selling Points - Internet, B2B (Premier Pages), Phone-calls, Mass catalog mailings  Do not Just sell Products – sell Values - client asked to put tags on their computers - proactive in solving clients pain points – preloaded software  Dell was much less mature compare to IBM and HP at time when Internet took off – required much less effort to adapt its systems to Internet technologies.  IBM and HP’s core competency was product innovation and development, Dell’s expertise was in assembling and catering to business needs.

6. Managing Digital Organization | Dell Inc – The Success Secret  Web Penetration rate - What percentage of users contacted Dell based on information on given pages  Web failure rate - What percentage of users contacted Dell because users failed to find their information on web pages  Outstanding Question: what will matter most to customers moving forward ? In IDC opinion: Introduce solution packages that focus on overall business goals instead of individual products Introduce configurators for high-end server and storage products Source: Rob Rosenthal, Dell’s B2B web site strategy, October 2003, IDC #30202

7. Managing Digital Organization | DELL INC – Same Business Model applicable to other Industries?  Other Industries for example IT Services – is not yet mature enough to provide this kind of capabilities – i.e. built-to-order by direct customer  IBM OnDemand initiative is a step towards that kind of mentality – build-to-Order - rest of IT Services industry would take few years to provide this capability - IBM is the only one in position of providing such built-to-order services

8. Managing Digital Organization | Dell Inc – Key Questions  Is the Direct Business Model a new model ? No, its not ! – all the primitive businesses used to trade like this – today hotdog stands all over Manhattan is an example of that model on small scale  What new emerging technologies will push this further ? - SOA will help refine and innovate these and perhaps new similar kind of business models by reducing operational and transaction cost. - Web Services will remove human interaction further – reducing cost for example: - SLA will be negotiated by software agents - Vendors selection based on their expertise will be automated - Long life Lithium ion batteries increased sales - RFID tags can further streamline the supply chain, inventory and shipment tracking process

9. Managing Digital Organization | Dell Inc – Boundaries of Direct Business Model ?  Have other manufacturers been able to do this? Why or why not? Is this model bounded in the PC industry? - Presently HP is using the Direct Model. Supposedly Compaq’s strong direct sales model helped HP after the merger. Prices are in comparison to Dell. - Source - www.ecommercetimes.com/story/19385.html - Compaq emulated the model before merger with HP. Dell had better profitability management. - Source - http://www.findarticles.com/p/articles/mi_m0DTI/is_12_31/ai_111163644 - Local computer vendors - B2B markets – common meeting point for manufacturers and institutional consumers. - Classical example – Farmer’s market

10. Managing Digital Organization | DELL Inc – Information Orientation  Strong commitment to IT Practices - Pre-installing software for Eastman Chemical, maintaining a corporate asset database for innovational support. - Integrating supply chain vendors with more precise demand forecast for business process support. - Premier Pages – customize, buy and track systems, resolve tech issues for operations support.  Strong Information Management practices - Restructuring delegates information resources management - Central source of information for sales force, tech support and executive management  Promoting Information Behavior and Values - Internal evangelism campaign – promote and increase awareness of Dell online - Educating the sales force

11. Managing Digital Organization | Cisco Systems, Inc – Company Profile  52wk range:17.22 – 24.20  Historical Perspective: established - 1984  Total Employees: 34,000 YearStock Price Range 1990-199123.75 – 68.00 1997-199863.63 – 92.87 2000-2001109.94 – 18.45 2004-200524.36 – 17.50 Splits:18-Mar-91 [2:1], 23-Mar-92 [2:1], 22-Mar-93 [2:1], 21-Mar-94 [2:1], 20-Feb-96 [2:1], 17-Dec-97 [3:2], 16-Sep- 98 [3:2], 22-Jun-99 [2:1], 23-Mar-00 [2:1]

12. Managing Digital Organization | Cisco Systems, Inc - Timeline 1984--Founded by Len Bosack & Sandy Lerner (computer scientists from Stanford) 1989--$27M sales with only 3 products and 111 employees 1990--$69M sales; goes public with market cap of $224M 1994--$1.13B sales; Cisco goes online with its Cisco Connection Online and becomes the first major supplier of Multiprotocol internetworking products to be awarded ISO 9001 certification 1997--Cisco reorganizes/aligns products and solutions into 3 customer segments: enterprise, small/medium business, and service provider. 1998-- Cisco becomes the first company in history to achieve a market capitalization of $100B in 14 years. $8.5B in total annual sales. 2000--$18.9B in sales 2001--$22.3B in sales 2005--$23.6B in sales

13. Managing Digital Organization | Cisco Systems, Inc

14. Managing Digital Organization | Cisco Systems, Inc – Company Comparison DIRECT COMPETITOR COMPARISON CSCOCOMSJNPRNTIndustry Market Cap:112.67B1.20B12.30B11.44B101.10M Employees:34,0001,9252,94835,160248 Rev. Growth (ttm):16.80%-25.10%90.50%-3.60%12.90% Revenue (ttm):23.58B657.95M1.56B10.48B61.74M Gross Margins (ttm):67.82%37.70%69.27%41.30%39.69% Net Income (ttm):5.39B-156.22M177.64M305.00M-690.00K Cisco is the Undisputed Market Leader  Master of Network Infrastructure - The company on which Internet runs - Supplies network equipment to wide-range of industries - 85% market share in the Internet switching market

15. Managing Digital Organization | Cisco Systems, Inc – Success?  Growth Strategy - Outsource majority of production - Strategic acquisitions and investments in other companies  “Cisco uses the web more effectively than any other big company in the world” - Internet sales (1995) - Cisco Connection Online – configure, price, & order - Customer support ($600M in savings) - Cisco Manufacturing Connection Online (B2B supply chain extranet) - Cisco Employee Connection  Supply Chain Management - Remediation - Misled by the system? (2001)

16. Managing Digital Organization | Cisco Systems, Inc – Information Orientation  “ The Digital Firm” - Extensive Internet integration - Close supply chain integration with suppliers - Precise sales forecast system  Strong Information Management practices - Reorganization along technology groups - Centralized engineering and marketing  Future Strategies - Growth through hot startup acquisitions - New markets - Expanded offerings in consulting and software