1. CASE ONE
IST 415
How Dell Reengineered Its Business Processes through Strategic Use of Information Technology & How Dell Faces Its Current Challenge
Dell Computer Corporation, headquartered in Round Rock, Texas, near Austin, is the world's leading direct computer-systems company and a premier supplier of technology for Internet infrastructure, with revenues for the last four quarters totaling $28.5 billion. Dell's award-winning customer service, industry-leading growth, and financial performance continue to differentiate the company from competitors. At the heart of Dell's success is the company's direct-to-customer business model. There are no retailers or other resellers adding unnecessary time and cost, or diminishing Dell's understanding of customer expectations. Posted net income of US$501 million on revenue of $8.5 billion in the second quarter of the company's 2003 fiscal year, which ended Aug. 2. Revenue increased 11 percent over the second fiscal quarter of 2002, while net income increased by 16 percent.
By Dr. Stephen Shih

2. Background Information

3. There was a young genius named Dell Who broke from an academia cell
There was a young genius named Dell Who broke from an academia cell. Both the bits and the bytes he assembled just right. Now this drop-out is doing just swell.
A poem
by Liz Carpender
At 13, Michael Dell was a young man with a knack for taking apart the motherboard of his Apple II cmputer and a wish to run a business. Today, only 20 years later, after becoming the youngest CEO in history to head a Fortune 500 company, he leads one of the most profitable and innovative organizations in the world. Michael Dell relates the story of Dell Computer's rise to success, which began in his college dorm room with $1,000. e set out to beat IBM at its own game, and created a Dell hallmark, the direct-sales model, which set the stage for other extraordinary achievements. Dell pioneered customer support, combining it with unrivalled speed to market and a fierce commitment to product quality and performance. But the story of Dell is no fairy tale - along the way Dell made mistakes and learned some hard lessons, emerging stronger as a result.

4. Dell was founded in 1984 by Michael Dell
Dell was founded in 1984 by Michael Dell. Uniquely enabled by its direct business model, Dell used to sell more systems globally than any computer company.

5. Dell Computer Corporation
Somewhere in time … the “Dorm” age
First, a little about Dell.
In 15 years, grown to be second largest computer supplier in the world
World’s leading online computer systems vendor
By a wide margin, largest computer systems supplier to corporate America.
Rapid growth: compound annual revenue growth of 54% for past 10 years; compound net income of 59% over same period. (through 1998)
Achieved success by challenging convention in computer industry; introduced new ways of doing business now becoming the norm
first sales direct to end-user, bypassing middleman
every computer built to order
first to introduce technical support, onsite service and factory integration of hardware and software
first computer company to integrate operations via the Internet.
While we may have been first in our industry to embrace the Internet, we certainly are not unique in our use of the medium.

6. 2001- For the first time, Dell ranks No. 1 in global market share.
Dell is No. 1 in the United States for standard Intel architecture server shipments
Dell introduces PowerConnect network switches

7. Products & Services

8. 2000
Company sales via Internet reach $50 million per day
2001
For the first time, Dell ranks No. 1 in global market share
2003
Dell enters consumer electronics, a natural extension of the company's existing product portfolio that provides customers with a single resource for consumer technology needs
2005
Dell tops list of "America's Most Admired Companies" in Fortune Magazine
Opens third major U.S. manufacturing location in Winston-Salem, North Carolina
2006
Dell ships more than 10 million systems in a single quarter (Q4, FY06) for the first time in its history

9. STOCK PRICE PERFORMANCE COMPARISON
(Dell, Apple, HP, and IBM) 1988 – 2004

10. How did DELL do it?

11. Dell's Business Enablers
The Direct Model
Advanced Supply Chain Management Software (for Back-End Fulfillment Capability and Global Enterprise Operations Integration)
BTO or ATO - JIT Manufacturing
Integrated Network
Standard-Based Technologies and Platforms …

12. Dell’s Direct Model

13. The Direct Model
Customer
Relationships
Cooperative
R & D
Mass Customization
Expert
Services
Suppliers
The five tenets of the model are:
Most Efficient Path to the Customer We believe that the most efficient path to the customer is through a direct relationship, with no intermediaries to add confusion and cost. We are organized around groups of customers with similar needs. This allows our teams to understand the specific needs of specific customers - without customer needs being "translated" by inefficient resellers and middlemen.
Single Point of Accountability We recognize that technology can be complex, so we work to keep things easy for our customers. We make Dell the single point of accountability so that resources necessary to meet customer needs can be easily marshaled in support of complex challenges. Dell’s customers want streamlined and fast access to the right resources; direct provides just that.
Build-to-Order We provide customers exactly what they want in their computer systems through easy custom configuration and ordering. Build-to-order means that we don't maintain months of aging and expensive inventory. As a result, we typically provide our customers with the best pricing and latest technology for features they really want.
Low-Cost Leader We focus resources on what matters to our customers. With a highly efficient supply chain and manufacturing organization, a concentration on standards-based technology developed collaboratively with our industry partners, and a dedication to reducing costs through business process improvements, we consistently provide our customers with superior value.
Standards-Based Technology We believe that standard technology is key to providing our customers with relevant, high-value products and services. Focusing on standards gives customers the benefit of extensive research and development from Dell and an entire industry - not from just a single company. Unlike proprietary technologies, standards give customers flexibility and choice.
SINGLE POINT OF ACCOUNTABILITY To support today's mission-critical environments, Dell offers a 99.9% System Availability Guarantee Program designed to meet the unique requirements of these complex systems as an option to Platinum level support.
Dell provides a single point of accountability for the high-availability solution and:
An assigned Dell Service Program Manager who will be the central point of contact for planning, uptime performance reporting and operational coordination of the agreement with the customer
Dell Remote High-Availability Analysts who will remotely monitor the system to help prevent downtime and rapidly react if problems do occur
Extensive range of free online assistance at support.dell.com
BE DIRECT - Eliminates intermediaries between Dell and its customers

14. The company is based on a simple concept: by selling standards-based computer systems directly to customers, Dell could best understand their needs and efficiently provide the most effective computing solutions to meet those needs.

15. This direct business model eliminates retailers that add unnecessary time and cost, or can possibly diminish Dell's understanding of customer expectations.
The direct model allows the company to build every system to order and offer customers powerful, richly-configured systems at competitive prices - BTO

17. Driving toward standards-based technologies and platforms has been the key to success within Dell IT

19. The Value of Standards
As proprietary systems and platforms have been eliminated from the environment over time, the ability of Dell’s IT organization to focus on delivering new projects and benefits has risen more than five fold.

20. The Value of Standards
… And Dell’s operating costs as a percent of revenue have declined year over year. Leveraging standards-based technology enables Dell to respond at the speed of business …

21. The Value of Standards
Increasing ability to leverage our IT workforce in much more efficient ways than ever before -- rather than spending time maintaining complex legacy systems, IT professionals can focus on delivering new and better solutions for Dell’s business partners and system users.

22. Dell is an Integrated Web-BasedNetwork
Dell uses the Internet to achieve high degree of supply chain coordination.
Suppliers are told exactly what the daily requirements are: suppliers have real time sales data and inventory data.

23. Dell is an Integrated Enterprise
Customer/Supplier Relationship Management: Dell works with customers and suppliers to determine the right levels of component inventory.
Data on margins, selling price, and overhead can be tracked closely by customer segment, by product, and by geography (throughout the entire enterprise system).

24. Dell’s Supply Chain Management

25. a back-end fulfillment information system
Intelligent e-Business is front end e-Commerce plus back end Fulfillment
“A front-end Web site is often the easiest and least differentiating section of an effective Web strategy …
A little-discussed, not-so-pleasant fact is that many Web commerce transactions are unprofitable because of back-end fulfillment problems.” Gartner Group
eCommerce
solutions
EASY
How many products do you have now that you must support?
What products are coming out in the next 6-12 months?
How do you measure the success or profitability of product development?
Is consultant hiring still your main bottleneck / constraint to growth?
Where do you get most of your people?
How do you keep people?
How many patents and copyrights does i2 hold?
Hello there.. we need to
a back-end fulfillment information system
HARD
Complex
fulfillment
solutions
Source: Goldman Sachs

26. Dell’s Supply Chain Synchronization
Synchronization and optimization of all supply chain activities
Synchronized, Sequential Planning
Forecasting
Distribution
Planning
Manufacturing Planning
Procurement
To Balance
Capacity Constraints and
Material Constraints
Supply Chain Optimization
Synchronized, Concurrent Planning
Demand
Planning
Distribution
Manufacturing Planning
Procurement 2

27. The Dell Fulfillment Proposition
What Information Systems to Build?
Do we have the right inventory profile and info on the right replenishment levels in every stocking location throughout the supply chain?
What is our real-time, total pipeline inventory (raw materials, work-in-process, and finished goods inventory) at every stocking location throughout the supply chain?
What is the product demand?
What is the level of customer service performance (e.g., order fill-rate, backorders, stockout occurrences)?
The Target: Build and ship within 3 days
Buy to Order … Assemble to Order
Eliminate inventory  Replace inventory with INFORMATION

28. What is ATO or BTO? ETO Design Purchase Manufacture Assemble Ship MTO
Manufacturing Strategies & Delivery Lead Time
                   
ETO
Design
Purchase
Manufacture
Assemble
Ship
MTO
Manufacture
Assemble
Ship
Inventory D
Assemble
Ship
Inventory
Manufacture
ATO/
BTO
ETO: Engineering-To-Order
MTO: Manufacturing-To-Order
ATO/BTO: Assembly-To-Order (Build-To-Order)
MTS: Make-To-Stock
Manufacture
Assemble
Ship
Inventory
MTS
ETO: Engineer-To-Order; MTP: Manufacture-To-Order;
ATO/BTO: Assembly/Build-To-Order; MTS: Make-To-Stock

29. Manufacturing Strategies
Customer
Involvement
In Design &
Production
What to Stock
For Inventory?
(raw materials,
standard
components, work-in-process,
Or end products)
Design &
Delivery
Lead Time
ETO ?
Long?
High?
MTO ?
ATO/
BTO
ETO: Engineering-To-Order
MTO: Manufacturing-To-Order
ATO/BTO: Assembly-To-Order (Build-To-Order)
MTS: Make-To-Stock ? ?
MTS

30. Fundamental Advantages BTO/ATO: Fundamental Advantages
Better price, excellent quality, and … faster speed!!!
Reduce delivery lead time
Mass customization
Direct model gives us fundamental advantages our competitors are unable to deliver.
Perhaps biggest advantage is ability to deal with change.

31. BTO Build Your Own System

32. DELL’s SERVICES
Words of Wisdom …
Well studying your customers, not your competition, will give you a greater competitive advantage

33. 1QFY06 Results
How Did Dell Do?

35. Dell's Midlife Crisis
The powerhouse PC maker has hit A SUDDEN SPEED BUMP. Can the company get back on track?

36. STOCK PRICE PERFORMANCE COMPARISON 1988 – January 2, 2009
Note: Monthly Closing Price 07/94 through 07/99, indexed to 100

37. DELL’S STOCK PRICE PERFORMANCE 2004 - 2009
Note: Monthly Closing Price 07/94 through 07/99, indexed to 100

38. Dell’s Challenge
The witching hour came, fittingly enough, on Halloween: Dell chief executive Kevin Rollins issued an early warning about the company's third-quarter financial performance. He probably wished he could hide behind a mask. Earnings and sales would both be below expectations. The company would have to write off $450 million, the bulk of it because of an embarrassingly basic misstep for a firm that prides itself on operational efficiency: the installation of faulty capacitors in a large number of computers. Finally, the company hinted at layoffs--what it called a "workforce realignment"--a harbinger of retreat that the company had resorted to only once or twice before in its history.
By ANDY SERWER
November 28, 2005
(FORTUNE Magazine) –

39. Case Assignments

40. Developing a competitive force model Developing a value chain model
To help resolve the recent challenges and crisis that Dell has faced, you are hired to assist its Information Systems Management team in:
Reengineering and restructuring the IS organization at one of the Dell manufacturing plants in the U.S. for the purpose of improving the performance of people in Dell through the effective use of information technology
Developing a framework for effective management of Dells’ information systems
Developing a competitive force model
Developing a value chain model

41. Addressing the recent challenges and crisis that Dell has faced, Dell’s executive team has shifted its strategic business and IS focuses for the new IS organization and computing environment for the entire company:
IS focuses will be shifted to reengineering business processes and working better with suppliers and customers. The IT group at Dell had undergone a dramatic change from a controlled, technology-centric environment to a much more participative, customer-focused environment.
Another focus is to manage information as a resource and to coordinate all computing resources by putting them together in an enterprise-wide technology infrastructure.
ERP is implemented as part of the infrastructure – focusing on seamless data and system integration.
One other focus is on achieving the balance between the need for standardization and meeting local needs. IS’s organizational structured shifted to focusing on processes, and putting in a business-led governance structure.

42. Dell’s strategic business and IS focuses for the new IS organization and computing environment for the entire company:
Buy-to-order with virtual integration
Suppliers must understand that Dell is demanding flexibility, not inventory
Web-based technology integration – e-Commerce & e-Business

43. Value Shift Inventory Physical Assets Closed Vertical Integration
Dell’s strategic business and IS focuses for the new IS organization and computing environment for the entire company:
Value Shift
Inventory
Physical Assets
Closed
Vertical Integration
Information
Intellectual Assets
Foundation of change is shift away from things learned to value in the business and economic models of 20th century:
Value of inventory being replaced by value of information;
Physical assets being traded for intellectual assets; and
Closed business systems giving way to collaborative relationships.
We have learned from this value shift and have benefited from it through a process we refer to as virtual integration.
Will talk more about that later.
Collaboration
Virtual Integration

44. The Power of Virtual Integration
Dell
Customers
Suppliers
Integrated Electronic Commerce
Enhanced velocity throughout supply chain
Advantaged relationships
Trading inventory for information
Cost reduction for all parties

45. Prospective Enterprise System Model (1) - e-Business

46. Customer Relationships
Prospective Enterprise System Model (2) – Customer Relationship Management
Customer Relationships
Information
Sharing
Internet
Commerce
Service
& Support
Configuration
& Shopping
Online quotes & order entry
Access Dell’s internal
information
Explore Dell’s products & services
Knowledge-enabled self support
Productivity tools for helpdesks

47. Case Assignment Questions
Study Chapters 1, 3, and 4 as well as conduct research on the Web to address the following questions:
To be in line with Dell’s new strategic business and IS focuses (see the four new focuses listed in Slide #41 and related information in Slides # ):
What possible changes are taking place in the external business environment of the company like Dell? (15 points)
What possible changes are occurring in the internal business environment of the company like Dell? (15 points)
Addressing the internal and external environmental changes, define a set of business goals of the new work environment in Dell. (10 points)

48. Case Assignment Questions
Based on (1) your defined goals of the new work environment, (2) strategic business/IS focuses, and (3) prospective enterprise system models mentioned before, state your view of the mission for Dell’s current information systems.
(10 points)

49. The following diagram shows the current IS organization structure
The following diagram shows the current IS organization structure. Discuss how and why this structure cannot fully address (1) the defined goals of the new work environment, (2) strategic business/IS focuses, and (3) prospective enterprise system models. Revise the current organizational structure and draw a new diagram accordingly. (15 points)

50. Explore the risks and competitive forces of Dell and discuss how you can use Porter’s competitive forces model to determine the company’s position within the computer industry and to discuss what specific actions that Dell has taken and needs to increase it competitive advantages. (15 points)
Describe the value chain model and value system of Dell Computer. From the IT/IS point of view, identify and recommend what information systems/software to be used for different tasks in Dell’s value chain. (20 points)