英语论文 戴尔价值链分析 The Value Chain Analysis of Dell

The Value Chain Analysis of Dell

Abstract

In the business world, there are several classic business models that can evaluate a company from different perspectives. The value chain framework is a powerful analysis tool for strategic planning of a corporation. It creatively views a corporation as a serious of value adding activities. This essay attempts to use the value chain framework to analyze one famous corporation – Dell Inc. and tries to figure out how Dell achieves the value creation objective in each separate activity.

Key words: Dell Value chain Marketing and sales Logistics Information system

1.Introduction

Dell Inc. is a reputable multinational information technology corporation. Funded in 1984 by Michael Dell, the corporation has become one of the world’s largest computer manufacturers in merely two decades. Many studies have been done to explain the huge success of Dell from various angles, such as corporate strategy, organizational structure, etc. However, few researches touch upon the overall picture of Dell as a value chain. This essay aims to analyze Dell with value chain framework which is composed of two basic categories of value creation activities: primary activities and support activities.

The following sections attempt to elaborate on the value chain framework and analyze Dell in depth with the theory. Part two provides an overview of the value chain theory, the original Porter’s (1985) version and Hill’s (2003) version in the textbook International Business. Part three portrays Dell as a value chain and analyzes the value creation activities in the corporation.

2.Literature review

2.1Porter’s (1985) value chain

Porter (1985) identifies a set of interrelated generic activities to analyze a firm’s value-creating process and to figure out a firm’s competitive advantage. Products pass through all activities of the chain, and at each activity, the product gains some value.

Porter’s value chain is depicted as below:

Support Activities

2.2Hill’s (2003) value chain in International Business

Hill (2003) states that one important objective for most firms is to maximize the value of the firm; thus managers should pursue strategies that increase the profitability of the enterprise. Since value creation is the difference between the value of product to an average consumer and the cost of production per unit (V-C), two strategies can be carried out to increase profitability: differentiation (raising V) and low-cost strategy (lowering C).

The value chain is designed to portray how the interrelated activities manage to create value by increasing product attractiveness and controlling cost in production, marketing and sales, materials management, R&D, human resources, information system, and firm infrastructure.

Hill categorizes the value creation activities as primary activities and support activities. “Primary activities have to do with the design, creation, and delivery of the product; its marketing and its support and after-sale service.”(p.268) “The support activities of the value chain provide inputs that allow the primary activities to occur.”(p.269)

Hill’s value chain framework is similar with Porter’s. It is illustrated as follows:

Support Activities

Primary activities

Figure 2 Hill’s value chain

3.The value chain analysis of Dell

Hill’s value chain framework is developed from Porter’s. In Hill’s model, technology development is placed among primary activities (R&D) and logistics are put into support

activities. Given the different functions of primary and support activities, and the changes in the business environment in recent years, Hill’s framework is believed to have some improvements.

Therefore, this essay adopts Hill’s value chain to analyze Dell.

In the following parts, detailed evidence of Dell will be provided for analysis under the value chain framework.

3.1Primary activities

Primary activities are those that are directly involved in creating value for customers. In Dell, research and development, production, marketing and sales, and customer service are of great importance to the value creation of the corporation.

3.1.1Research and Development (R&D)

Research and development is defined as "creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of knowledge to devise new applications" by Organization for Economic Co-operation and Development (OECD).

The R&D activity in Dell is effective in four ways.

First, the core of Dell’s innovation approach remains an unwavering commitment to deliver new and better solutions that directly address customer needs. The company talks to its customers frequently about “relevant technology”, listening carefully to customers' needs and problems and endeavoring to identify the most cost-effective plans. The customer-oriented approach makes its products more attractive to consumers. As a result, the value of product to consumer increases.

Second, Dell's R&D efforts now span the globe, driven by some of the industry's foremost product designers and engineers. Dell has established R&D centers in Silicon Valley, Santa Clara, Dublin, Israel, Bangalore, Shanghai, etc. These centers take in talents of various backgrounds who have more understanding of the local customer tastes and preferences. Their innovations of products are more tailored to the local market and their

designs of production processes are more suitable to the local manufacture.

Third, Dell partners, rather than competes, with top industry technology suppliers and original development manufacturers. Dell steers enabling industry standards and technologies through industry groups and strategic partners. By sharing and quickly updating new technology, the initial stage of product life span can be shortened; the cost of production can be reduced as well.

Forth, Innovation inside Dell is more about how one produces, packages and markets a product rather than improvements in the product itself. Although Dell has some competitors who are spending 8 to 14 percent on R&D, the company’s financial reports suggest its R&D model is more cost-effective. Research and development is one way Dell tamps down costs. The company devotes 5 percent of its bottom line to this area, much less than its rivals.

In summary, the research and development activity of Dell achieves both raising value and lowering costs. Hence Dell adds more value than the industry average in this section of value chain.

3.1.2Production

Rivlin (2004: C2) reported that Dell’s executives study the assembly process with the intensity of Alfred Kinsey and his researches. They wheel in video equipment to examine a work team's every movement, looking for any extraneous bends or wasted twists.

In this way, costs could be reduced to the minimum in the assembly line.

Moreover, Dell has begun to outsource its hardware production to its manufacturing partners since 2008. Dell’s competitors such as Hewlett-Packard and Acer have long-standing relationships with such partners. Dell is actually one step behind the trend. However, the change started from 2008 shows that Dell realized the low profit margin in production section and switched its focus from manufacturing to other activities bringing more value to the corporation.

One main advantage of outsourcing is cost-reducing. Few overhead expenses will incurred and there is also tax benefit for outsourcing.

3.1.3Marketing and sales

McCarthy (1960) came up with four elements of market mix theory: Product, Price,

Place and Promotion (4P). This essay adopts the 4P model to analyze Dell’s marketing from value creation aspect.

a.Product:

For a long time, Dell prides itself for offering its customers with a high degree of product customization, which few of its competitors can match. Dell categorized its products as “for home, for small and medium business, for public sectors and for large enterprise”. Customers are able to design their own products on the website. They simply go to Dell’s website, choose a computer using purpose, specify the desired sorts of processors, optical devices, and memory modules and so on, place the order and then expect to receive the customized product within a few days.

The product differentiation strategy used here satisfies different customer needs and raises the customers’ expected value of Dell computers.

b.Price:

Dell mainly employs the cost-plus pricing. The low price of Dell computers is largely due to its direct sales model as well as the incredible efficiencies it achieved via its supply-chain strategies. Dell can maintain its profit with a lower price because of its unique business model which its rivals cannot compete.

c.Place:

As mentioned above, the main distribution channel of Dell is direct sales. The direct sales model markets and sells products directly to consumers away from a fixed retail location so that no fees incurred resulting from wholesalers and retailers. This model was a revolution and contributed a large portion to Dell’s development in the past.

However, as Dell targets more on the international market, direct sales model is becoming too simple to cope with the complicated business environment worldwide.

Therefore, Dell is moving forward with plans to begin selling PCs through solution providers, channel partners and retail partners, instead of sticking to the pure direct sales model championed by company founder Michael Dell. In the new international market, a combination of both direct sales and indirect sales is believed to be a more cost-saving approach. But to maintain its low prices, Dell continues to accept most purchases of its

products via the Internet through direct sales. In China, orders online can be received by customers within 48 hours. Such convenience holds huge appeal for customers living a hectic life.

d.Promotion:

Dell has long been prestigious in producing high quality and low price business computers. Recently, Dell plans to diversify its business by targeting personal consumers, such as families and students. To do so, the company highlights Dell’s distinctive features, including customization and ease of ordering.

Dell targets personal consumers through direct email campaigns as well as television and print advertising. Additionally, Dell introduces a number of new products and features that personal users value, including enhanced graphics and sound cards as well as multicolored laptops. Dell also promotes larger servers and consulting services to its corporate customers as a way of grabbing a larger share of the corporate market and competing with companies such as IBM.

Dell relied heavily on direct-to-consumer marketing efforts (such as electronic and paper mailers) in promoting both its personal and corporate computer products. By promotion, customers gain a better understanding of the Dell brand, products and special feature of customization.

3.1.4Customer service

Dell has more than 43,000 Services team members in approximately 90 countries, 60 technical support centers and 7 global command centers dedicated to helping customers use technology to reach their business goals. Corporate IT users rank Dell as the number one in customer satisfaction for services that include on-site expertise, on-site response time and phone support. Forrester Research recognized Dell’s initiatives to collect, interpret and react to feedback to improve customer experience with its V oice of the Customer Award.

Customer satisfaction of products and services creates a perception of superior value of Dell in the minds of consumers, and adds to the intangible asset of the company.

3.2Support activities

The most important support activities in Dell that facilitate the primary processes are

logistics and information system. The distinctive features in these two activities are the keys to value creation.

3.2.1Logistics

A unique feature of Dell’s logistics is that Dell virtually carries no inventory. Dell forces the suppliers to carry all the inventory and therefore the suppliers also assume all the risks and costs associated with this inventory.

When Dell receives and processes a customer’s order, it sends the order out to each individual supplier and the suppliers transport each part to a location where the product can be assembled. Then Dell simply assembles the item and ships it out to the customer. Dell is not responsible for any inventory and even more incredibly does not have to pay for any unused parts.

The most difficult part in this no-inventory logistics is to convince a supplier to guarantee that a certain number of parts will be in stock and ready for use. From a supplier's point of view it would not be beneficial to assume all the risk of unused inventory. Dell solved this problem by choosing small suppliers and making sure that the majority of their business is done at Dell. Dell then leverages this position and coerces them into taking part in a logistics system that is clearly not beneficial to the supplier. In order for the supplier to allow this to happen, Dell has to keep sales high so that it can give the individual suppliers enough business to stay afloat and be profitable. This task is more than hard to accomplish, so Dell is one of the few companies that can offer a customizable product that can be assembled and delivered quickly to the consumer.

Dell is the only company in computer manufacturing industry to use the no-inventory system and this system substantially reduces the cost and risk of logistics. This is one reason that Dell can afford year-round low-pricing strategy without reducing profit margins. Besides, the extremely high inventory turnover (estimated as 39.4 in 2010 by Forbes) indicates that less money is tied up and the company has sufficient cash flow to do other business operations.

3.2.2Information system

Dell has enhanced and broadened the fundamental competitive advantages of the direct

model by applying the efficiencies of the Internet. Dell led commercial migration to the Internet, launching https://www.360docs.net/doc/8d16713288.html, in 1994 and adding e-commerce capability in 1996. The following year, Dell became the first company to record one million USD in daily online sales. Today, Dell operates one of the highest volume Internet commerce sites in the world.

The company's Web site, which runs entirely on Dell Power Edge servers, receives more than one billion page requests per quarter at 86 country sites in 28 languages and 29 currencies.

The company realizes Internet-associated efficiencies throughout its business, including procurement, customer support and relationship management. At https://www.360docs.net/doc/8d16713288.html,, customers may review, configure and price systems within Dell's entire product line; order systems online; and track orders from manufacturing through shipping. At https://www.360docs.net/doc/8d16713288.html,, Dell shares information with its suppliers on a range of topics, including product quality and inventory. Dell also uses the Internet to deliver industry-leading customer services. For instance, thousands of business and institutional customers worldwide use Dell's Premier https://www.360docs.net/doc/8d16713288.html, Web pages to do business with the company online. The name change to Dell Inc.

in 2003 reflected the evolution of the company to a diverse supplier of technology products and services.

The mature information system of Dell helps the company manage other value creation activities efficiently and effectively. Although the system itself does not create value directly, it facilitates all primary activities to add more value to the end products.

4.Conclusion

According to the analysis of Dell as a value chain, it can be concluded that the activities are interacted with one another and function more powerful as an integrated value chain. It is hard to analyze one activity without mentioning one or more other activities. The R&D provides innovative ideas to production; marketing and sales gives directions to R&D and production by market research and analysis; customer service collects customer feedback to better improve all other value creation activities; logistics and information system back up primary activities.

Because of the interweaving relationships among the activities, Dell’s value creation in the value chain is larger than the total sum of each separate activity.

In addition, the value chain is a dynamic process. Dell has altered and improved many aspects to adapt to the ever evolving market and customer needs. When the pure direct model cannot fit the new and complex international situation, Dell decisively carried out indirect ways of distribution, though the direct model was the core of Dell mode. The dynamic character of value chain makes it hard to be imitated. It is easy to copy a single model of one activity, but it is hard to imitate the whole interrelated dynamic value chain. This is one of the reasons that Dell is still one of a kind.

Moreover, secondary activities are playing a role of vital importance in Dell. As competition is global and fierce, the value creation of primary activities is limited to a certain amount determined by the product feature. The core competitive advantages of Dell are more about its no-inventory logistics and mature information system which make Dell a low-cost leader. Since reforms in secondary activities facilitate value creation, maybe Dell could think of creating more efficient models related to company infrastructure and human resource.

Last but not least, Dell’s constant focus on delivering technology solutions that customers want and need in today’s economic and IT environment continues to pay off. Customization is penetrating the whole value chain. While cutting the cost, Dell always places customers in the first place and does its best to offer an effective path for customers. With the goal to balance customization and low-cost, Dell manages to enlarge V-C from both sides in the value chain.

References

[1] Porter, Michael (1985) Competitive Advantage: Creating and Sustaining Superior Performance, New York: Free Press, 1998

[2] Hill, Charles W.L. (2002) International Business (7th ed.),New York: McGraw-Hill, 2008

[3] Rivlin, Gary (2004) “Who is afraid of China”, New York Times, December 19, C2

[4] McCarthy, E. Jerome (1960) Basic Marketing: A Managerial Approach, Irwin Professional

Publishing, 1986

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