Matching Dell

Jonathan S. Leonard

Two Fundamental Strategies

Beat them on costs
Sidestep them with differentiation

Two Fundamental Strategies

Dell relentlessly drove down costs

Methods
Corporate Financial Comparisons? These are clouded by differences in Business Organization,
Product Mix, Industry Mix, Pricing, Cost
Allocation
Product level Comparison:
Apples to Apples

Five Forces Analysis
Bargaining Power of Some Suppliers (very high)
Proprietary standards + customer desire for compatibility
Microsoft and Intel positioned to extract profits from industry Other inputs are commodities

Bargaining Power of Customers (Low)
Resellers and retailers have some grip on end-user relationships, giving them ability to extract price protection, but users more sophisticated (and less in need of assistance) over time
Millions of customers

Five Forces Analysis
Intensity of Rivalry (very high)
Wintel standards little distinguishes machines of leading companies except price vigorous price competition
Growth of processing power outstrips growth in need for processing intense excess capacity and saturation fight for market share

Threat of new entry (high)
Capital costs of mfg facility low
Stream of low cost entrants (white-box makers) and contract manufacturers Absolute cost advantage difficult to maintain since inputs are available at fixed prices

Threat of substitutes (growing)
PDAs, phones,etc.
Alternative sales methods (online)

Industry Evolution
Technology and customer desire for compatibility means standard emerge that reduce the costs of switching
IBM relinquishes standards to Microsoft and Intel (oops).
Microsoft and Intel play cards well and use control of standard to extract profits
Looks like the CSD industry: all profits extracted by suppliers Industry Summary
The PC industry is highly