Week 3: Tutorial Tasks Before we answer discussion questions; we discuss some key concepts in the case: Strategy and value chain analysis. analysis . Value Chain analysis: is a method for breaking down the firm into a chain (from basic raw materials to end –use –use custome customers) rs) into specific specific activitie activities s in order order to underst understand and the behavio behaviorr of costs costs and sources sources of differentiation. Value chain disaggregates the firm into its distinct strategic activities. Value alue Chain Chain analy analysis sis is a usefu usefull tool tool in develo developin ping g comp compet etiti itive ve advan advantag tage e based based on low cost, cost, or differentiation, or preferably cost-cum differentiation. The methodology for constructing and using a value chain involves the following steps: 1. Identify external and internal value chains and assign costs, revenues to activities and processes. 2. Diagnose the cost drivers regulating each activity and process. 3. Develop sustainable competitive advantage, either through - reconfig reconfigurin uring g the value value chain, chain, example, Dell Comput Computers ers busines business s model: model: direct direct order order – customi customised sed product which cut out distributors or - controlling cost drivers (and/or increasing value) better than Competitors
Case 7-5: Dell Computer Corporation Discussion questions 1.
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What is Dell’s strategy? Dell’s strategy was based on: Market Market leadersh leadership ip as a result result of a persiste persistent nt focus focus on delivering delivering the best possible possible customer customer experience. Direct selling, from manufacturing to consumer, was a key component of its strategy. Its reputation as one of the world’s most preferred computer systems companies and a premier provider provider of product products s and services that custome customers rs worldwid worldwide e needed needed to build build their their informa information tion-technology and internet infrastructure.
What is basis on which Dell builds its competitive advantage? Dell redesigning PC industry value chain as a tool in developing competitive advantage based on: •
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Cost advantage: advantage: This was done in three areas. Component purchase costs, inventory costs and selling and administrative costs. Customer knowledge advantage: advantage : Dell underst understood ood consumer consumer needs needs and efficiently efficiently met those those needs by selling computer systems directly to customers. The direct business model eliminated retailers, who added unnecessary time and cost, and shipped directly from its factories to end customers. It took orders for hardware and software over the phone or via the internet. Dell designed an integrated supply chain linking Dell’s suppliers very closely to its assembly factories and orderintake system. Dell outsourced all components but performed assembly. Technology advantage: dell custom-built its machines after receiving an order instead of making machines for inventory in anticipation of orders. Dell introduced introduced the latest relevant technology technology much more quickly than companies with slow moving inventories; turning Dell to become the number-one retailer of PC, outselling IBM and Hewlett-Packard. IBM and Hewlett-Packard Dell Dell moved moved into into IT portf portfoli olio; o; it moved moved into into serve servers, rs, and and storag storage, e, mobil mobility ity produ products cts,, and and also also challenged Printer leader HP.
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How do Dell’s control system help execute the firm’s strategy? Performance Performance Measures Measures : Dell’ Dell’s s scorec scorecard ard includ included ed both both finan financia ciall measu measures res (such (such as ROIC, ROIC, comp compon onent ent purch purchasi asing ng costs costs,, selli selling ng and admin administ istrat ration ion costs costs)) and and non-fi non-fina nanci ncial al meas measure ures s (component inventory stock outs, finished goods inventory, A/R day and A/P days). Localised Localised decision making system : Dell used its structure as a flat organization as a competitive advantage advantage and localized its decision-making. decision-making. If an issue did not require a higher up’s attention, attention, then decision would be made without involving him. This would not have been possible in companies bogged down by layers of bureaucracy. Business unit Performance Performance:: in 1993, Dell developed a set of metrics to judge business-unit performance. Expedited the assembly process: process : Dell recognized early the need for speed, or velocity, quickening the pace at pace at every step of business.
