1. Dell’s business strategy
Value proposition
Customized, low-cost product with fast delivery
Target customers
Primarily corporate customers (77% businesses and government institutions and 18% home and small office users)
Critical capabilities
Customized PC’s, efficient manufacturing process (production process took 1 ½ days while it took competition 4-5 weeks to get to the end consumer), just-in-time delivery of parts, close relationship with shippers (e.g. monitors were sent directly to the customers instead of being sent to Dell), great customer support
Strategic positioning
Type of advantage: lower cost – most savings are passed through to the end consumer
Competitive scope: narrow – while the competitive set offered a broad range of computers (PC up to fail-safe servers), Dell focused on PC (96.8% of revenue came from PC sales)
Dell employed a cost based focus strategic positioning
2. As noted under the critical capabilities, Dell’s competitive advantage through lower costs manifested in all of the value chain activities: inbound logistics, input suppliers (suppliers are co-located), assembly (build-to-order), outbound logistics (no unnecessary shipments back and forth), distribution channel (eliminating middlemen), and product service (online and on-site 24/7 support).
• Eliminating middlemen in distribution resulted in the following savings:
o No buyback or price protection since Dell was not dealing with resellers and distributors
? 2.5 cents on every dollar of revenue, savings of $0.5bn
o Total addition to gross margin in 1994 is 12% as shown in Exhibit 7.
? When D ...