Strategic Value Chain Analysis Wednesday, December 04, 2013 8:48 AM “Competitive Advantage” 1986 Companies are not groups of people, they are sets of activities.
There are 2 sets of activities: Cost and willingness to pay (WTP) PRIMARY: In-bound / raw material Process Marketing Service SECONDARY: Accounting, Exec Management, CIA Cost of distribution drivers (for cinnamon buns): # of stops (greater # raises cost) # of packages they drop per stop (greater # lowers cost) Betsy baking used a lot more preservatives in their buns – because they didn’t care as much about quality – so longer shelf life means fewer runs, lower distribution costs c Industry (1996) Buyers – High & Growing Increasing choice, lowering prices, price sensitive – compatibility (ability to switch); increasing repeat buyers who will be more educated; Resellers had access and knowledge to the customer, which gave them some bargaining power Possibility of vertical integration backward of suppliers (i. e. , distributors producing their own computers) Suppliers – Mod/High Processors High, Components Low, Software High (Lots of component manufacturers, but very few processor providers, and pretty much Just one operating system company) Rivalry – High Commoditization (price-sensitive buyers)
Frequent upgrades creating excess capacity of older machines There was no true need to upgrade the processors every 18 months – this strategy was intended simply to create excess capacity, forcing manufacturers to discount deeply the older machines, cutting into the profitability of the industry Allocation by loyalty – leveling the playing field Intel rationed processors to PC manufacturers in proportion to how many chips they bought from Intel in the past; so they rewarded loyalty Whether you were a pipsqueak from NJ or 18M, your loyalty mattered, and you’ll get it for the same price reated bigger customers and smaller customer exactly alike – which leveled the playing field 18M, Compaq, HP, Apple Entry (Barriers) – Low/Mod Low capital investment required – could start small (white box) No barriers to component acquisition, but restricted distribution channels Low differentiation (power of brand was low) Substitutes – Low Apple?
Electric automated typewriter (with word processing capability) Dumb terminal Dell’s strategic positioning Customer – From day one, the primary customer of Dell was educated customers, which by default became corporate customers by and large According to Exhibit 1 1, the largest hunk of Dell’s customers were small & midsize businesses, followed by Large businesses Educated customers want: Performance Reliability Total cost of ownership Product – Customized Stable, reliable product line Markets – Mostly U. S. because this is where all the large corporations were What does Dell do differently from other companies? Marketing / Sales – Direct to consumers No retail sales www. dell. om Operations – Build-to-order Assembly line reduced defects and increased efficiency Rapid testing of software before shipment Integrated entire production system Multiple components were delivered directly (and simultaneously) from supplier to customer Maintained shipping contracts with shipping companies (i. e. UPS and Airborne Express) After-sales service – Online “core” – substituted the 3rd party reseller service with a core of online documentation Allowed direct knowledge of product line better than any other company Procurement – No inventory, bought components as needed Customer buys computer before Dell procures the parts Co-location with suppliers All of the above are consistent with one focus – the educated customer The beauty of strategy is that it pushes back against the five forces.