Transcript Value Chain Assignment - 2008 MBA/ENG 290G Wiki

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
R&D
•Apacer
•AQR
•Kingdom Corp.
•Animeta System
4
Components
•Toshiba
•Fujitsu
•Sony
•Hitachi
•Mitsubishi
•Lite-On
•IBM
•Ambit
•Sumida
•Sanyo
Manufacturer
•Wistron
•BenQ
•AMBIT
•ALi
•Aegis
Semiconductor
•Yam Digital Tech.
•Legend Tech.
•RDC Semiconductor
•Feiya Tech.
Distribution &
Marketing
•Channel Business
Model – indirect
•Resellers
partnership
•Global
distributor
•Acer Computer
•Logistron Service
•Broadwalk Capital
Red – heavy presence by Acer
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
•Core
technology
center
6
•Chips
•Motherboard
•Logic IC
•LED display
•PCB
•Sound blaster
•Connectors
•Eee PC
•DRAM
•Intel, nVIDIA etc
•Procurement and
material
management
center
•Eee PC
•Ultra
Mobile PC
•phone
•Sales,
marketing
and PM
groups
•Sales,
marketing
and PM
groups
Red – heavy presence by Asus
Blue – no or light presence by Asus
Dell Value Chain
R&D
Current portfolio
of 1954 patents
Use a wide variety
of Intellectual
Property
agreements
Components
Global network of
technology
companies
SW
Microsoft
Ubuntu (Linux)
Citrix
…
Manufacture
Covers assembly,
software inst.,
functional testing,
and quality control
Large number of
vendors
HW
AMD
Intel
EMC
Seagate
…
7
Design
Build-to-order
model
Americas
Texas
APJ
China
India
Singapore
Taïwan
Organized in 3 BUs:
Americas
7 locations
EMEA
3 locations
APJ
3 locations
Marketing &
Sales
Direct sales model
•Dedicated sales
•Telephone-based
sales
•Online
Indirect sales
VARs (Dell Partner
Direct), main
channel for
outside U.S
Support
Software &
peripherals
Services
•Infrastructure
consulting services
•Deployment services
•Asset recovery &
recycling services
•Training services
•Support services
•Managed services
Organized around
customer
segments
Gaming desktop
manufactured
through Alienware
(subsiduary)
Red – heavy presence by Dell
Blue – limited presence by Dell
HP value chain and its dependencies
R&D
•PSG
•HP Labs
•ODMs
Testing
•PSG
•ODMs
PSG – Personal systems group
8
TSG – Technology solutions group
Components
•ODMs
•CMs
•Third-party
vendors
Assembly
•PSG
•CMs
•OEMs
•ODMs
Sales
Support &
Services
•Direct
•PSG
•Retailers
•TSG
•Resellers
•Distribution partners
•Independent
distributors
•OEMs
•Independent software
vendors
•Systems integrators
Red – heavy presence by HP
Blue – no or light presence by HP
Lenovo PC Value Chain
Technology
Inputs
HW Components
AMD
Intel
Sony
Sanyo
Samsung
Seagate
Western Digital
Micron
Texas Instruments
Panasonic
Hitachi
Toshiba
Fujitsu
Kingston
Lenovo
motherboards
Software
Microsoft
Adobe
Symantec
9
R&D
Lenovo R&D centers
located in China,
Japan and the
United States
ODM partners also
participate in
product R&D
Leverage R&D
investments of HW
component and SW
vendors
Design
Lenovo design
centers
Still reliant upon
casings, etc. from
component
suppliers
Manufacturing/
Assembly
Lenovo has 4
manufacturing
facilities in China
EMS/ODM Partners
Quanta
Compal
Wistron
Hon Hai
Inventec
Sales &
Marketing
Direct (Web,
telephone)
Distributors, VARs,
technology
implementors
IBM Global
Services
Retail partners
Backward
integration into
subassembly of PC
components
Software &
Services
Lenovo extended
warranties and
financing
Increasing emphasis
on differentiating SW
on top of Windows
Channel partners
involved in reverse
logistics
Transaction and
Relationship
modes of selling
Red – heavy presence by Lenovo
Blue – limited presence by Lenovo
Comparison of PC Value Chains
•
Same core set of component and software suppliers across all PC vendors
–
•
R&D still seen by most as a way to differentiate their products
–
–
•
•
10
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
–
–
•
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
–
–
•
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
–
–
•
Minimal feature differentiation across vendors
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
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
R&D
12
PC value
chain
Software
Data
center
End user
Key linkages in value chain
• Companies provide support to their customers,
or the next partner in the value chain
– For example, if Dell sells through BestBuy, then
BestBuy can provide support to the end user. If Dell
sells the PC to end user directly, they have to provide
customer support.
• Customer feedback or the last part of the value
chain provide linkage and guidance to every
other partner in the value chain
– End user preference directs R&D directions,
component choices, and marketing strategies
13
Team 2
• Team 2: Cloud 2
Project: Software cloud
• David Exposito Cossio david_exposito[at]mba.berkeley.edu
• Rachel Vera Simon - rachel[at]ieor.berkeley.edu
• Jon Wiesner - jon_wiesner[at]mba.berkeley.edu
• Emrehan Kirimli- emrehan[at]berkeley.edu
14
Team 2:
Jon Wiesner, Rachel Simon, David
Exposito Cossio, Yanpei Chen,
Emrehan Kirimli
Comparing PC Value Chains
Dell, HP, Acer, Asus, and
Lenovo
Dell
Firm
Infrastructure
Visionary founder. Worldwide operations. Currently cutting
operating expenses: downsizing employees and facilities. Hedging
activities protected from impact of weakening dollar.
Human
resource
~ 90,500 (majority abroad); activities associated with recruiting,
development, and compensation of employees.
Technological increased 22% this year to $610 million. Focus on shortening
Development development cycle & tailoring regional solutions for international
growth. Strengthening IT & sever offerings.
Relationships over integration. Quality components. Flexible
Procurement purchasing to adjust for cost, needs, quality, availability.
Inbound
Logistics
•Just in time
warehousing,
minimal
inventory; madeto-order for
demand and no
old technology
Operations
Customized
assembly of
systems for
user specs
Outbound
Logistics
Marketing & Sales
•Direct sales
•#1 in personal PC
model –
systems in U.S., and
insight into
#2 worldwide
customer •Adding new channels
needs
•Adjusting to new
•Online
markets: payment
ordering
upon delivery
Service
•High
quality
support,
customer
access to
help info
Hewlett Packard
Firm
Infrastructure
Human
resource
6 business units. Highly decentralized. Presence globally. In the
process of reducing the number of facilities to reduce costs.
172000 employees. Extensive training for sales force.
Technological
Strong R&D culture.$3.6B invested in 2007 (3,4% of net
Development
revenues). They capitalize with patents and licensing technology.
Procurement
Inbound
Logistics
One of the
biggest in
High Tech
industry
Huge negotiating power. Always use secondary sources of supply.
High volume to reduce costs.
Operations
Manufacture
high volume of
basic product
configuration
to maximize
efficiencies
Outbound
Logistics
Marketing &
Sales
Service
Extremely
complex to
reach huge
number of
customers
Consumer and
commercial
customers.
Currently
reinvesting in
increasing
sales force
HP offers
consulting
service and
customer
support. Very
important for
HP strategy
Acer
Firm
Infrastructure
Human
resource
Spun off manufacturing operations in 2000. Low capital costs
business model.
Outside of administrative and management functions, all
employees fulfill sales, marketing, customer service or R&D roles.
Technological Incorporates advanced feature sets in high end brands. Focused
Development on worldwide growth in notebooks and ultra-mobile devices.
Procurement
Inbound
Logistics
•Outsources
manufacturing
•Spun off
manufacturing
operations in
2000
Seeking scale and efficiencies through acquisitions in major
markets
Operations
•Lean
operating
model
•Minimize
capital and
operating
expenditures
Outbound
Logistics
Marketing &
Sales
•Channel
Business
Model
•Purchased
brand names in
major markets
(e.g., Gateway)
•Brand
positioning
Service
•Small
investments in
service
offerings
Asus
Firm
Infrastructure
Human
resource
Based in Taipei. Facilities in Taiwan, China, Mexico and Czech
Republic. Presence globally.
8885 employees. A world class R&D design team.
Technological
Emphasis on R&D, design. Simple, innovative products. Selected
Development
as 9th most growing tech company by Business Week.
Procurement
Big negotiating power. High volume to reduce costs.
Inbound
Logistics
Operations
Production
capacity: two
million
motherboards
and 150,000
notebooks per
month
In the process
of
restructuring
into three
distinct
operational
units
Outbound
Logistics
Great
emphasis on
Total Quality
Management
and fast
delivery
Marketing &
Sales
Service
Emphasis on
A significant
customer
amount of
service. Trying
money for
to overcome
marketing,
the bad
advertise on
green products reputation in
some countries
Lenovo
Firm
Infrastructure
Human
resource
Four geographic segments, two major product groups. Presence
globally. “Worldsourcing,” but mostly manufacture in China.
23000+ employees, ~17000 in China, ~2000 in U.S.
Strong commitment to talent management.
Technological
Emphasis on innovation – 17% annual R&D spending increase.
Development
Gains in market share driven by new products.
Procurement
Huge negotiating power in China. Committed to use diverse
suppliers. Emphasis on trust, reciprocity, integrity etc.
Inbound
Logistics
Operations
Trying to
manufacture
closer to key
customer
base.
Major push to
streamline
supply chain
and decrease
end-to-end
cost.
Outbound
Logistics
Marketing &
Sales
Service
Retail store
network
essential,
especially in
China
Sponsoring
Olympics etc.
Vigorously
trying to build
the Lenovo
brand.
Emphasis on
“customer
intimacy” and
support for
SMB.
Simplified
product lines.
Value Chain Differences
Value Chain Dependencies
Dell:
 suppliers as it adopts a just-in-time manufacturing approach
 customers as Dell uses a direct sales model
HP:
 suppliers as it uses many different parts to produce very different models
 service as HP also delivers solutions with its big consulting division.
Acer:
 suppliers as it outsources manufacturing
Asus:
 consumers as Asus designs very innovative products according to the needs
 product design team and green products
Lenovo:
 Chinese consumers and suppliers
Dell & Box.net Partnership
Why Partner?
• Allows Dell to continue to focus on product innovation
and faster development cycles
• Low barriers to entry ($200K) and insignificant revenue
source (Dell would rather sell them servers)
• Fragmented competitors with better brand recognition in
space (e.g., Google, Yahoo, Microsoft, Mozy, etc.)
• 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
4%
Design
+
Manufa
ct.
In-house / Make
•
•
•
Marketing
& Sales
56%
Distrib.
Custo
mer
service
+
Sales
suppor
t
End customer
R&
D
28%
% of
employees
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
Services and
assembly
Manufactur
ing &
assembly
R&
D
In-house / Make
•
•
•
Direct
distrib.
Markt.
&
Sales
Indirec
t
distrib.
Custo
mer
service
+
Sales
suppor
t
End customer
R&
D
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
Thei
r
futu
re:
pho
nes
•
•
•
•
Design
+
Manufa
ct.
Low
margin
products
outsource
d
Distrib.
Marketing
& Sales
Europe est’d.
Working on
Russia,
China
Many
products
still OEM;
joint distro
nets for
others
Suppor
t
Exclusiv
e
centers
in India
End customer
R&
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&
D
Moving
closer to
key cust.
base
Marketing
& Sales
Sponsorship
s (Olympics,
etc)
to build
brand
Distrib.
Building
retail
store
network
Simpler
product
lines,
SMB
support,
&
“custome
r
intimacy”
End customer
Co
mmitt
ed
to
tale
nt
Dev
.
Design
+
Manufa
ct.
Suppor
t
• 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
In-house
•
•
•
Direct
Sales
Few
Retailers
Customer
service
End customer
R&D
Build-toorder
MFG
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 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.
In-house
•
•
•
Direct
Sales
Few
Retailers
Customer
service
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
End customer
R&D
Build-toorder
MFG
Box.net
Dell & Box.net Partnership
Compare
Contrast
• Lenovo and Asus are both one-time
OEM providers to giants trying to move
ahead with their own branding
• Not a great business for Ph.D.s!
• Established Brands vs. Emerging
Brands grown from one-time OEM
Where next?
• Supply chain + logistics
management become critical
• Value-additive services as a
differentiating factor
• Commoditization of hardware
manufacturing/assembly
• Branding/marketing strategy
become more important in
differentiating products
Team 4
• Team 4: SAAS 1
Project: SAAS applications
• Lakshmi Jagannathan ljaganna[at]eecs.berkeley.edu
• Christopher Quek - chris_quek[at]mba.berkeley.edu *
• John Michael Wyrwas - jwyrwas[at]berkeley.edu *
• Christian Huth - huth[at]berkeley.edu *
• Daisuke Tanaka –
daisuke_tanaka[at]mba.berkeley.edu *
Value Chain
Analysis:
Personal
Computers
Christian Huth
Lakshmi Jagannathan
Christopher Quek
Daisuke Tanaka
John Michael Wyrwas
Worldwid
e Rank
PC Brand Market Share
(Gartner Q1 ’08)
1.
2.
3.
4.
19%
16%
10%
7%
HP
Dell
Acer
Lenovo
HP Value Chain
Inbound
Logistics
• Building
products to
order –
maximize
manufacturing
efficiencies by
producing hi
vol of basic
product
configurations
• Configuring
products to
order – for
customer
customization
• JIT to
minimize
inventory
• Purchase
supplies from
multiple
vendors
• Dependent on
Microsoft and
Intel
Operations
• Utilizes its
own
manufacturing
capacity as
well as
original
design
manufacturers
and contract
manufacturers
for cost
efficiencies
and quicker
go to market
• HP is the
largest
customer for
most of their
suppliers –
best terms
and prices.
Outbound
Logistics
• HP uses
external
partners for its
outbound
logistical
needs.
Marketing and
Sales
• HP has
various types
of partners
including
retailers,
VARs,
distribution
partners,
OEMs,
system
integrators,
and
independent
software
vendors.
Service
• HP Services
competes in
IT support
services,
consulting,
integration,
and
outsourcing
services.
•
HP depends heavily on its partners – however HP is able to leverage its size to
create favorable terms and prices
•
Like other competitors, they are heavily dependent on Microsoft and Intel
HP Divisions


Technology Solutions Group (TSG) (36% of revenue)
•
Includes: Enterprise Storage & Servers (ESS), HP Services (HPS), HP Software
•
Manages direct sales for volume and value products
•
Manages enterprise and public sector customer relationships
•
Drives 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
• Dell employs a
horizontal
structure,
outsourcing the
production of
the components
that go into their
final products.
• Dell relies on
just in time
delivery of
components to
keep inventory
costs low.
• Suppliers are
required to be
within a certain
geographic
distance.
Operations
• Dell’s
manufacturing
process
involves
assembly,
software
installation, and
quality control.
• Each additional
component that
Dell assembles
within the
machine adds
value to the
final product.
Outbound
Logistics
• Dell uses an
external partner
to ship all
finished goods
to customers.
• Customer
service issues
related to
shipping are
handled by the
external
partner.
• Shipment data
is shared
between Dell
and its partners
to provide end
customers with
a high quality of
service.
Marketing and
Sales
• Dell sells its
products using
telephone,
dedicated sales
representatives,
retail stores,
website, and
indirect
channels.
• Dell markets to
large customers
via its sales
force and to
small customers
via the web, TV
and print
advertising.
Service
• Dell offers
bundled
customer
service and
product support.
• Dell also offers
additional
warrantee
coverage for an
additional fee.
• The majority of
Dell’s customer
service centers
are outsourced
to low cost
providers.
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
• Product
manufacturing is
outsourced to ODM
(original design
manufacturer)
companies in
Taiwan (primarily
Wistron, Hon Hai,
Quanta, and
Compal)
• Relies on just-intime procurement
(inventory turnover
is ~25 days)
• Distributed
procurement,
fulfillment, and
vendor managed
inventory system by
i2 Technologies,
Inc.
Operations
• Acer focuses
on the sales
and marketing
of its IT
products and
outsources all
manufacturing.
• The company
provides brand
management
and product
development.
Outbound
Logistics
• Products are
shipped from
suppliers direct
to Acer’s
channels, hubs
and hustomers.
• About 2/3 of
sales are
through
subsidiaries
such as Acer
Europe AG
(AEG) and Acer
America.
Marketing and
Sales
• Acer sells its
products
through indirect
sales partners,
including
distributors,
resellers, and
online retailers.
• Acer
emphasizes
that its strategy
is not to do
direct sales.
• Marketing is
segmented by
consumer and
region with a
multi-brand
strategy.
Service
• After-sales
service is
provided by
regional
subsidiaries,
and overseen
by regional
corporate
departments in
EMEA, Pan
America, AsiaPacific, China,
and Taiwan.
Acer Value Chain and Supplier Relationships

Suppliers:


In 2000, Acer divested its majority ownership stake of Winston, its major supplier to
focus on marketing and branding. 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
• Asus has partly
outsourced the
production of
components
(chips, DRAM
etc) to
companies like
Intel, AMD and
nVidia
• Timely delivery
via external
partners
essential.
Operations
• Manufacturing
for branded
products and
contract
manufacturing
for other
hardware
companies like
HP is done in
separate
companies
• Unihan for PCrelated
manufacturing
• Pegatron for
casing, module
and non-PC
contract
manufacturing
• Asus also has
its own product
development
Outbound
Logistics
• Finished
products are
shipped by
external
partners to
Asus reseller or
other hardware
companies
•Asus’s value chain is focused on manufacturing
Marketing and
Sales
• Two different
kinds of
customers
• End consumer
are served with
branded
products under
the Asus name
via reseller etc.
(35% of sales)
• Contract
manufacturing
main part of
business (65%
of sales)
Service
• Asus offers
bundled
customer
service and
product support
• Extension of
warranty is
offered for an
additional fee
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
Customization as Added Value
Wide Spectrum of Products
Focus on Product Development
Many Distribution Channels
Customer Service as Added Value
Outsourced Manufacturing
Less customization
Fewer Products
Commoditization
Fewer Channels
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


Customization


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


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


Companies like Dell will have a renewed interested in providing custom products.
Spectrum of products


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.
There will be a move away from the standard Windows box to unique, application specific
interfaces, making software development an important part of the value chain. This move is driven
by open source operating systems and development tools.
Increased service

Some companies will see an opportunity in providing value added support and service to their
hardware offerings. The customer relationship will continue past the point-of-sale.
Team 5
• Team 5: CVC
Project: Corporate Venture Capital
• Varun Suryakumar Boriah - varunboriah[at]berkeley.edu *
• Joseph Dilip Antony - dilip[at]berkeley.edu *
• Brendan Quinn - brendan_quinn[at]mba.berkeley.edu *
• Sonia Fereres-Rapoport - sfereres[at]berkeley.edu *
• Ada Zheng - ada_zheng[at]mba.berkeley.edu *
PC Value Chain:
Acer, Asus, Dell, HP, Lenovo
Group 5:
Varun Boriah
Sonia Fereres
Dilip Joseph
Brendan Quinn
Ada Zheng
Generic PC Value Chain
Component
design
Distribution
Component
manufacture
Sales
Assembly
OS
/application
software
Support and
integration
Component
design
Component
manufacture
Assembly
OS
/application
software
Distribution
Sales
HP
.com
Support and
integration
Component
design
Component
manufacture
Assembly
OS
/application
software
Distribution
Sales
Support and
integration
Asus (EEE PC)
(in-house)
(Atom /
Celeron)
Asus (inhouse)
OpenOffice
/ StarOffice
/ Microsoft
/ Google
Apps
Asus
ASUS
Best Buy,
NewEgg, (through a
CompUSA, very simple
etc
web page)
Component
design
Component
manufacture
Assembly
OS
/application
software
Distribution
Sales
Support and
integration
Lenovo
Basically no
core R&D
ability.
Fully rely on
Intel, AMD,
Nvidia etc.
Outsourced
to Taiwan
manufacture
s or
hardware
companies
Recently
developed
several types
of products
based on its
own R&D
Previously
manufactured
by Taiwan
OEMs and
shipped to
Shanghai to
assemble; now
the OEM
assemble the
final product
and ship to the
consumer
directly
Microsoft
Linux
Anti-virus
software
Powerword
No world HQ. put in
place a distributed
management
structure that places
operational hubs
around the world.
Separate channels for
Personal and
Commercial users;
Self-owned
distribution network
built of Retailer,
wholesaler,
contractors, agent and
specialty stores as
well as online channel
Think series:
online direct
sales+store
sales+wholesa
ler
Lenovo series:
own
distribution
channel
Tie 1 area:
supported by
Lenovo own
team;
Other areas:
contract service
agents
Component
design
Component
manufacture
Assembly
OS
/application
software
Distribution
Sales
Support and
integration
Dell
CM & ODM: manufacturing of printed “Mass
circuit board assemblies (PCBAs by SCI customization”
and Solectron),
concept
Direct sales strategy:
subassemblies (box builds - like Hon
Hai)
Dell handles distribution and sales
via dell.com
Intends to
some final products (mainly notebook outsource most
PCs- Quanta and Arima)
manufacturing to
OEMs, especially
hard drives (Seagate, Quantum,
in Asian area
Maxtor and IBM),
DRAM (Samsung, Toshiba, Micron),
CD-ROM drives, semiconductors, addon cards,
monitors (Sony, Phillips, Nokia,
Samsung)
(Although moving into traditional
distribution via stores)
Mass-customization: strong link
with Assembly
IT Services:
outside
partners for
system
integration,
installation, onsite repairs and
consulting.
Partners include
Wang, Unisys,
IBM and
BancTec.
Financial
Services:
Dell Financial
Services (JV
with CIT group)
Component
design
Component
manufacture
Assembly
OS
/application
software
Acer
Distribution
Sales
Support and
integration
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,
SMBs and consumers to buy software and associated
hardware infrastructure
SaaS
Eg: salesforce.com
Components
Assembly
OS
App
Software
HaaS
Hardware as a Service avoids the
need for enterprises and SMBs to
buy servers and storage devices
Eg: Amazon EC2
Distribution
&
Sales
Support
&
Integration
PaaS
Platform as a Service enables
custom application development
without own OS, database,
middleware, or hardware
Eg: Google APIs
•Internet is the primary medium for sales,
distribution and support.
•Support focuses on customer
relationships and training, and not on
managing hardware or software.
•Integration of PaaS and SaaS with each
other and legacy apps.
• HaaS : provides small chunks of storage to individuals, SMBs and
enterprises. However, NOT a typical HaaS virtual storage provider
• SaaS : Edit and share documents online
• PaaS : APIs to mashup with other apps
• Buys servers, storage devices, network equipment, software, service
from traditional vendors
• Leases data center space. Buys power and bandwidth
Source: Future View: The New Tech Ecosystems Of Cloud, Cloud Services, And Cloud Computing, August 2008, Forrester Research
&

Dell Inspiron Mini is promoted as a ultra-lightweight Internet access device. It
has only 8GB storage as SSD is currently very expensive.

Enhancing the 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
 Once SSD prices fall
http://en.wikipedia.org/wiki/Box.net
further, the Insipiron Mini can simply use more SSDs
&

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.
 Dell does not have the full product portfolio or expertise to run a data center (like an HP or
http://www.box.net
IBM).
http://en.wikipedia.org/wiki/Box.net
The
Future
 Future Markets:

Going mobile – WiMAX, 3G, GPRS


“Netbook” as a 3rd market, in addition to desktops & laptops




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”



Netbooks are currently given away for free with Vodafone 3G contract
Meeting the requirements of developing markets


Revenue share with carriers: iPhone as an example
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)


Increase in ODMs versus CM and self-assembly units


Should this be achieved through partnering or be developed inhouse?
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
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


Manufacturing


Completely outsourcing the manufacturing sector to multiple
vendors and suppliers
Outbound logistics


Channel Business Model: cooperation with suppliers and channel
partners in supply-chain management
Efficient inventory control: Products are shipped from ODM
suppliers to distribution channels or customers directly
Marketing and sales

Focuses on sales and marketing by outsourcing manufacturing

Leading position in Europe, Middle East and Africa

Aggressive M&As (Gateway and Packerd bell)
Dependency of 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


Manufacturing-OEM/ODM


Being the middleman of its OEM/ODM clients and the suppliers,
Asus gets components needed from suppliers directly
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
Dell’s Value Chain

Inbound logistics


Manufacturing




Obtain components from external supplier at low cost, no
inventory, and pay late
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)
HP’s Value Chain

Inbound logistics


Manufacturing


Besides traditional channel, individual distributors (in untapped
markets), OEMs & independent software vendors (ISVs).
Marketing and Sales


Plants spread throughout the world; Try to be as JIT as possible.
Outbound logistics


Number of contract manufacturers (‘‘CMs’’) and original design
manufacturers (‘‘ODMs’’) around the world to manufacture HPdesigned products.
Manufacturing divisions of enterprise/ public sector, commercial
and consumer markets, responsible for marketing as well.
Services (maintenance)
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
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
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
Team 7
• Team 7: Japan 2
Project: New Product for Japanese Company
• Anthony Goodrow - goodrow[at]berkeley.edu *
• Li-Chuan Liao - andrew_liao[at]mba.berkeley.edu *
• Sha Tao-shatao[at]berkeley.edu *
• Piyapat Tantiwong – piyapat[at]berkeley.edu*
• KC Chen - kc_chen[at]mba.berkeley.edu*
Value Chain
Dell, HP, Acer, Asus and Lenovo
By Group 7:
Andrew Liao, Anthony Goodrow, KC Chen, Piyapat Tantiwong, Sha Tao
Q1: Value chain: Primary activities
Inbound Log
HP
Dell
Acer
Asus
Operation
Outbound Log
-Purchase &
consign
RM/Goods
for/from OEM
-No plants
-Outsourcing
to OEM
-No Inventory
-OEM ship to
retailers directly
-Take care R&D General
and Mkt
solution
-Mkt cost = 12% service
revenue
-Build-to-order
model
-W/H & good
Supply chain
-Never
outsourcing
assembly
-6M ft2 plant
-Outsource to
delivery serv.
Company i.e.
FedEx
-Relatively
small
-Save sales
channel cost
General
solution
service
-Purchase &
consign
RM/Goods
for/from OEM
-No plants
-Outsourcing
to OEM
-No Inventory
-OEM ship to
retailers directly
-Strong EMEA
and M&A, try to
overpass HP in
US
General
solution
service
-Vertical Integ.
-In-group SC
-Purchase the
rest outside
-OEM
subsidiary in
group
-Ship worldwide
from China
manufacturing
-Active EMEA
and APAC but
unknown in US
General
solution
service
-Own factory
-Outsource
only missing
-Ship directly to
retailers
-Inv. keep at
-Strong Brand & General
mkt share
solution
-Good distn
service
-Buy RM
through similar
Lenovo
supply chain as
Mkt & Sales
Service
Q1: Value chain (Con’t): Support activities
Infrastructure
HP
Dell
Acer
Asus
-Global sales &
support offices
-Strong retailer
network
HR
N/A
R&D
Procurement
- 3% rev.
-Variety of
product
portfolio
-Very strong
cutting cost
-Maintain CSR
global retailer
-< 1% rev.
-Seldom
develop on
its tech
-Very strong
cutting cost
-Maintain CSR
global vendor
-Very strong
cutting cost
-Maintain CSR
global vendor
-BTO model
-Mature direct sale
model saves
inv./retailer cost
-Strong control
by Michael Dell
-Strong EMEA and
M&A, try to
overpass HP in US
-Italian CEO for
EMEA
development
-Hugh success
- Not tech
advanced
-Focus on
layout Eng
-Compact indenp
R&D, manu, and
Mkt functions in
group
-Strong Eng
team
-On the way to
innovation
-Strong only -Not strong due
layout Eng
to small mkt
-EeePC
-purchase
internally
-Took over global
sales and strong
-Strong
relationship w/
-Improve
the design
-Very strong
cutting cost
Margin
8%
5.6%
2.2%
4.1%
Q2: Outsoucing strategy


HP

Outsourced nearly all of its manufacturing to Electronic Manufacturing Service
(EMS) providers, like Foxconn.

Focused on the R&D, marketing and services.

This strategy saves HP factory overheads and labor issues.
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
(Intel, AMD)
Dell
HP
Motherboard
(Asus)
Acer
Retailers
End-User
Lenovo
Q3(Con’t): The dependencies in each value chain
Dell
HP
Acer
• 2nd largest computer manufacturer
• Suppliers: Build-to-order. Keep large inventory from
OEMs (Original equipment manufacturer) due to Inhouse manufacturing strategy.
• Customers: End users mostly from directing selling,
unlike other top computer manufacturers.
• Largest computer manufacturer
• Suppliers: Purchase components from OEMs
• Customers: Retailers
• 3rd largest computer manufacturer
• Suppliers: Purchase components from OEMs
• Customers: regional retailers, no inventory for Acer to
hold
Q3 (Con’t): the dependencies in each value
chain
Asus
• Computer motherboards (Founders were from Acer)
• Organization structure: Asus brand (first-party computers),
Pegatron (motherboard, component OEM), Unihan (PC cases
and molding)
• Suppliers: Vertical in-house supply chain, purchase raw
materials outside.
• Customers: Sony (Playstation 2), Apple (iPod, MacBook),
Alienware, FalconNorthwest, Palm, HP (Compaq brand)
Le
no
vo
• 4th largest computer manufacturer
• Suppliers: Purchase components from OEMs (same as
HP, Dell, Acer)
• Cusomters: Retailers, no inventory for Lenovo to hold
(same as HP, Acer)
Q4:Dell vs. Box.net

Box.net fits the technology development of 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
Assembly
Software - OS
Sony, HP, Dell, Apple, Lenovo
HP, Dell, MPC
Microsoft
Software - Applications
Microsoft, CA, Oracle, Symantec
Branding and Marketing
Sony, HP, Dell, Apple, Lenovo
Distribution
Retail / Reselling
Support & Services
Customer
Ingram Micro, Tech Data, Dell (direct)
Walmart, Amazon, Best Buy, Circuit City
IBM, HP, Accenture, Infosys
Govs, Corps, SMBs, Consumers
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
Software - OS
Software - Applications
Branding and Marketing
Distribution
Retail / Reselling
Support & Services
Customer
Differentiation:
Brand + Design
Assembly
Differentiation:
Brand + Design
Design
Downstream strategy: Services
Sub-Assembly
Value chain dominance strategy
Hardware Components
Upstream strategy: Low cost
Semiconductors
Comparing the value chains:
Focusing on design and Marketing

Lenovo – Stressing on design and Performance



Focuses on design and assembly (outsources the
manufacturing)
Differentiates on design, performance and durability
Acer – Leveraging its channels



Develops and manages its channels to bring costeffective products to market.
Focuses on design, sales and marketing (outsources the
manufacturing)
Differentiation by brand and technology (multi-brand
strategy)
Comparing the value chains:
Upstream vs Downstream

Asus – Upstream Strategy



Produces low-cost computers via an upstream
integration of the value chain
Sells to large retailers or directly to large organizations
HP – Downstream Strategy



Outsources the manufacturing
Differentiates on software and services
Sells mainly to retailers and resellers
Comparing the value chains:
Integration of the value chain

Dell – Direct Customer Model



Global integration of the value chain
Highly customizable products
Sells directly to the customer
Dependencies in value chain:

Dell

Customers


Strategy


Build to order. (Direct sales value chain)
Cost


Large Business Customers.
Low cost Leader
HP

Product


Innovative and different products.
Customers

Largest seller of personal Computers.
Dependencies in value chain:

Acer

Suppliers


Distributors


Large customer base in Developing countries.
Asus

Product


Dealers and Retailers.
Customer base


Outside suppliers.
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
Components
Intel/AMD
Microsoft
Seagate
Dell
Gateway
Lenovo
HP
Acer
Asus
Sub- Assembly
Acer
Mitac
FIC
Asus
White box makers
Channels
Direct
Dell
Lenovo
Retailers
Comp USA
Circuit City
Costco
Online (Amazon,
Buy.com)
Local Stores / Small
Resellers
Customer
Sub-Assembly
Flextronics
Solectron
Intel
Acer
Asus
Assemblers
116
Differences in PC Value Chains
Suppliers
Assemblers
Channels
Dell
Asus
Customer
Acer
Lenovo
HP
Apple
117
Financials of different PC Manufacturers
Acer
Income Statement (in USD millions)
Last Reported Total Revenue
Total Revenue Reported 1 Year Earlier
Cost of goods sold
Gross Profit
Operating Expenses
Operating Income (a.k.a. EBIT)
Depreciation & Amortization
EBITDA
Net Income
13,861.98
10,524.48
12,439.43
1,422.55
1,117.00
305.55
0.00
305.55
388.76
Dell
HP
Asus
Lenovo
61,133.00 104,286.00 22,660.83 16,351.50
57,420.00 91,658.00 16,807.05 13,978.30
49,462.00 78,598.00 20,422.11 13,901.50
11,671.00 25,688.00 2,238.72 2,450.00
8,231.00 16,969.00 1,393.59 1,951.10
3,440.00
8,719.00
845.13
498.90
607.00
786.00
0.00
0.00
4,047.00
9,505.00
845.13
498.90
2,947.00
7,264.00
828.69
484.30
-You 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
Components
Intel/AMD
Microsoft
Seagate
Dell
Gateway
Lenovo
HP
Acer
Asus
Sub- Assembly
Acer
Mitac
FIC
Asus
Channels
Direct
Dell
Lenovo
Retailers
Comp USA
Circuit City
Costco
Online (Amazon,
Buy.com)
Local Stores / Small
Resellers
Customer
Sub-Assembly
Flextronics
Solectron
Intel
Acer
Asus
Assemblers
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
the value chain.
122
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
HP Labs
Palo Alto,
Beijing,
Bangalore,
Haifa, Tokyo,
Bristol
Original Design
Manufacturers
Original
Equipment
Manufacturers
Retailers
Primary
Distribution
67% U.S.
Resellers
Distribution
Partners
Independent
Distributors
Original
Equipment
Manufacturers
Solutions Based Value Chain: HP
HP Services
(Consulting
and
Outsourcing)
EDS
Enterprise Storage
and Servers
Commercial Clients
• Personal Systems
Group
• Imaging and
Printing Group
Corporate Investments
R&D
HP
Software
HP
Financial
Services
Value Chain: Lenovo
Invest
Capture Demand
Great China, Asia,
US, Europe
Expansion
Individual, Business,
Government
Solution & Delivery
Global
Suppliers
Support
Tech
Support
Global
Assembly
Service
R&D
Strategy
Global
Logistics
Sales &
Marketing
Distribution
Value Chain: Acer
Invest
Capture Demand
Great China, Asia,
US, Europe
Expansion
Individual, Business,
Government
Solution & Delivery
Global
Suppliers
Support
Tech
Support
Global
Assembly
Service
R&D
Strategy
Both these two Asian PC makers are expanding
to the U.S. market by acquiring U.S. companies.
Lenovo bought IBM’s PC business. Acer bought
Gateway. They are both more on the assembly
side and not much on the service/consulting
side.
Global
Logistics
Sales &
Marketing
Distribution
Value Chain: Dell
Manufacture of
Components by
suppliers.
Software and
Peripherals
Customized
assembly of
PCs as orders
from buyers
come in
Custom orders
received and
customer input.
Sales and Marketing
Purchase by
PC Users
Services and
Support
•Infrastructure
consulting
•Deployment
•Asset recovery
and recycling
•Training
•Support
•Managed
Services
•Dell Financial
Services
Value Chain: Asus
Manufacture of
Components by suppliers
and subsidiaries:
Chips, Logic IC, PCP,
Connectors, DRAM
3C: computer,
communication, and
consumer electronics
Software:
3D AutoCAD, Ultra
Mobile PC
Decentralized
Sales Force
Customer
Dell: Box.net partnership
Services and
Support
Purchases by
PC Users
Box.net provides post
purchase support. Users can
create content on their
computers and upload it to
Box.net to be accessed from
any location. Web
applications also enable
Dell to approach Box.net
from the Software and
Peripherals angle and
customize different
memberships to different
customers.
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!