Week 3: Tutorial Tasks Before we answer discussion questions; we discuss some key concepts in the case: Strategy and

value chain analysis. Value Chain analysis: is a method for breaking down the firm into a chain (from basic raw materials to end use customers) into specific activities in order to understand the behavior of costs and sources of differentiation. Value chain disaggregates the firm into its distinct strategic activities. Value Chain analysis is a useful tool in developing competitive advantage based on low cost, or differentiation, or preferably cost-cum differentiation. The methodology for constructing and using a value chain involves the following steps: 1. Identify external and internal value chains and assign costs, revenues to activities and processes. 2. Diagnose the cost drivers regulating each activity and process. 3. Develop sustainable competitive advantage, either through - reconfiguring the value chain, example, Dell Computers business model: direct order customised product which cut out distributors or - controlling cost drivers (and/or increasing value) better than Competitors

Case 7-5: Dell Computer Corporation

Discussion questions 1. What is Dells strategy? Dells strategy was based on: Market leadership as a result of a persistent focus on delivering the best possible customer experience. Direct selling, from manufacturing to consumer, was a key component of its strategy. Its reputation as one of the worlds most preferred computer systems companies and a premier provider of products and services that customers worldwide needed to build their informationtechnology and internet infrastructure.

What is basis on which Dell builds its competitive advantage? Dell redesigning PC industry value chain as a tool in developing competitive advantage based on: Cost advantage: This was done in three areas. Component purchase costs, inventory costs and selling and administrative costs. Customer knowledge advantage: Dell understood consumer needs and efficiently met those needs by selling computer systems directly to customers. The direct business model eliminated retailers, who added unnecessary time and cost, and shipped directly from its factories to end customers. It took orders for hardware and software over the phone or via the internet. Dell designed an integrated supply chain linking Dells suppliers very closely to its assembly factories and orderintake system. Dell outsourced all components but performed assembly. Technology advantage: dell custom-built its machines after receiving an order instead of making machines for inventory in anticipation of orders. Dell introduced the latest relevant technology much more quickly than companies with slow moving inventories; turning Dell to become the number-one retailer of PC, outselling IBM and Hewlett-Packard. IBM and Hewlett-Packard Dell moved into IT portfolio; it moved into servers, and storage, mobility products, and also challenged Printer leader HP.

2. How do Dells control system help execute the firms strategy? Performance Measures: Dells scorecard included both financial measures (such as ROIC, component purchasing costs, selling and administration costs) and non-financial measures (component inventory stock outs, finished goods inventory, A/R day and A/P days). Localised decision making system: Dell used its structure as a flat organization as a competitive advantage and localized its decision-making. If an issue did not require a higher ups attention, then decision would be made without involving him. This would not have been possible in companies bogged down by layers of bureaucracy. Business unit Performance: in 1993, Dell developed a set of metrics to judge business-unit performance. Expedited the assembly process: Dell recognized early the need for speed, or velocity, quickening the pace at pace at every step of business.