Value Chain Assignment

2008 MBA/ENG 290G International Competition in Technology

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

PC Value Chain Analysis

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

Acer value chain and its dependencies

Distribution & Marketing Channel Business Model indirect Resellers partnership Global distributor Acer Computer Logistron Service Broadwalk Capital

R&D Apacer AQR Kingdom Corp. Animeta System

Components Toshiba Fujitsu Sony Hitachi Mitsubishi Lite-On IBM Ambit Sumida Sanyo

Manufacturer Wistron BenQ AMBIT ALi Aegis Semiconductor Yam Digital Tech. Legend Tech. RDC Semiconductor Feiya Tech.

Red heavy presence by Acer Blue no or light presence by Acer

Example

Source: http://somo.nl/html/paginas/pdf/Acer_Incorporated_Company_Prof_2005_EN.pdf

Asus value chain and its dependencies

R&D center Core technology center

Chips Motherboard Logic IC LED display PCB Sound blaster Connectors Eee PC DRAM Intel, nVIDIA etc Procurement and material management center

Eee PC Ultra Mobile PC phone

Sales, marketing and PM groups

Sales, marketing and PM groups

Red heavy presence by Asus Blue no or light presence by Asus

Dell Value Chain

R&D Components Design Manufacture Marketing & Sales Support
Current portfolio of 1954 patents Use a wide variety of Intellectual Property agreements Global network of technology companies Large number of vendors HW AMD Intel EMC Seagate SW Microsoft Ubuntu (Linux) Citrix 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

Americas Texas

APJ China India Singapore Tawan

Red heavy presence by Dell Blue limited presence by Dell

HP value chain and its dependencies

Support & Services

R&D

Testing

Components

Assembly

Sales

PSG HP Labs ODMs

PSG ODMs

ODMs CMs Third-party vendors

PSG CMs OEMs ODMs

Direct PSG Retailers TSG Resellers Distribution partners Independent distributors OEMs Independent software vendors Systems integrators Red heavy presence by HP Blue no or light presence by HP

PSG Personal systems group 8 TSG Technology solutions group

Lenovo PC Value Chain

Technology Inputs

R&D

Design

Manufacturing/ Assembly

Sales & Marketing

Software & Services

HW Components AMD Intel Sony Sanyo Samsung Seagate Western Digital Micron Texas Instruments Panasonic Hitachi Toshiba Fujitsu Kingston Lenovo motherboards Software Microsoft Adobe Symantec 9

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

Comparison of PC Value Chains

Same core set of component and software suppliers across all PC vendors
Minimal feature differentiation across vendors Still little differentiation Minimal R&D investments compared to other high-tech industries

R&D still seen by most as a way to differentiate their products

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 Acer, Dell and HP outsource to EMS partners Asus and Lenovo maintain manufacturing facilities while attempting to move up the value stream

Oustourced vs. in-house manufacturing 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

10

Consumer PC players rely on retailers Best Buy, Circuit City, other category killers

Dell & Box.net

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

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

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

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

14

Team 2: Jon Wiesner, Rachel Simon, David Exposito Cossio, Yanpei Chen, Emrehan Kirimli

Comparing PC Value Chains

Dell, HP, Acer, Asus, and Lenovo

Dell
Firm Infrastructure Human resource Visionary founder. Worldwide operations. Currently cutting operating expenses: downsizing employees and facilities. Hedging activities protected from impact of weakening dollar.

~ 90,500 (majority abroad); activities associated with recruiting, development, and compensation of employees. Technological increased 22% this year to $610 million. Focus on shortening Development development cycle & tailoring regional solutions for international growth. Strengthening IT & sever offerings. Relationships over integration. Quality components. Flexible Procurement purchasing to adjust for cost, needs, quality, availability.

Inbound Logistics
Just in time warehousing, minimal inventory; madeto-order for demand and no old technology

Operations

Outbound Logistics

Marketing & Sales

Service
High quality support, customer access to help info

Customized assembly of systems for user specs

Direct sales #1 in personal PC model systems in U.S., and insight into #2 worldwide customer Adding new channels needs Adjusting to new Online markets: payment ordering upon delivery

Hewlett Packard
Firm Infrastructure Human resource 6 business units. Highly decentralized. Presence globally. In the process of reducing the number of facilities to reduce costs.

172000 employees. Extensive training for sales force.

Technological Strong R&D culture.$3.6B invested in 2007 (3,4% of net Development revenues). They capitalize with patents and licensing technology. Procurement Huge negotiating power. Always use secondary sources of supply. High volume to reduce costs.

Inbound Logistics
One of the biggest in High Tech industry

Operations

Outbound Logistics
Extremely complex to reach huge number of customers

Marketing & Sales

Consumer and commercial customers. Currently reinvesting in increasing sales force

Service
HP offers consulting service and customer support. Very important for HP strategy

Manufacture high volume of basic product configuration to maximize efficiencies

Acer
Firm Infrastructure Human resource Spun off manufacturing operations in 2000. Low capital costs business model.

Outside of administrative and management functions, all employees fulfill sales, marketing, customer service or R&D roles.

Technological Incorporates advanced feature sets in high end brands. Focused Development on worldwide growth in notebooks and ultra-mobile devices. Procurement Seeking scale and efficiencies through acquisitions in major markets

Inbound Logistics
Outsources manufacturing Spun off manufacturing operations in 2000

Operations
Lean operating model Minimize capital and operating expenditures

Outbound Logistics
Channel Business Model

Marketing & Sales

Purchased brand names in major markets (e.g., Gateway) Brand positioning

Service
Small investments in service offerings

Asus
Firm Infrastructure Human resource Based in Taipei. Facilities in Taiwan, China, Mexico and Czech Republic. Presence globally.

8885 employees. A world class R&D design team.

Technological Emphasis on R&D, design. Simple, innovative products. Selected Development as 9th most growing tech company by Business Week. Procurement

Big negotiating power. High volume to reduce costs.

Inbound Logistics
Production capacity: two million motherboards and 150,000 notebooks per month

Operations
In the process of restructuring into three distinct operational units

Outbound Logistics
Great emphasis on Total Quality Management and fast delivery

Marketing & Sales

Service

Emphasis on A significant customer amount of service. Trying money for to overcome marketing, the bad advertise on green products reputation in some countries

Lenovo
Firm Infrastructure Human resource Four geographic segments, two major product groups. Presence globally. Worldsourcing, but mostly manufacture in China.

23000+ employees, ~17000 in China, ~2000 in U.S. Strong commitment to talent management.

Technological Emphasis on innovation 17% annual R&D spending increase. Development Gains in market share driven by new products. Procurement Huge negotiating power in China. Committed to use diverse suppliers. Emphasis on trust, reciprocity, integrity etc.

Inbound Logistics
Trying to manufacture closer to key customer base.

Operations
Major push to streamline supply chain and decrease end-to-end cost.

Outbound Logistics
Retail store network essential, especially in China

Marketing & Sales

Sponsoring Olympics etc. Vigorously trying to build the Lenovo brand.

Service
Emphasis on customer intimacy and support for SMB. Simplified product lines.

Value Chain Differences

Value Chain Dependencies

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

Dell & Box.net Partnership

Why Partner? Allows Dell to continue to focus on product innovation and faster development cycles Low barriers to entry ($200K) and insignificant revenue source (Dell would rather sell them servers) Fragmented competitors with better brand recognition in space (e.g., Google, Yahoo, Microsoft, Mozy, etc.) Doesnt leverage Dells competitive advantage in manufacturing processes Allows Dell to focus service offerings on higher value enterprise customers Brand dilution

Future Projections
Possible directions of the industry: Scenario 1: China completely overtakes U.S. as the largest computer market Lenovo has advantage. Scenario 2: U.S. remains the largest market Dell has advantage. Scenario 3: Server/datacenter segment completely overtakes consumer segment in terms of volume quickest innovator has advantage. Scenario 4: PC/cellular convergence, ultra-mobile PCs and ultra-capable cell phones strong partnerships and large customer base has advantage. Possible changes in the value chain: Logistics know-how gradually spreads even out the playing field there. Ever higher quality products reduce the need for extensive/expensive service. Commoditization of products means less brand differentiation. Efficient operations & manufacturing vital to establish cost/value differentiation. Marketing also vital turning the PC into a fashion product like cell phones.

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

PC VALUE CHAINS

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

Acer Value Chain

4% 28% 56% Custo mer service + Sales suppor t % of employees End customer

R& D

Design + Manufa ct.

Marketing & Sales

Distrib.

In-house / Make

Outsourced / Buy

Multi-product and services + multi-brand strategy Time-to-market, scale and focus on customer needs as KSFs Supply chain management business model

HP Value Chain
R& D Services and assembly Markt. & Sales Direct distrib. Custo mer service + Sales suppor t End customer

R& D

Manufactur ing & assembly In-house / Make

Indirec t distrib.

Outsourced / Buy

Shifting towards higher margin businesses adding software and services to portfolio Reducing real estate and other unprofitable capital employed Very dependent on key suppliers, such as Intel and Microsoft

Asus Value Chain

R& D
Thei r futu re: pho nes

Design + Manufa ct.

Low margin products outsource d

Distrib. Marketing & Sales

Europe estd. Working on Russia, China
Many products still OEM; joint distro nets for others

Suppor t
Exclusiv e centers in India

End customer

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)

Lenovo
R& D
Co mmitt ed to tale nt Dev .

Design + Manufa ct.

Moving closer to key cust. base

Marketing & Sales

Sponsorship s (Olympics, etc) to build brand

Suppor t

End customer

Distrib.
Building retail store network

Simpler product lines, SMB support, & custome r intimacy

Procurement: Chinese roots grant large advantages in negotiations Personnel: 75% Chinese, 9% US Tech. Dev.: Most market share gains driven by new products

Dell Value Chain

End customer

R&D

Build-toorder MFG

Direct Sales

Few Retailers

Customer service

In-house

Outsourced

Mass customization and online ordering of products Direct sales approach as a totally customer-driven system Customer service through outsourced call centers and repair agents

Dell & Box.net Partnership

Dell Inspiron users get 2 GB of storage absolutely free by signing up for a Box.net account through a direct link on their new notebook. Box is offering affordable plans for users that need as much as 25 GB of online storage.

Box.net End customer

R&D

Build-toorder MFG

Direct Sales

Few Retailers

Customer service

In-house

Outsourced

Box.net: Online storage feature added to Dell Inspiron by end user Dell and Box.net have very different core products so they partner to complement an overall competitive product Inspiron + Box.net = NETBOOK

Compare

Contrast

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

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

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

Value Chain Analysis: Personal Computers

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

HP Value Chain

Inbound Logistics Building products to order maximize manufacturing efficiencies by producing hi vol of basic product configurations Configuring products to order for customer customization JIT to minimize inventory Purchase supplies from multiple vendors Dependent on Microsoft and Intel

Operations

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

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.

HP Services competes in IT support services, consulting, integration, and outsourcing services.

HP depends heavily on its partners however HP is able to leverage its size to create favorable terms and prices Like other competitors, they are heavily dependent on Microsoft and Intel

HP Divisions

Technology Solutions Group (TSG) (36% of revenue)

Includes: Enterprise Storage & Servers (ESS), HP Services (HPS), HP Software

Manages direct sales for volume and value products

Manages enterprise and public sector customer relationships Drives 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/3rd party retail locations

Manages direct consumer sales online

HP Financial Services and Corporate Investments(2%)

HP Divisions

TSG

Dell Value Chain

Inbound Logistics

Operations

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 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.

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.

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.

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.

Acer Value Chain

Inbound Logistics

Operations

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

Product manufacturing is outsourced to ODM (original design manufacturer) companies in Taiwan (primarily Wistron, Hon Hai, Quanta, and Compal) Relies on just-intime procurement (inventory turnover is ~25 days) Distributed procurement, fulfillment, and vendor managed inventory system by i2 Technologies, Inc.

Acer focuses on the sales and marketing of its IT products and outsources all manufacturing. The company provides brand management and product development.

After-sales service is provided by regional subsidiaries, and overseen by regional corporate departments in EMEA, Pan America, AsiaPacific, China, and Taiwan.

Acer Value Chain and Supplier Relationships

Suppliers:

In 2000, Acer divested its majority ownership stake of Winston, its major supplier to focus on marketing and branding. 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.

Acer Example Supply Chain

Centre for Research on Multinational Corporations (SOMO), 2005

Asus Value Chain

Inbound Logistics

Operations

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 has partly outsourced the production of components (chips, DRAM etc) to companies like Intel, AMD and nVidia Timely delivery via external partners essential.

Manufacturing for branded products and contract manufacturing for other hardware companies like HP is done in separate companies Unihan for PCrelated manufacturing Pegatron for casing, module and non-PC contract manufacturing Asus also has its own product development

Asus offers bundled customer service and product support Extension of warranty is offered for an additional fee

Asuss value chain is focused on manufacturing

Asus Value Chain Dependencies

Suppliers:

Supplier of raw materials (chips, DRAM, PCB etc.) like Intel, AMD, nVidia and Qimonda Close relationship for product development necessary e.g. need to develop specific motherboard for each new chip

Customers:

Before foundation of separate holdings in 2008 conflict of interest As a contract manufacturer also own brand competing for same end consumer with manufacturing customers

Internal:

Contract manufacturing business is competing for volume from branded-business therefore effective processes are ensured

Lenovo Value Chain

Inbound Logistics

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

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

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

Comparison of the Value Chains

Inhouse Manufacturing Outsourced Manufacturing

Customization as Added Value

Less customization

Wide Spectrum of Products

Fewer Products

Focus on Product Development

Commoditization

Many Distribution Channels

Fewer Channels

Customer Service as Added Value

Fewer Services

Dell and Box.net

Background:

Box.net is a company that provides online storage and file sharing solutions.

Dell partnered with Box.net 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:

Box.net 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.

Dell and Box.net

Partnership vs. Build It Internally:

Much Lower Cost:

$200,000 to build a similar site does not capture all of the costs associated with providing this type of service. The data center infrastructure required to provide this service would represent huge capital investment for Dell.
Even if Dell outsourced the data center requirements to a third-party, the company would have to bear the costs of support and site maintenance.

Not a core competency for Dell:

Dell has no experience providing data storage for end users and limited experience with software development. Software and Online services are not a key component of 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.

Industry Future Direction

Personal computer companies are looking for differentiation in a commodity marketplace. Contract manufacturing

There will be a continuation of the current trend of separation between the brands (marketing, sales, and support) and the manufacturing of personal computers and consumer electronics.

Customization

Companies like Dell will have a renewed interested in providing custom products.

Spectrum of products

Computers with new styles and designs will continue to differeniate commodity hardware, which will provide a benefit to companies with creative design teams.

Convergence/ mobile applications

There will be a grayer line between laptops and cells phones. Laptop companies will partner with mobile companies, opening up a new sales channel and new economies of scale.

Software, open source

There will be a move away from the standard Windows box to unique, application specific interfaces, making software development an important part of the value chain. This move is driven by open source operating systems and development tools.

Increased service

Some companies will see an opportunity in providing value added support and service to their hardware offerings. The customer relationship will continue past the point-of-sale.

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

PC Value Chain: Acer, Asus, Dell, HP, Lenovo

Group 5:
Varun Boriah Sonia Fereres Dilip Joseph Brendan Quinn Ada Zheng

Generic PC Value Chain

Component design

Component manufacture

Assembly

OS /application software

Distribution

Sales

Support and integration

Component design

Component manufacture

Assembly

OS /application software

Distribution

Sales

Support and integration

HP
.com

Component design

Component manufacture

Assembly

OS /application software

Distribution

Sales

Support and integration

Asus (EEE PC)

(in-house) (Atom / Celeron) Asus (inhouse)

OpenOffice / StarOffice / Microsoft / Google Apps

Asus

ASUS Best Buy, NewEgg, (through a CompUSA, very simple etc web page)

Component design

Component manufacture

Assembly

OS /application software

Distribution

Sales

Support and integration

Lenovo
Basically no core R&D ability. Fully rely on Intel, AMD, Nvidia etc. Outsourced to Taiwan manufacture s or hardware companies Previously manufactured by Taiwan OEMs and shipped to Shanghai to assemble; now the OEM assemble the final product and ship to the consumer directly Microsoft Linux Anti-virus software Powerword No world HQ. put in place a distributed management structure that places operational hubs around the world. Separate channels for Personal and Commercial users; Self-owned distribution network built of Retailer, wholesaler, contractors, agent and specialty stores as well as online channel Think series: online direct sales+store sales+wholesa ler Tie 1 area: supported by Lenovo own team; Other areas: contract service agents

Recently developed several types of products based on its own R&D

Lenovo series: own distribution channel

Component design

Component manufacture

Assembly

OS /application software

Distribution

Sales

Support and integration

Dell
CM & ODM: manufacturing of printed Mass circuit board assemblies (PCBAs by SCI customization and Solectron), concept subassemblies (box builds - like Hon Hai) Direct sales strategy: Intends to some final products (mainly notebook outsource most PCs- Quanta and Arima) manufacturing to OEMs, especially hard drives (Seagate, Quantum, in Asian area Maxtor and IBM), DRAM (Samsung, Toshiba, Micron), CD-ROM drives, semiconductors, addon cards, monitors (Sony, Phillips, Nokia, Samsung)

Dell handles distribution and sales via dell.com

(Although moving into traditional distribution via stores)

Mass-customization: strong link with Assembly

IT Services: outside partners for system integration, installation, onsite repairs and consulting. Partners include Wang, Unisys, IBM and BancTec. Financial Services: Dell Financial Services (JV with CIT group)

Component design

Component manufacture

Assembly

OS /application software

Distribution

Sales

Support and integration

Acer

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

Assembly

Differences: Distribution/Sales

Dell sells primarily through dell.com Dell, HP, Lenovo offer complete solutions for corporate business: from purchase, logistics, management, maintenance, support as part of their core services.

Last year HP, Lenovo and Dell supplied 87% of commercial enterprise computer market. (Source: Forrester Enterprise Hardware Survey Q3 2007)

Differences: Services
Dell, HP, Lenovo offer complete solutions for corporate business: from purchase, logistics, management, maintenance, support as part of their core services. HP doing slightly worse but generally similar quality

Cloud Computing: So what is it anyway?

Software as a Service avoids the need for enterprises, SMBs and consumers to buy software and associated hardware infrastructure SaaS Eg: salesforce.com

HaaS

Hardware as a Service avoids the need for enterprises and SMBs to buy servers and storage devices Eg: Amazon EC2

Components

Assembly

OS

App Software

Distribution & Sales

Support & Integration

PaaS
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
Source: Future View: The New Tech Ecosystems Of Cloud, Cloud Services, And Cloud Computing, August 2008, Forrester Research

&

Dell Inspiron Mini is promoted as a ultra-lightweight Internet access device. It has only 8GB storage as SSD is currently very expensive. Enhancing the Minis storage with Dells own online storage service takes time & money. Dell may lose time to market advantages. box.net is available right now. It works and is popular (1.6m users, 1m files a day). Dell does not have to worry about creating and testing a robust storage service. Cloud services is very nascent and hot area, in which Dell is currently behind. box.net provides an easy opportunity for Dell to experiment and join the cloud crowd. Dell does not have the full product portfolio or expertise to run a data center (as much as HP or IBM). Partnership with box.net buys time to develop its new Data Center services business. further, the Insipiron Mini can simply use more SSDs

http://www.box.net Once SSD prices fall http://en.wikipedia.org/wiki/Box.net

&

box.net 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, 5GB @ 7.95/month Data is stored in cloud and hence accessible from anywhere Files can be edited online and shared with others

Why did Dell partner with box.net?

Dell Inspiron Mini is promoted as a ultra-lightweight Internet access device. It has only 8GB storage as SSD is currently very expensive. Enhancing the Minis storage with Dells own online storage service takes time & money. Dell may lose time to market advantages. box.net is available right now. It works and is popular (1.6m users, 1m files a day). Dell does not have to worry about creating and testing a robust storage service. Cloud services is very nascent and hot area. box.net provides an easy opportunity for Dell to experiment . Dell is behind.

Dell does not have the full product portfolio or expertise to run a data center (like an HP or http://www.box.net IBM). http://en.wikipedia.org/wiki/Box.net

The Future Future Markets:

Going mobile WiMAX, 3G, GPRS

Revenue share with carriers: iPhone as an example

Netbook as a 3rd market, in addition to desktops & laptops

Netbooks are currently given away for free with Vodafone 3G contract

Meeting the requirements of developing markets

Growing markets, new needs Apply those new technologies to advanced markets eg OLPC (one laptop per child) leading to power consumption advances

Digital living room

PC as consumer entertainment device Media Center Intel Viiv, Microsoft Media Centre, integration with TVs and set-top boxes, etc

More informed customers

The Future

Changes to the value chain

Hardware is commoditized; constant innovation Companies will move up value chain towards services

Offline services gain traction E.g. IBM exited PC business

Shift toward cloud computing and data centers Software as a service (SaaS)

Should this be achieved through partnering or be developed inhouse? ODMs and OEMs will start retailing and branding themselves Global Direct Distribution (GDD): products shipped from ODM to customer

Increase in ODMs versus CM and self-assembly units

Internet based distribution gains more traction

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

Dell, HP, Acer, Asus, and Lenovo Value Chains

Team 6
Wan-Lin Tseng
Toru Yamagishi Nuttapong Chentanez Jim Miller

Ankit Gupta

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)

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

Asus Value Chain

From OEM/ODM to brand name business

Asus used to be the leading OEM/ODM manufacturer; not long ago, the company started to build its own brand name On July 2nd, 2007 Asus has its OEM/ODM and brand name business separated

Inbound logistics-OEM/ODM

Being the middleman of its OEM/ODM clients and the suppliers, Asus gets components needed from suppliers directly

Manufacturing-OEM/ODM

Manufacturing for its OEM/ODM clients, i.e. Dell

Outbound logistics-OEM/ODM

Shipping products directly to distribution channels or customers of OEM/ODM clients

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)

HPs Value Chain

Inbound logistics

Number of contract manufacturers (CMs) and original design manufacturers (ODMs) around the world to manufacture HPdesigned 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)

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

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

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

Dependency of Asus Value Chain

Emphasizing itself more as an ODM manufacturer than as an OEM manufacturer, Asus depends heavily on its R&D group for new design or ideas Being aware of the stiff competition in the ODM/OEM industry from Chinese manufacturers, Asus decided to reposition itself in the value chain as a brand name manufacturer Asus dependency of suppliers and clients grows a lot due to the repositioning

Dependency of 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.

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.

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

Dell & Box.net

Box.net offers online file storage and file sharing service

Dell ships its Inspiron mini with free Box.net account in an attempt to enter netbook market. Box.net add values at the end of value chain There is a huge advantage to be the first movers in this market

Asus already has similar product for its Eee customers

Dell would need to take time to develop a similar product itself

Why Would Dell Create a Partnership vs. Do It Themselves?

There is a huge advantage to be the first mover in this market

Dell would need to take time to develop a similar product themselves

Where do you think the industry is going?

PC is becoming a commodity

There is no outstanding difference among PCs (except Mac) Cost advantage is critical in competition

Direct sales model is widely accepted

Dell established direct sales model utilizing online distributions

Other PC makers have introduced direct model besides their traditional distribution channels

What are the key linkages in the value chain?

Efficient supply chain management is critical
For cost advantages, inbound logistics, operation and outbound logistics are linked closely Outsourcing is a key connection in the value chain

How the value chain "changing" over the next 5 years?

Cost advantage will be more important

PC is a commodity

Direct sales model will become more popular

As the online sales channel become popular, inbound logistics and operation will change to support the sales model More detailed customer services would be needed

Expansion of business scale

To take advantage of scale economy, more M&As will be conducted By expansion of scale, PC companies negotiating power

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

Value Chain Dell, HP, Acer, Asus and Lenovo

By Group 7: Andrew Liao, Anthony Goodrow, KC Chen, Piyapat Tantiwong, Sha Tao

Q1: Value chain: Primary activities

Inbound Log HP -Purchase & consign RM/Goods for/from OEM -Build-to-order model -W/H & good Supply chain -Purchase & consign RM/Goods for/from OEM Operation -No plants -Outsourcing to OEM -Never outsourcing assembly -6M ft2 plant -No plants -Outsourcing to OEM Outbound Log -No Inventory -OEM ship to retailers directly -Outsource to delivery serv. Company i.e. FedEx -No Inventory -OEM ship to retailers directly Mkt & Sales Service -Take care R&D General and Mkt solution -Mkt cost = 12% service revenue -Relatively small -Save sales channel cost -Strong EMEA and M&A, try to overpass HP in US General solution service

Dell

Acer

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

-Buy RM through similar Lenovo supply chain as

-Own factory -Outsource only missing

-Ship directly to retailers -Inv. keep at

-Strong Brand & General mkt share solution -Good distn service

Q1: Value chain (Cont): Support activities

Infrastructure -Global sales & support offices -Strong retailer network -BTO model -Mature direct sale model saves inv./retailer cost -Strong EMEA and M&A, try to overpass HP in US HR N/A R&D - 3% rev. -Variety of product portfolio -< 1% rev. -Seldom develop on its tech - Not tech advanced -Focus on layout Eng Procurement -Very strong cutting cost -Maintain CSR global retailer -Very strong cutting cost -Maintain CSR global vendor -Very strong cutting cost -Maintain CSR global vendor Margin

HP

8%

-Strong control by Michael Dell

Dell

5.6%

Acer

-Italian CEO for EMEA development -Hugh success -Strong Eng team -On the way to innovation -Strong relationship w/

2.2%

Asus

-Compact indenp R&D, manu, and Mkt functions in group -Took over global sales and strong

-Strong only -Not strong due layout Eng to small mkt -EeePC -purchase internally -Improve the design -Very strong cutting cost

4.1%

Q2: Outsoucing strategy

HP

Outsourced nearly all of its manufacturing to Electronic Manufacturing Service (EMS) providers, like Foxconn. Focused on the R&D, marketing and services. This strategy saves HP factory overheads and labor issues. assembled (low value added) PC by itself & hence dragged down the margin. Outsourced. Low margin since it has just acquired E-machines and Packardbell and was looking to have global integration. in-group outsourcing. strong R&D enables the company to do new product innovation. Saves the labor cost. But increases the factory related expenses, leaving margin at 1.1%.

Dell

Acer

Asus

Lenovo

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.

Q3: Summary of the customer/supplier relationships in the value chain.

OEM Semiconductor (Intel, AMD) Motherboard (Asus)

Dell

HP

Acer

Lenovo

Retailers

End-User

Q3(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 Inhouse manufacturing strategy. Customers: End users mostly from directing selling, unlike other top computer manufacturers.

Dell

HP

Largest computer manufacturer Suppliers: Purchase components from OEMs Customers: Retailers

Acer

3rd largest computer manufacturer Suppliers: Purchase components from OEMs Customers: regional retailers, no inventory for Acer to hold

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

Le no vo

4th largest computer manufacturer Suppliers: Purchase components from OEMs (same as HP, Dell, Acer) Cusomters: Retailers, no inventory for Lenovo to hold (same as HP, Acer)

Q4:Dell vs. Box.net

Box.net fits the technology development of Dells value chain

Q4 (Cont): Dell vs. Box.net

Online file storage and sharing service Box.net is helping to put the cloud in Dells Inspiron Mini users.

With only 4GB of built-in hard drive space in Inspiron Mini 9, Dell needed some way to boost capacity. So it placed a default Box icon on the desktop that leads to 2GB of free internet storage (twice the normal 1GB that Box provides for free) and expandable to 25GB.

Individuals can safely and securely upload files of any type to their Box, including photos, videos, music, documents and presentations, and then access those files from almost anywhere on any device.

Partnership strategy

Dell could efficiently leverage its resources and capital as well as focus more on their core technology
Box.net has mature technology in cloud computing which could save 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 Box.net suite of sharing and collaboration tools.

Q5: Future of PC industry

More segmented, i.e. desktop, laptop, portable PC, low-priced PC for personal/home users and corporate PC and super servers (cloud computing) for business users. This trend is driven by:

Technology improvement
PC makers pursuit of differentiation in the front-end (marketing/service) of value chain since cost-down effect in back-end segments such as operation has been maximized.

Q5 (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.

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

PC Value Chain
MBA 290G Prof. Charles Wu

Fuat E. Celik Ignacio Contreras Francois Gallet Camilo Mendez Gopal Chaudhoory

The PC Value Chain

Semiconductors Hardware Components Intel, AMD, VIA, Samsung, Cypress Western Digital, Toshiba, Creative Labs

Sub-Assembly
Design Assembly

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

Software - OS
Software - Applications Branding and Marketing Distribution Retail / Reselling Support & Services Customer

The PC Value Chain

Semiconductors Hardware Components

Sub-Assembly
Design Assembly

Software - OS
Software - Applications Branding and Marketing Distribution Retail / Reselling Support & Services Customer

The PC Value Chain

Semiconductors Hardware Components Upstream strategy: Low cost

Sub-Assembly
Design Assembly

Value chain dominance strategy

Downstream strategy: Services

Differentiation: Brand + Design

Software - OS
Software - Applications Branding and Marketing Distribution Retail / Reselling Support & Services Customer

Differentiation: Brand + Design

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 costeffective products to market. Focuses on design, sales and marketing (outsources the manufacturing) Differentiation by brand and technology (multi-brand strategy)

Comparing the value chains: Upstream vs Downstream

Asus Upstream Strategy

Produces low-cost computers via an upstream integration of the value chain Sells to large retailers or directly to large organizations

HP Downstream Strategy

Outsources the manufacturing Differentiates on software and services Sells mainly to retailers and resellers

Comparing the value chains: Integration of the value chain

Dell Direct Customer Model

Global integration of the value chain Highly customizable products Sells directly to the customer

Dependencies in value chain:

Dell

Customers

Large Business Customers. Build to order. (Direct sales value chain) Low cost Leader

Strategy

Cost

HP

Product

Innovative and different products.

Largest seller of personal Computers.

Customers

Dependencies in value chain:

Acer

Suppliers

Outside suppliers. Dealers and Retailers. Large customer base in Developing countries.

Distributors

Customer base

Asus

Product

Leader in Desktop PCs worldwide (Risk)

Lenovo

Desktops

Strategy towards targeting remaining desktop customers.

Box.net in Dells PC Value Chain

Value Chain Position

Box.net is a storage service that is complementing part of a hardware function (storing) Box.net would be positioned in the Services part of the Chain Value Not part of the Core business: Online storage is not part of the busines for Dell An important part of the strategy is deciding what not to do Cost: Dell probably did not pay much to Box.net per computer sold if they paid anything at all so the price paid could be much less than the cost of developing the website, the servers and its maintenance Reduce liability: If the service does have problems and 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: Box.net already has the expertise of doing this business and will be able to deliver with less problems than a new venture would have Installed Base: box.net already has 2 million clients and this business works with scale it will take sometime before Dell reaches 2 million clients for its Mini computer Outsourcing Philosphy: It is within Dells guts to outsource whatever is not part of their core business

Partnership Value for Dell

The PC Value Chain

Where are we headed?

The Internet is the new Computing Platform

The Internet is quickly replacing both traditional hardware and software as more and more applications and capabilities are shifted from end-user machines to the web Cloud computing and decentralization allows better services to be offered at lower cost and more reliably

Wi-Fi is the new RAM

Accessing the internet quickly and efficiently is now more important than traditional hardware such as hard disk space and RAM Netbooks allow ultra low cost entry into personal computing with the express purpose of web-surfing and accessing web-based applications

PCs as a Commodity?
As the price of PCs fall with netbooks and their capabilities are shifted to the net, differentiation will lose to price competition

The PC Value Chain

If PCs are losing, who is winning?

Servers, routers and switches

Delivering web content to users is becoming the new competitive market The quality of the software or service still depends on the machine it runs on, only the location of that machine has changed Companies will see growth in both the hardware and the software that manages and delivers the content of the internet to end users

The most successful companies will be those that can transition their business to the production of IT equipment and software while maintaining a strong effort in low-cost PC manufacture. These are already their fastest growing sectors. Those that cling to high-end computing and branding will likely lose out.

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

PC Value Chain 2008

Group 9 James An Zishan Khan James Su Boaz Ur

115

PC Value Chain
Suppliers Components Intel/AMD Microsoft Seagate Assemblers Channels

Dell Gateway Lenovo HP Acer Asus

Direct Dell Lenovo

Customer

Retailers Comp USA Circuit City Costco Online (Amazon, Buy.com) Local Stores / Small Resellers

Sub-Assembly Flextronics Solectron Intel Acer Asus

Sub- Assembly Acer Mitac FIC Asus White box makers

116

Differences in PC Value Chains

Suppliers Assemblers Channels

Dell Asus Customer Acer Lenovo HP Apple

117

Financials of different PC Manufacturers

Acer Income Statement (in USD millions) Last Reported Total Revenue Total Revenue Reported 1 Year Earlier Cost of goods sold Gross Profit Operating Expenses Operating Income (a.k.a. EBIT) Depreciation & Amortization EBITDA Net Income 13,861.98 10,524.48 12,439.43 1,422.55 1,117.00 305.55 0.00 305.55 388.76 Dell HP Asus Lenovo

61,133.00 104,286.00 22,660.83 16,351.50 57,420.00 91,658.00 16,807.05 13,978.30 49,462.00 78,598.00 20,422.11 13,901.50 11,671.00 25,688.00 2,238.72 2,450.00 8,231.00 16,969.00 1,393.59 1,951.10 3,440.00 8,719.00 845.13 498.90 607.00 786.00 0.00 0.00 4,047.00 9,505.00 845.13 498.90 2,947.00 7,264.00 828.69 484.30

-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.
118

Dependencies in the Value Chain

Suppliers Components Intel/AMD Microsoft Seagate Assemblers Channels

Dell Gateway Lenovo HP Acer Asus

Direct Dell Lenovo

Customer

Retailers Comp USA Circuit City Costco Online (Amazon, Buy.com) Local Stores / Small Resellers

Sub-Assembly Flextronics Solectron Intel Acer Asus

Sub- Assembly Acer Mitac FIC Asus

119

Dell Forms a Partnership with Box.net

Box is the most secure, easy-to-use way to share and manage files online.
from Box.nets Overview

What the Partnership means

With the purchase of a new Dell Inspiron Mini 9 Notebook, customers receive a. 2 GB of free online storage on Box.net b. Discounts on plans of up to 25 GB on Box.net

In the PC Value Chain

Box.net is a supplier. It provides a service which comes with the Dell laptop.

120

Dell Forms a Partnership with Box.net Cont

Advantages to Partnership
1. Dell saves costs in development of a website that offers the service. 2. Box.net is widely-used with a customer base of 2 million and also has award-winning service. Offering their service may help with advertising efforts. It may also attract Box.net customers to buy Dell labtops. 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 Box.net. 2. If it is successfully, Dell has limited control over how Box.net will develop and grow.

121

Where is the industry going? (A Porters analysis) and how will the value chain "changing" over the next 5 years? 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? Cont 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.

Threat of substitutes - Growing

1. Smart phones (such as the iphone) are becoming computing platforms and can threat PCs.

123

Where is the industry going?

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

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

TEAM 10
Anirban Sen Elihu LunaThomas Raluca Scarlat Yilun Hu

VALUE CHAIN IN TECH

Value Chain: HP
HP direct sales Contract Manufacturers HP Labs Original Design Manufacturers Original Equipment Manufacturers Primary Distributio n Retailers

Resellers Distribution Partners

Palo Alto, Beijing, Bangalore, Haifa, Tokyo, Bristol

67% U.S.

Independent Distributors
Original Equipment Manufacturers

Solutions Based Value Chain: HP

HP Services (Consulting and Outsourcing) Enterprise Storage and Servers Commercial Clients Personal Systems Group Imaging and Printing Group Corporate Investments R&D HP Software HP Financia l Services

EDS

Value Chain: Lenovo

Invest Capture Demand Solution & Delivery Support

Great China, Asia, US, Europe Expansion

Global Suppliers

Tech Support

Individual, Business, Government

Global Assembly
Service

R&D Strategy

Global Logistics

Sales & Marketing

Distribution

Value Chain: Acer

Invest Capture Demand Solution & Delivery Support

Great China, Asia, US, Europe Expansion

Global Suppliers

Tech Support

Individual, Business, Government

Global Assembly
Service

R&D Strategy

Global Logistics

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.

Sales & Marketing

Distribution

Value Chain: Dell

Manufacture of Components by suppliers. Customized assembly of PCs as orders from buyers come in Purchase by PC Users
Services and Support

Software and Peripherals

Custom orders received and customer input.

Sales and Marketing

Infrastructur e consulting Deployment Asset recovery and recycling Training Support Managed Services Dell Financial Services

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

Customer

Software: 3D AutoCAD, Ultra Mobile PC

Dell: Box.net partnership

Services and Support
Box.net provides post purchase support. Users can create content on their computers and upload it to Box.net to be accessed from any location. Web applications also enable Dell to approach Box.net from the Software and Peripherals angle and customize different memberships to different customers.

Purchases by PC Users

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

Value Chain of PC Making

Move upstream

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!