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
2 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 & R&D Components Manufacturer Marketing
•Apacer •Toshiba •Wistron •Channel Business •AQR •Fujitsu •BenQ Model – indirect •Kingdom Corp. •Sony •AMBIT •Resellers •Animeta System •Hitachi •ALi partnership •Mitsubishi •Aegis •Global •Lite-On Semiconductor distributor •IBM •Yam Digital Tech. •Acer Computer •Ambit •Legend Tech. •Logistron Service •Sumida •RDC Semiconductor •Broadwalk Capital •Sanyo •Feiya Tech.
Red – heavy presence by Acer 4 Blue – no or light presence by Acer Example
5 Source: http://somo.nl/html/paginas/pdf/Acer_Incorporated_Company_Prof_2005_EN.pdf Asus value chain and its dependencies
•R&D center •Chips •Motherboard •Eee PC •Sales, •Sales, •Core •Logic IC •LED display •Ultra marketing marketing technology •PCB •Sound blaster Mobile PC and PM and PM center •Connectors •Eee PC •phone groups groups •DRAM •Intel, nVIDIA etc •Procurement and material management center
Red – heavy presence by Asus 6 Blue – no or light presence by Asus Dell Value Chain
Marketing & R&D Components Design Manufacture Support Sales
Current portfolio Global network of Covers assembly, Direct sales model Software & of 1954 patents technology software inst., •Dedicated sales peripherals companies functional testing, •Telephone-based Use a wide variety and quality control sales Services of Intellectual Large number of •Online •Infrastructure Property vendors Build-to-order consulting services agreements model Indirect sales •Deployment services HW VARs (Dell Partner •Asset recovery & AMD Organized in 3 BUs: Direct), main recycling services Intel Americas Americas channel for •Training services EMC Texas 7 locations outside U.S •Support services Seagate EMEA •Managed services … 3 locations Organized around APJ APJ customer SW China 3 locations segments Microsoft India Ubuntu (Linux) Singapore Gaming desktop Citrix Taïwan manufactured … through Alienware (subsiduary) Red – heavy presence by Dell 7 Blue – limited presence by Dell HP value chain and its dependencies
Support & R&D Testing Components Assembly Sales Services
•PSG •PSG •ODMs •PSG •Direct •PSG •HP Labs •ODMs •CMs •CMs •Retailers •TSG •ODMs •Third-party •OEMs •Resellers vendors •ODMs •Distribution partners •Independent distributors •OEMs •Independent software vendors •Systems integrators
PSG – Personal systems group Red – heavy presence by HP 8 TSG – Technology solutions group Blue – no or light presence by HP Lenovo PC Value Chain
Technology Manufacturing/ Sales & Software & R&D Design Inputs Assembly Marketing Services
HW Components Lenovo R&D centers Lenovo design Lenovo has 4 Direct (Web, Lenovo extended AMD located in China, centers manufacturing telephone) warranties and Intel Japan and the facilities in China financing Sony United States Still reliant upon Distributors, VARs, Sanyo casings, etc. from EMS/ODM Partners technology Increasing emphasis Samsung ODM partners also component Quanta implementors on differentiating SW Seagate participate in suppliers Compal on top of Windows Western Digital product R&D Wistron IBM Global Micron Hon Hai Services Channel partners Texas Instruments Leverage R&D Inventec involved in reverse Panasonic investments of HW Retail partners logistics Hitachi component and SW Backward Toshiba vendors integration into Transaction and Fujitsu subassembly of PC Relationship Kingston components modes of selling Lenovo motherboards
Software Microsoft Adobe Symantec Red – heavy presence by Lenovo 9 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 • R&D still seen by most as a way to differentiate their products – Still little differentiation – Minimal R&D investments compared to other high-tech industries • Dell’s 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 HTC’s strategy in mobile – develop a custom UI on top of Window • Oustourced vs. in-house manufacturing – Acer, Dell and HP outsource to EMS partners – Asus and Lenovo maintain manufacturing facilities while attempting to move up the value stream • 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 • Consumer PC players rely on retailers – Best Buy, Circuit City, other category killers
10 Dell & Box.net
• A partnership to offer online storage services for Dell’s Inspiron Mini 9 (subnotebook)
• Dell’s 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
PC value Data R&D Software End user chain center
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 Visionary founder. Worldwide operations. Currently cutting Infrastructure operating expenses: downsizing employees and facilities. Hedging activities protected from impact of weakening dollar. Human ~ 90,500 (majority abroad); activities associated with recruiting, resource 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 Outbound Marketing & Sales Operations Service Logistics Logistics
•Just in time •Direct sales •#1 in personal PC
warehousing, model – systems in U.S., and •High Customized minimal insight into #2 worldwide quality assembly of inventory; made- customer •Adding new channels support, systems for to-order for needs •Adjusting to new customer user specs demand and no •Online markets: payment access to old technology ordering upon delivery help info Hewlett Packard
Firm 6 business units. Highly decentralized. Presence globally. In the Infrastructure process of reducing the number of facilities to reduce costs. Human resource 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 Outbound Marketing & Operations Service Logistics Logistics Sales
Consumer and HP offers One of the Manufacture Extremely commercial consulting biggest in high volume of complex to customers. service and High Tech basic product reach huge Currently customer industry configuration number of reinvesting in support. Very to maximize customers increasing important for efficiencies sales force HP strategy Acer
Firm Spun off manufacturing operations in 2000. Low capital costs Infrastructure business model.
Human Outside of administrative and management functions, all resource 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 Outbound Marketing & Operations Service Logistics Logistics Sales
•Outsources •Lean •Channel •Purchased •Small manufacturing operating Business brand names in investments in •Spun off model Model major markets service manufacturing •Minimize (e.g., Gateway) offerings operations in capital and •Brand 2000 operating positioning expenditures Asus
Firm Based in Taipei. Facilities in Taiwan, China, Mexico and Czech Infrastructure Republic. Presence globally. Human resource 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 Outbound Marketing & Operations Service Logistics Logistics Sales
Production In the process Great A significant Emphasis on capacity: two of emphasis on amount of customer million restructuring Total Quality money for service. Trying motherboards into three Management marketing, to overcome and 150,000 distinct and fast advertise on the bad notebooks per operational delivery green products reputation in month units some countries Lenovo
Firm Four geographic segments, two major product groups. Presence Infrastructure globally. “Worldsourcing,” but mostly manufacture in China. Human 23000+ employees, ~17000 in China, ~2000 in U.S. resource 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 Outbound Marketing & Operations Service Logistics Logistics Sales
Major push to Sponsoring Emphasis on Trying to streamline Retail store Olympics etc. “customer manufacture supply chain network Vigorously intimacy” and closer to key and decrease essential, trying to build support for customer end-to-end especially in the Lenovo SMB. base. cost. China brand. 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.) • Doesn‟t leverage Dell‟s 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
% of 4% 28% 56% employees
Custo mer Endcustomer Design service R& + Marketing Distrib. + D Manufa & Sales Sales ct. suppor t
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& Services and Direct Custo Endcustomer D assembly distrib. mer Markt. service & + Manufactur Sales Indirec Sales R& suppor
ing & t D assembly distrib. t
In-house / Make 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& Design Distrib. + Suppor
D Endcustomer Marketing t Manufa & Sales Many Thei ct. products Exclusiv r still OEM; Europe est‟d. e futu Low joint distro Working on nets for centers re: margin Russia, others in India pho products China nes outsource d
• Recently spun off it‟s 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& Suppor D Design Marketing t + Endcustomer Co Manufa & Sales Distrib. Simpler m- product mitt ct. Sponsorship Building lines, ed s (Olympics, retail SMB to Moving etc) store support, tale closer to to build network & nt key cust. brand “custome Dev base 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 Endcustomer
Build-to- Direct Few Customer R&D order Sales Retailers service
MFG
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 Box.net • 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. Endcustomer
Build-to- Direct Few Customer R&D order Sales Retailers service
MFG
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 Worldwid PC Brand Market Share Lakshmi Jagannathan e Rank (Gartner Q1 ’08) Christopher Quek 1. HP 19% 2. Dell 16% Daisuke Tanaka 3. Acer 10% John Michael Wyrwas 4. Lenovo 7% HP Value Chain
Inbound Operations Outbound Marketing and Service Logistics Logistics Sales
•Building •Utilizes its •HP uses •HP has •HP Services products to own external various types competes in order – manufacturing partners for its of partners IT support maximize capacity as outbound including services, manufacturing well as logistical retailers, consulting, efficiencies by original needs. VARs, integration, producing hi design distribution and vol of basic manufacturers partners, outsourcing product and contract OEMs, services. configurations manufacturers system •Configuring for cost integrators, products to efficiencies and order – for and quicker independent customer go to market software customization •HP is the vendors. •JIT to largest minimize customer for inventory most of their •Purchase suppliers – supplies from best terms multiple and prices. vendors •Dependent on Microsoft and Intel
• 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 HP‟s 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 HP‟s 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 Marketing and Service Logistics Sales
• Dell employs a • Dell‟s • Dell uses an • Dell sells its • Dell offers horizontal manufacturing external partner products using bundled structure, process to ship all telephone, customer outsourcing the involves finished goods dedicated sales service and production of assembly, to customers. representatives, product support. the components software • Customer retail stores, • Dell also offers that go into their installation, and service issues website, and additional final products. quality control. related to indirect warrantee • Dell relies on • Each additional shipping are channels. coverage for an just in time component that handled by the • Dell markets to additional fee. delivery of Dell assembles external large customers • The majority of components to within the partner. via its sales Dell‟s customer keep inventory machine adds • Shipment data force and to service centers costs low. value to the is shared small customers are outsourced • Suppliers are final product. between Dell via the web, TV to low cost required to be and its partners and print providers. within a certain to provide end advertising. geographic customers with distance. a high quality of service. Dell Value Chain and Supplier Relationships
. Suppliers:
. Dell‟s 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 Dell‟s 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:
. Dell‟s customers include governments, large corporations, and individual consumers.
. Dell generates significant revenue from government accounts. Maintaining these contracts is a crucial element to protect Dell‟s 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 Dell‟s net revenue.
Acer Value Chain
Inbound Logistics Operations Outbound Marketing and Service Logistics Sales
• Product • Acer focuses • Products are • Acer sells its • After-sales manufacturing is on the sales shipped from products service is outsourced to ODM and marketing suppliers direct through indirect provided by (original design of its IT to Acer‟s sales partners, regional manufacturer) products and channels, hubs including subsidiaries, companies in outsources all and hustomers. distributors, and overseen Taiwan (primarily manufacturing. • About 2/3 of resellers, and by regional Wistron, Hon Hai, • The company sales are online retailers. corporate Quanta, and provides brand through • Acer departments in Compal) management subsidiaries emphasizes EMEA, Pan • Relies on just-in- and product such as Acer that its strategy America, Asia- time procurement development. Europe AG is not to do Pacific, China, (inventory turnover (AEG) and Acer direct sales. and Taiwan. is ~25 days) America. • Marketing is • Distributed segmented by procurement, consumer and fulfillment, and region with a vendor managed multi-brand inventory system by strategy. i2 Technologies, Inc. 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. Acer‟s “New Channel” model focuses on a “Multiple-Suppliers, Multiple-Products, Multiple-Channels” strategy.
. Customers:
. Acer‟s 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 Marketing and Service Logistics Sales
• Asus has partly • Manufacturing • Finished • Two different • Asus offers outsourced the for branded products are kinds of bundled production of products and shipped by customers customer components contract external • End consumer service and (chips, DRAM manufacturing partners to are served with product support etc) to for other Asus reseller or branded • Extension of companies like hardware other hardware products under warranty is Intel, AMD and companies like companies the Asus name offered for an nVidia HP is done in via reseller etc. additional fee • Timely delivery separate (35% of sales) via external companies • Contract partners • Unihan for PC- manufacturing essential. related main part of manufacturing business (65% • Pegatron for of sales) casing, module and non-PC contract manufacturing • Asus also has its own product development
•Asus‟s 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 customer‟s 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
. Lenovo‟s 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 (Lenovo‟s 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 Lenovo‟s 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:
. Lenovo‟s customers include home users, small businesses, and large corporations
. Lenovo‟s 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, it‟s 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; Lenovo‟s 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 Dell‟s new “Netbook” class of portable computers.
. This partnership may be a test for a larger collaboration that involves all of Dell‟s product lines.
. Value Chain:
. Box.net belongs in the Operations section of Dell‟s 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 Dell‟s low cost strategy so developing these products internally does not make sense.
. Partnerships are part of Dell‟s 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 Dell‟s 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
OS Component Component Assembly /application design manufacture software
Support and Distribution Sales integration OS Component Component Support and Assembly /application Distribution Sales design manufacture integration software HP
.com
OS Component Component Support and Assembly /application Distribution Sales design manufacture integration software Asus (EEE PC)
OpenOffice Best Buy, ASUS / StarOffice (Atom / Asus (in- NewEgg, (in-house) / Microsoft Asus (through a Celeron) house) CompUSA, / Google very simple etc Apps web page) OS Component Component Support and Assembly /application Distribution Sales design manufacture integration software Lenovo
Basically no Outsourced Previously Microsoft No world HQ. put in Think series: Tie 1 area: core R&D to Taiwan manufactured place a distributed Linux online direct supported by ability. manufacture by Taiwan management sales+store Lenovo own s or OEMs and Anti-virus structure that places sales+wholesa team; hardware shipped to software operational hubs ler Fully rely on companies Shanghai to around the world. Intel, AMD, assemble; now Powerword Separate channels for Other areas: Nvidia etc. the OEM Lenovo series: contract service Recently assemble the Personal and Commercial users; own agents developed final product distribution several types and ship to the Self-owned channel of products consumer distribution network based on its directly built of Retailer, own R&D wholesaler, contractors, agent and specialty stores as well as online channel
OS Component Component Support and Assembly /application Distribution Sales design manufacture integration software Dell
CM & ODM: manufacturing of printed “Mass circuit board assemblies (PCBAs by SCI customization” IT Services: and Solectron), concept Direct sales strategy: outside subassemblies (box builds - like Hon Dell handles distribution and sales partners for Hai) via dell.com system Intends to integration, some final products (mainly notebook outsource most installation, on- PCs- Quanta and Arima) manufacturing to (Although moving into traditional site repairs and OEMs, especially hard drives (Seagate, Quantum, distribution via stores) consulting. in Asian area Maxtor and IBM), Partners include Wang, Unisys, DRAM (Samsung, Toshiba, Micron), Mass-customization: strong link IBM and CD-ROM drives, semiconductors, add- with Assembly BancTec. on cards, Financial monitors (Sony, Phillips, Nokia, Services: Samsung) Dell Financial Services (JV with CIT group) OS Component Component Support and Assembly /application Distribution Sales design manufacture integration software 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 . Assembly . Dell‟s “Mass Customization” or build-to-order supply chain
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, Hardware as a Service avoids the SMBs and consumers to buy software and associated need for enterprises and SMBs to HaaS buy servers and storage devices hardware infrastructure SaaS Eg: salesforce.com Eg: Amazon EC2
Comp- App Distribution Support Assembly OS onents Software & & Sales Integration
PaaS •Internet is the primary medium for sales, Platform as a Service enables distribution and support. custom application development •Support focuses on customer without own OS, database, relationships and training, and not on middleware, or hardware managing hardware or software. Eg: Google APIs •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 Mini‟s storage with Dell‟s 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. http://www.box.net http://en.wikipedia.org/wiki/Box.net. Once SSD prices fall further, the Insipiron Mini can simply use more SSDs and cloud storage becomes even less critical. &
. 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 Mini‟s storage with Dell‟s 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. http://www.box.net. Dell does not have the full product portfolio or expertise to run a data center (like an HP or IBM). http://en.wikipedia.org/wiki/Box.net . Once SSD prices fall further, the Insipiron Mini can simply use more SSDs and cloud storage becomes even less critical. 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 in- house? . Increase in ODMs versus CM and self-assembly units . ODMs and OEMs will start retailing and branding themselves . Internet based distribution gains more traction . Global Direct Distribution (GDD): products shipped from ODM to customer . Integration of various service applications . E.g. box.net integrated with other cloud computing services to meet market needs . New business models based on revenue sharing . The hardware is given away for free
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 Acer‟s 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)
. Services (maintenance) . Strict quality management and fulfillment of customer demands . Early warning program to check the status of products at all times Dependency of Acer‟s 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
. Marketing and Sales . Providing not only manufacturing skills but first class design of products Dell‟s 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) . Infrastructure consulting, deployment, asset recovery & recycling, training, enterprise support, client support, managed lifecycle HP‟s Value Chain . Inbound logistics . Number of contract manufacturers („„CMs‟‟) and original design manufacturers („„ODMs‟‟) around the world to manufacture HP- designed 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) . HP Services provides multi-vendor IT services, and collaborates internally with other divisions. Lenovo‟s 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 . Consumer, business, and government sales in China . Inherited IBM‟s corporate sales base in US and elsewhere
. R&D . China, Japan, and US: cutting-edge, high-end products 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 it‟s own global locations
. Traditional channel, individual distributors .
. Lenovo:
. Owns piece of ODM. Doesn‟t outsource that much.
. Distributes through owned global fulfillment centers
.
Dependency of Acer‟s 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 Dell‟s 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 HP‟s 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 Lenovo‟s 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 against suppliers will be strengthened 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 Operation Outbound Log Mkt & Sales Service -Purchase & -No plants -No Inventory -Take care R&D General consign -Outsourcing -OEM ship to and Mkt solution HP RM/Goods to OEM retailers directly -Mkt cost = 12% service for/from OEM revenue -Build-to-order -Never -Outsource to -Relatively General model outsourcing delivery serv. small solution Dell -W/H & good assembly Company i.e. -Save sales service Supply chain -6M ft2 plant FedEx channel cost
-Purchase & -No plants -No Inventory -Strong EMEA General consign -Outsourcing -OEM ship to and M&A, try to solution Acer RM/Goods to OEM retailers directly overpass HP in service for/from OEM US -Vertical Integ. -OEM -Ship worldwide -Active EMEA General -In-group SC subsidiary in from China and APAC but solution Asus -Purchase the group manufacturing unknown in US service rest outside
-Buy RM -Own factory -Ship directly to -Strong Brand & General through similar -Outsource retailers mkt share solution Lenovo supply chain as only missing -Inv. keep at -Good distn service HP/Dell etc. area retailers channel Q1: Value chain (Con’t): Support activities
Infrastructure HR R&D Procurement Margin -Global sales & N/A - 3% rev. -Very strong support offices -Variety of cutting cost HP -Strong retailer product -Maintain CSR 8% network portfolio global retailer
-BTO model -Strong control -< 1% rev. -Very strong -Mature direct sale by Michael Dell -Seldom cutting cost Dell model saves develop on -Maintain CSR 5.6% inv./retailer cost its tech global vendor
-Strong EMEA and -Italian CEO for - Not tech -Very strong M&A, try to EMEA advanced cutting cost Acer overpass HP in US development -Focus on -Maintain CSR 2.2% -Hugh success layout Eng global vendor
-Compact indenp -Strong Eng -Strong only -Not strong due R&D, manu, and team layout Eng to small mkt Asus 4.1% Mkt functions in -On the way to -EeePC -purchase group innovation internally -Took over global -Strong -Improve -Very strong sales and strong relationship w/ the design cutting cost Lenovo retailers from IBM Chinese from IBM -Maintain CSR 1.1% Government thinkpad global vendor
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. . Dell . assembled (low value added) PC by itself & hence dragged down the margin. . Acer . Outsourced. . Low margin since it has just acquired E-machines and Packardbell and was looking to have global integration. . Asus . in-group outsourcing. . strong R&D enables the company to do new product innovation. . Lenovo . Saves the labor cost. . But increases the factory related expenses, leaving margin at 1.1%.
Q2 (Con’t): 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 Motherboard (Intel, AMD) (Asus)
Dell HP Acer Lenovo
Retailers
End-User Q3(Con’t): The dependencies in each value chain
• 2nd largest computer manufacturer • Suppliers: Build-to-order. Keep large inventory from OEMs (Original equipment manufacturer) due to In- Dell house manufacturing strategy. • Customers: End users mostly from directing selling, unlike other top computer manufacturers.
• Largest computer manufacturer HP • Suppliers: Purchase components from OEMs • Customers: Retailers
• 3rd largest computer manufacturer • Suppliers: Purchase components from OEMs Acer • Customers: regional retailers, no inventory for Acer to hold Q3 (Con’t): 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 Asus 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)
Le • 4th largest computer manufacturer • Suppliers: Purchase components from OEMs (same as no HP, Dell, Acer) • Cusomters: Retailers, no inventory for Lenovo to hold vo (same as HP, Acer)
Q4:Dell vs. Box.net
. Box.net fits the technology development of Dell‟s value chain
Q4 (Con’t): Dell vs. Box.net
. Online file storage and sharing service Box.net is helping to put the “cloud” in Dell’s 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 Dell‟s 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 (Con’t): 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 Intel, AMD, VIA, Samsung, Cypress Hardware Components Western Digital, Toshiba, Creative Labs Sub-Assembly ASUS, Intel (motherboards), Mitac, FIC Design Sony, HP, Dell, Apple, Lenovo Assembly HP, Dell, MPC Software - OS Microsoft Software - Applications Microsoft, CA, Oracle, Symantec Branding and Marketing Sony, HP, Dell, Apple, Lenovo Distribution Ingram Micro, Tech Data, Dell (direct)
Retail / Reselling Walmart, Amazon, Best Buy, Circuit City Support & Services IBM, HP, Accenture, Infosys Govs, Corps, SMBs, Consumers 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
Sub-Assembly
Design Assembly Software - OS
Software - Applications
Differentiation: Differentiation: Differentiation:
Brand Design + Brand Design + Brand
Branding and Marketing Lowcost strategy: Upstream Distribution
Retail / Reselling Value chain dominance strategy dominance chain Value
Support & Services Downstream strategy: DownstreamServices strategy:
Customer 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 cost- effective 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.
Strategy
Build to order. (Direct sales value chain)
Cost
Low cost Leader HP
Product
Innovative and different products.
Customers
Largest seller of personal Computers. Dependencies in value chain:
Acer
Suppliers
Outside suppliers.
Distributors
Dealers and Retailers.
Customer base
Large customer base in Developing countries. Asus
Product
Leader in Desktop PCs worldwide (Risk) Lenovo
Desktops
Strategy towards targeting remaining desktop customers.
Box.net in Dell’s 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 Partnership Value for Dell
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 don‟t work as expected at the end it is a third party the one that didn‟t deliver so Dell won‟t 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 Dell‟s guts to outsource whatever is not part of their core business 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 Assemblers Channels
Components Dell Direct Intel/AMD Gateway Dell Microsoft Lenovo Lenovo Seagate HP Acer Customer Asus Retailers
Comp USA Sub-Assembly Sub- Assembly Circuit City Flextronics Acer Costco Solectron Mitac Online (Amazon, Intel FIC Buy.com) Acer Asus Local Stores / Small Asus White box makers Resellers
116 Differences in PC Value Chains
Suppliers Assemblers Channels
Dell
Asus Customer Acer
Lenovo
HP
Apple
117 Financials of different PC Manufacturers
Acer Dell HP Asus Lenovo Income Statement (in USD millions) Last Reported Total Revenue 13,861.98 61,133.00 104,286.00 22,660.83 16,351.50 Total Revenue Reported 1 Year Earlier 10,524.48 57,420.00 91,658.00 16,807.05 13,978.30 Cost of goods sold 12,439.43 49,462.00 78,598.00 20,422.11 13,901.50 Gross Profit 1,422.55 11,671.00 25,688.00 2,238.72 2,450.00 Operating Expenses 1,117.00 8,231.00 16,969.00 1,393.59 1,951.10 Operating Income (a.k.a. EBIT) 305.55 3,440.00 8,719.00 845.13 498.90 Depreciation & Amortization 0.00 607.00 786.00 0.00 0.00 EBITDA 305.55 4,047.00 9,505.00 845.13 498.90 Net Income 388.76 2,947.00 7,264.00 828.69 484.30
-You don‟t 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 Assemblers Channels
Components Dell Direct Intel/AMD Gateway Dell Microsoft Lenovo Lenovo Seagate HP Acer Customer Asus Retailers
Comp USA Sub-Assembly Sub- Assembly Circuit City Flextronics Acer Costco Solectron Mitac Online (Amazon, Intel FIC Buy.com) Acer Asus Local Stores / Small Asus Resellers
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.net’s 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 Porter’s 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 don’t 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 can’t extract much from 122 the value chain. Where is the industry going? (A Porter’s 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 Apple’s 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 Luna- Thomas Raluca Scarlat Yilun Hu VALUE CHAIN IN TECH Value Chain: HP
HP direct sales Contract Manufacturers Retailers Original Primary HP Labs Design Distributio Manufacturers n Resellers Original Equipment Distribution Palo Alto, Manufacturers 67% U.S. Beijing, Partners Bangalore, Haifa, Tokyo, Independent Distributors Bristol Original Equipment Manufacturers Solutions Based Value Chain: HP
HP Services Enterprise (Consulting Storage and and Servers Outsourcing) HP Commercial HP Financia Clients Software l • Personal Services EDS Systems Group • Imaging and Printing Group
Corporate Investments R&D Value Chain: Lenovo
Invest Capture Demand Solution & Delivery Support
Global Tech Great China, Asia, Suppliers Support US, Europe
Expansion Individual, Business, Global Government Assembly Service Global R&D Logistics Strategy
Sales & Marketing
Distribution Value Chain: Acer
Invest Capture Demand Solution & Delivery Support
Global Tech Great China, Asia, Suppliers Support US, Europe
Expansion Individual, Business, Global Government Assembly Service Global R&D Logistics Strategy
Sales & Both these two Asian PC makers are Marketing expanding to the U.S. market by acquiring U.S. companies. Lenovo bought IBM‟s PC business. Acer bought Gateway. They are Distribution both more on the assembly side and not much on the service/consulting side.
Value Chain: Dell
Customized Manufacture of assembly of Purchase Services Components by PCs as orders by PC and suppliers. from buyers Users Support come in •Infrastructur e consulting •Deployment •Asset Custom orders Software and recovery and Peripherals received and recycling customer input. •Training •Support •Managed Services •Dell Sales and Marketing Financial Services Value Chain: Asus
Manufacture of Components by 3C: computer, suppliers and communication, and Decentralized Customer subsidiaries: consumer Sales Force Chips, Logic IC, PCP, electronics Connectors, DRAM
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 Purchases by Box.net to be accessed from any location. Web PC Users applications also enable Dell to approach Box.net from the Software and Peripherals angle and customize different memberships to different customers.
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 services. Value Chain of PC Making
Move up- stream 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!