Managing Digital Organizations

Case Study: DELL & Cisco Team 6 04/25/05

Arsalan A. Lodhi Pankaj Luthra Daniel M. Li

Managing Digital Organization

DELL Inc Company Profile

52wk range: 32.71 42.57 Historical Perspective: established - 1984 Year Stock Price Range

1990-1991

12.00 33.50

1995-1996 77.37 61.88 (2:1 stock split on 10/95) 2000-2001 2004-2005 44.06 28.50 35.50 39.16

Total Employees: 55,200

Splits:10-Apr-92 [3:2], 30-Oct-95 [2:1], 09-Dec-96 [2:1], 28-Jul-97 [2:1], 09-Mar-98 [2:1], 08-Sep-98 [2:1], 08-Mar99 [2:1]

Managing Digital Organization

DELL Inc - TIMELINE

1983-Michael Dell starts business of pre-formatting IBM PC HDs on weekends $6 million sales, upgrading IBM compatibles for local businesses $70 million sales; focus on assembling own line of PCs 1985-1986--

1990--

$500 million sales; with an extensive line of products

1996-1997--

Dell goes online; $1 million per day in online sales; $5.3B in annual sales Dell online sales at $3 million per day; 50% growth rate for 3rd consecutive year, $7.8B in total annual sales.

2005--

$49.2B in sales

Managing Digital Organization

DELL Inc Company Comparison

DIRECT COMPETITOR COMPARISON

DELL
Market Cap: Employees: Rev. Growth (ttm): Revenue (ttm): Gross Margins (ttm): Net Income (ttm): 89.29B 55,200 18.70% 49.21B 18.32% 3.04B

HPQ
60.17B 151,000 9.40% 81.85B 23.87% 3.50B

IBM
121.16B 329,001 8.00% 96.95B 37.42% 8.25B

SUNW
11.79B 32,600 -2.20% 11.20B 40.88% 645.00M

Industry
112.93M 341 6.20% 116.36M 23.94% -153.00K

Above Data shows DELL is a perfect example of a Lean Machine

Enterprise System: servers, workstations, storage, network products

Client Systems: notebooks, PC, printing, imaging systems, software and peripherals
Dell Financial Services (DFS) joint venture with Citi group

Managing Digital Organization

DELL Inc The Success Secret

Internet coupled with Direct Business Model - sell directly to end customers instead of intermediate distributors, resellers. Virtual Integration - using sophisticated CRM, SCM systems at respective ends as well their integration - already integrated with 38 procurement and ERP systems across all its clients - vendors Ariba, SAP, PeopleSoft, J.D. Edwards Dell integrated with their ERP
(Source: Rob Rosenthal, Dells B2B web site strategy, October 2003, IDC #30202 )

Selling Points - Internet, B2B (Premier Pages), Phone-calls, Mass catalog mailings
Do not Just sell Products sell Values - client asked to put tags on their computers - proactive in solving clients pain points preloaded software

Dell was much less mature compare to IBM and HP at time when Internet took off required much less effort to adapt its systems to Internet technologies.
IBM and HPs core competency was product innovation and development, Dells expertise was in assembling and catering to business needs.
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Managing Digital Organization

Dell Inc The Success Secret

Web Penetration rate - What percentage of users contacted Dell based on information on given pages

Web failure rate - What percentage of users contacted Dell because users failed to find their information on web pages
Outstanding Question: what will matter most to customers moving forward ?

In IDC opinion: Introduce solution packages that focus on overall business goals instead of individual products Introduce configurators for high-end server and storage products

Source: Rob Rosenthal, Dells B2B web site strategy, October 2003, IDC #30202

Managing Digital Organization

DELL INC Same Business Model applicable to other Industries?

Other Industries for example IT Services is not yet mature enough to provide this kind of capabilities i.e. built-to-order by direct customer

IBM OnDemand initiative is a step towards that kind of mentality build-to-Order - rest of IT Services industry would take few years to provide this capability - IBM is the only one in position of providing such built-to-order services

Managing Digital Organization

Dell Inc Key Questions

Is the Direct Business Model a new model ? No, its not ! all the primitive businesses used to trade like this today hotdog stands all over Manhattan is an example of that model on small scale What new emerging technologies will push this further ? - SOA will help refine and innovate these and perhaps new similar kind of business models by reducing operational and transaction cost. - Web Services will remove human interaction further reducing cost for example: - SLA will be negotiated by software agents - Vendors selection based on their expertise will be automated - Long life Lithium ion batteries increased sales - RFID tags can further streamline the supply chain, inventory and shipment tracking process

Managing Digital Organization

Dell Inc Boundaries of Direct Business Model ?

Have other manufacturers been able to do this? Why or why not? Is this model bounded in the PC industry?
- Presently HP is using the Direct Model. Supposedly Compaqs strong direct sales model helped HP after the merger. Prices are in comparison to Dell.
Source - www.ecommercetimes.com/story/19385.html

- Compaq emulated the model before merger with HP.

Dell had better profitability management.
Source - http://www.findarticles.com/p/articles/mi_m0DTI/is_12_31/ai_111163644

- Local computer vendors

- B2B markets common meeting point for manufacturers and institutional consumers. - Classical example Farmers market

Managing Digital Organization

DELL Inc Information Orientation

Strong commitment to IT Practices
- Pre-installing software for Eastman Chemical, maintaining a corporate asset database for innovational support. - Integrating supply chain vendors with more precise demand forecast for business process support. - Premier Pages customize, buy and track systems, resolve tech issues for operations support.

Strong Information Management practices

- Restructuring delegates information resources management - Central source of information for sales force, tech support and executive management

Promoting Information Behavior and Values

- Internal evangelism campaign promote and increase awareness of Dell online

- Educating the sales force

Managing Digital Organization

Cisco Systems, Inc Company Profile

52wk range: 17.22 24.20 Historical Perspective: established - 1984 Year Stock Price Range

1990-1991 1997-1998 2000-2001 2004-2005

23.75 68.00 63.63 92.87 109.94 18.45 24.36 17.50

Total Employees: 34,000

Splits:18-Mar-91 [2:1], 23-Mar-92 [2:1], 22-Mar-93 [2:1], 21-Mar-94 [2:1], 20-Feb-96 [2:1], 17-Dec-97 [3:2], 16-Sep98 [3:2], 22-Jun-99 [2:1], 23-Mar-00 [2:1]

Managing Digital Organization

Cisco Systems, Inc - Timeline

1984-1989-1990-1994-Founded by Len Bosack & Sandy Lerner (computer scientists from Stanford) $27M sales with only 3 products and 111 employees $69M sales; goes public with market cap of $224M $1.13B sales; Cisco goes online with its Cisco Connection Online and becomes the first major supplier of Multiprotocol internetworking products to be awarded ISO 9001 certification Cisco reorganizes/aligns products and solutions into 3 customer segments: enterprise, small/medium business, and service provider. Cisco becomes the first company in history to achieve a market capitalization of $100B in 14 years. $8.5B in total annual sales. $18.9B in sales $22.3B in sales $23.6B in sales

1997-1998--

2000-2001-2005--

Managing Digital Organization

Cisco Systems, Inc

Cisco Performance 40000 35000

Revenue in Millions

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Managing Digital Organization

Cisco Systems, Inc Company Comparison

DIRECT COMPETITOR COMPARISON

CSCO
Market Cap: Employees: Rev. Growth (ttm): Revenue (ttm): Gross Margins (ttm): Net Income (ttm): 112.67B 34,000 16.80% 23.58B 67.82% 5.39B

COMS
1.20B 1,925 -25.10% 657.95M 37.70% -156.22M

JNPR
12.30B 2,948 90.50% 1.56B 69.27% 177.64M

NT
11.44B 35,160 -3.60% 10.48B 41.30% 305.00M

Industry
101.10M 248 12.90% 61.74M 39.69% -690.00K

Cisco is the Undisputed Market Leader

Master of Network Infrastructure
-The company on which Internet runs
-Supplies network equipment to wide-range of industries -85% market share in the Internet switching market

Managing Digital Organization

Cisco Systems, Inc Success?

Growth Strategy
- Outsource majority of production

- Strategic acquisitions and investments in other companies

Cisco uses the web more effectively than any other big company in the world
- Internet sales (1995)

- Cisco Connection Online configure, price, & order

- Customer support ($600M in savings) - Cisco Manufacturing Connection Online (B2B supply chain extranet) - Cisco Employee Connection

Supply Chain Management

- Remediation - Misled by the system? (2001)
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Managing Digital Organization

Cisco Systems, Inc Information Orientation

The Digital Firm
- Extensive Internet integration

- Close supply chain integration with suppliers

- Precise sales forecast system

Strong Information Management practices

- Reorganization along technology groups
- Centralized engineering and marketing

Future Strategies
- Growth through hot startup acquisitions - New markets - Expanded offerings in consulting and software