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1、The Value Chain Analysis of DellAbstractIn the business world, there are several classic business models that can evaluate a company from different perspectives. The value chain framework is a powerful analysis tool for strategic planning of a corporation. It creatively views a corporation as a seri
2、ous of value adding activities. This essay attempts to use the value chain framework to analyze one famous corporation Dell Inc. and tries to figure out how Dell achieves the value creation objective in each separate activity.Key words: Dell Value chain Marketing and sales Logistics Information syst
3、em 1. IntroductionDell Inc. is a reputable multinational information technology corporation. Funded in 1984 by Michael Dell, the corporation has become one of the worlds largest computer manufacturers in merely two decades. Many studies have been done to explain the huge success of Dell from various
4、 angles, such as corporate strategy, organizational structure, etc. However, few researches touch upon the overall picture of Dell as a value chain. This essay aims to analyze Dell with value chain framework which is composed of two basic categories of value creation activities: primary activities a
5、nd support activities.The following sections attempt to elaborate on the value chain framework and analyze Dell in depth with the theory. Part two provides an overview of the value chain theory, the original Porters (1985) version and Hills (2003) version in the textbook International Business. Part
6、 three portrays Dell as a value chain and analyzes the value creation activities in the corporation.2. Literature review2.1 Porters (1985) value chain Porter (1985) identifies a set of interrelated generic activities to analyze a firms value-creating process and to figure out a firms competitive adv
7、antage. Products pass through all activities of the chain, and at each activity, the product gains some value.Porters value chain is depicted as below:Support ActivitiesFirm InfrastructureHuman Resource ManagementTechnology DevelopmentProcurement Service Marketing andSalesOutboundLogistics Operation
8、sInboundLogisticsFigure 1 Porters value chainPrimary Activities2.2 Hills (2003) value chain in International BusinessHill (2003) states that one important objective for most firms is to maximize the value of the firm; thus managers should pursue strategies that increase the profitability of the ente
9、rprise. Since value creation is the difference between the value of product to an average consumer and the cost of production per unit (V-C), two strategies can be carried out to increase profitability: differentiation (raising V) and low-cost strategy (lowering C). The value chain is designed to po
10、rtray how the interrelated activities manage to create value by increasing product attractiveness and controlling cost in production, marketing and sales, materials management, R&D, human resources, information system, and firm infrastructure.Hill categorizes the value creation activities as primary
11、 activities and support activities. “Primary activities have to do with the design, creation, and delivery of the product; its marketing and its support and after-sale service.”(p.268) “The support activities of the value chain provide inputs that allow the primary activities to occur.”(p.269)Hills
12、value chain framework is similar with Porters. It is illustrated as follows:Support ActivitiesInformation SystemLogisticsHuman ResourceCompany InfrastructureCustomerServiceMarketing andSalesProduction R&D Primary activitiesFigure 2 Hills value chain3. The value chain analysis of DellHills value chai
13、n framework is developed from Porters. In Hills model, technology development is placed among primary activities (R&D) and logistics are put into support activities. Given the different functions of primary and support activities, and the changes in the business environment in recent years, Hills fr
14、amework is believed to have some improvements. Therefore, this essay adopts Hills value chain to analyze Dell. In the following parts, detailed evidence of Dell will be provided for analysis under the value chain framework.3.1 Primary activitiesPrimary activities are those that are directly involved
15、 in creating value for customers. In Dell, research and development, production, marketing and sales, and customer service are of great importance to the value creation of the corporation.3.1.1 Research and Development (R&D)Research and development is defined as creative work undertaken on a systema
16、tic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of knowledge to devise new applications by Organization for Economic Co-operation and Development (OECD). The R&D activity in Dell is effective in four ways.First, the co
17、re of Dells innovation approach remains an unwavering commitment to deliver new and better solutions that directly address customer needs. The company talks to its customers frequently about “relevant technology”, listening carefully to customers needs and problems and endeavoring to identify the mo
18、st cost-effective plans. The customer-oriented approach makes its products more attractive to consumers. As a result, the value of product to consumer increases.Second, Dells R&D efforts now span the globe, driven by some of the industrys foremost product designers and engineers. Dell has establishe
19、d R&D centers in Silicon Valley, Santa Clara, Dublin, Israel, Bangalore, Shanghai, etc. These centers take in talents of various backgrounds who have more understanding of the local customer tastes and preferences. Their innovations of products are more tailored to the local market and their designs
20、 of production processes are more suitable to the local manufacture.Third, Dell partners, rather than competes, with top industry technology suppliers and original development manufacturers. Dell steers enabling industry standards and technologies through industry groups and strategic partners. By s
21、haring and quickly updating new technology, the initial stage of product life span can be shortened; the cost of production can be reduced as well.Forth, Innovation inside Dell is more about how one produces, packages and markets a product rather than improvements in the product itself. Although Del
22、l has some competitors who are spending 8 to 14 percent on R&D, the companys financial reports suggest its R&D model is more cost-effective. Research and development is one way Dell tamps down costs. The company devotes 5 percent of its bottom line to this area, much less than its rivals.In summary,
23、 the research and development activity of Dell achieves both raising value and lowering costs. Hence Dell adds more value than the industry average in this section of value chain.3.1.2 ProductionRivlin (2004: C2) reported that Dells executives study the assembly process with the intensity of Alfred
24、Kinsey and his researches. They wheel in video equipment to examine a work teams every movement, looking for any extraneous bends or wasted twists. In this way, costs could be reduced to the minimum in the assembly line.Moreover, Dell has begun to outsource its hardware production to its manufacturi
25、ng partners since 2008. Dells competitors such as Hewlett-Packard and Acer have long-standing relationships with such partners. Dell is actually one step behind the trend. However, the change started from 2008 shows that Dell realized the low profit margin in production section and switched its focu
26、s from manufacturing to other activities bringing more value to the corporation.One main advantage of outsourcing is cost-reducing. Few overhead expenses will incurred and there is also tax benefit for outsourcing. 3.1.3 Marketing and salesMcCarthy (1960) came up with four elements of market mix the
27、ory: Product, Price, Place and Promotion (4P). This essay adopts the 4P model to analyze Dells marketing from value creation aspect.a. Product: For a long time, Dell prides itself for offering its customers with a high degree of product customization, which few of its competitors can match. Dell cat
28、egorized its products as “for home, for small and medium business, for public sectors and for large enterprise”. Customers are able to design their own products on the website. They simply go to Dells website, choose a computer using purpose, specify the desired sorts of processors, optical devices,
29、 and memory modules and so on, place the order and then expect to receive the customized product within a few days. The product differentiation strategy used here satisfies different customer needs and raises the customers expected value of Dell computers.b. Price: Dell mainly employs the cost-plus
30、pricing. The low price of Dell computers is largely due to its direct sales model as well as the incredible efficiencies it achieved via its supply-chain strategies. Dell can maintain its profit with a lower price because of its unique business model which its rivals cannot compete. c. Place: As men
31、tioned above, the main distribution channel of Dell is direct sales. The direct sales model markets and sells products directly to consumers away from a fixed retail location so that no fees incurred resulting from wholesalers and retailers. This model was a revolution and contributed a large portio
32、n to Dells development in the past. However, as Dell targets more on the international market, direct sales model is becoming too simple to cope with the complicated business environment worldwide. Therefore, Dell is moving forward with plans to begin selling PCs through solution providers, channel
33、partners and retail partners, instead of sticking to the pure direct sales model championed by company founder Michael Dell. In the new international market, a combination of both direct sales and indirect sales is believed to be a more cost-saving approach. But to maintain its low prices, Dell cont
34、inues to accept most purchases of its products via the Internet through direct sales. In China, orders online can be received by customers within 48 hours. Such convenience holds huge appeal for customers living a hectic life.d. Promotion: Dell has long been prestigious in producing high quality and
35、 low price business computers. Recently, Dell plans to diversify its business by targeting personal consumers, such as families and students. To do so, the company highlights Dells distinctive features, including customization and ease of ordering. Dell targets personal consumers through direct emai
36、l campaigns as well as television and print advertising. Additionally, Dell introduces a number of new products and features that personal users value, including enhanced graphics and sound cards as well as multicolored laptops. Dell also promotes larger servers and consulting services to its corpor
37、ate customers as a way of grabbing a larger share of the corporate market and competing with companies such as IBM. Dell relied heavily on direct-to-consumer marketing efforts (such as electronic and paper mailers) in promoting both its personal and corporate computer products. By promotion, custome
38、rs gain a better understanding of the Dell brand, products and special feature of customization. 3.1.4 Customer serviceDell has more than 43,000 Services team members in approximately 90 countries, 60 technical support centers and 7 global command centers dedicated to helping customers use technolog
39、y to reach their business goals. Corporate IT users rank Dell as the number one in customer satisfaction for services that include on-site expertise, on-site response time and phone support. Forrester Research recognized Dells initiatives to collect, interpret and react to feedback to improve custom
40、er experience with its Voice of the Customer Award.Customer satisfaction of products and services creates a perception of superior value of Dell in the minds of consumers, and adds to the intangible asset of the company.3.2 Support activitiesThe most important support activities in Dell that facilit
41、ate the primary processes are logistics and information system. The distinctive features in these two activities are the keys to value creation.3.2.1 LogisticsA unique feature of Dells logistics is that Dell virtually carries no inventory. Dell forces the suppliers to carry all the inventory and the
42、refore the suppliers also assume all the risks and costs associated with this inventory.When Dell receives and processes a customers order, it sends the order out to each individual supplier and the suppliers transport each part to a location where the product can be assembled. Then Dell simply asse
43、mbles the item and ships it out to the customer. Dell is not responsible for any inventory and even more incredibly does not have to pay for any unused parts.The most difficult part in this no-inventory logistics is to convince a supplier to guarantee that a certain number of parts will be in stock
44、and ready for use. From a suppliers point of view it would not be beneficial to assume all the risk of unused inventory. Dell solved this problem by choosing small suppliers and making sure that the majority of their business is done at Dell. Dell then leverages this position and coerces them into t
45、aking part in a logistics system that is clearly not beneficial to the supplier. In order for the supplier to allow this to happen, Dell has to keep sales high so that it can give the individual suppliers enough business to stay afloat and be profitable. This task is more than hard to accomplish, so
46、 Dell is one of the few companies that can offer a customizable product that can be assembled and delivered quickly to the consumer.Dell is the only company in computer manufacturing industry to use the no-inventory system and this system substantially reduces the cost and risk of logistics. This is
47、 one reason that Dell can afford year-round low-pricing strategy without reducing profit margins. Besides, the extremely high inventory turnover (estimated as 39.4 in 2010 by Forbes) indicates that less money is tied up and the company has sufficient cash flow to do other business operations.3.2.2 I
48、nformation systemDell has enhanced and broadened the fundamental competitive advantages of the direct model by applying the efficiencies of the Internet. Dell led commercial migration to the Internet, launching in 1994 and adding e-commerce capability in 1996. The following year, Dell became the first company to record one million USD in daily online sales. Today, Dell operates one of the highest volume Internet commerce sites in the world. The companys Web site, which runs e