BUSN 6200 Fall2-2010-Class Assignment#3

Fine Student Name: Alexander Ruijs, Andreas Weege , Ashim Kayastha, Paul Silanontanalysis.

Suggest finding a main idea and elaborat supporting facts/numbers. This will help Case: Starbucks write up coherent and the argument stro 1. Think of the company that you are familiar with. List out those resources that contribute to their competitive advantage. Resources Competitive advantage Tangible resources Coffee beans Top quality, fresh-roasted, whole-bean coffee Coffee shop In various location around the world Intangible resources Employees Reputation Innovation

Highly motivated employees Biggest brand name in the coffee industry and relation with customers for high quality Management team always looking for new ideas and products. E.g. Frappuccino Consistent expansion strategy Outstanding customer service

Organizational Capabilities Firm infrastructure Excellent leadership

2. What characteristics must a resource possess in order for it to sustain the competitive advantage? Staying innovative, having consistent quality, being reliable, keeping cost as low as possible, differentiate and keeping your brand image high helps to gain competitive advantages. So, the resources of the company should be valuable, rare, difficult to imitate and without substitutes to sustain the competitive advantages. (Refer exhibit 1.1for Starbucks sustainable competitive advantages) 3. What are the companys key capabilities? Starbucks has their own coffee bean roasting facilities They have their own distribution channels Top quality, fresh-roasted, whole-bean coffee Highly motivated employees Biggest brand name in the coffee industry Presence in various countries Case 3: Dell Computer 1. How and why did the personal computer industry come to have such low average profitability? The personal computer industry come to have such low average because in the external environment there is a higher demand for the personal computers and in the internal environment the cost of producing PCs is cheaper. And also the product differentiation is low, cost is low, and existence of substitute is high due to which there is high competition and profit is low.

BUSN 6200 Fall2-2010-Class Assignment#3 Student Name: Alexander Ruijs, Andreas Weege , Ashim Kayastha, Paul Silanont

2. Why has Dell been so successful? Comment on its value chain and key capability. Dell has been successful because of their business strategy i.e. build to order and mass customization and also of their value creating activities. (Refer exhibit 1.3 for Dells value chain analysis). 3. What is Dell competitive advantage over Compaq in serving a corporate customer? Give some example on how to quantify this advantage. Is this competitive advantage sustainable? Dell is the direct contact for with sales and support to the corporate customer, while Compaq need to get the feedback through its retail channel. This gives dell the benefit to directly react in case of production problems. Dell also has subcontractors serving corporate accounts offering service directly at the client and having a centralized call center. They even train the service personnel of the client. Dell knows directly what the corporate account needs and can boost sales and service. Dells just in time operation is another advantage for serving corporate customers. Just in Time allows flexible demand and quick delivery times with only 7 days of inventory turnover, compared to Compaq who had 23 days of inventory turnover. While Compaq PCs still need customization at the client to equip it with specific software, Dell offers an all in one package directly installing in Dells manufacturing plant the client software and even add the client label on it. Corporate customer reported to save $ 500.000. Dells advanced assembly technology allows them to reduce assembly time by 75%. This is archived by a group workstation (cell) approach, were one team can directly assemble the final product, avoiding traditional long assembly lines. A PC from Dell can be shipped within 5 to 6 days after order. Compaq and other competitors are trying to copy Dells competitive advantages especially of Just in Time delivery. As of 1997 they are not effective to change their business models. In the long term they might be able to copy the business model and Dell might lose the competitive advantage.

4. How effective is the competitors responses to Dells challenge? What is the impact to Dells competitive advantage? Can we quantify the impact? The competitors business model of having external retail involved is not simple in short term to adapt Dells business model of direct retailing and Just in Time manufacturing. In order to have Just in Time delivery a close collaboration with the supplier is needed, which requires time to setup. Hewlett Packard setup time is expected to be 3 years until inventory and cost reduction 2

BUSN 6200 Fall2-2010-Class Assignment#3 Student Name: Alexander Ruijs, Andreas Weege , Ashim Kayastha, Paul Silanont

goals can be archived. Furthermore, the approach is consolidation as for example Compaq in 1997 purchased DEC and become the second largest PC Company. Another strategy to offer value added service such as special interest pre installed software and offering bundled Internet access with the PC purchase. Analyzing the market growth from 1996 to 1997 Dell still maintained the highest market growth of 55%, well above the industry average of 15%. Since many activities of Dells competitors are long term oriented there is no impact to Dells competitive advantage in the time frame 19961997. Looking at the financial data for the time frame 1996-1998 Dell is on track to strengthen its growth.

BUSN 6200 Fall2-2010-Class Assignment#3 Student Name: Alexander Ruijs, Andreas Weege , Ashim Kayastha, Paul Silanont

Exhibit 1.1: Starbuck resources and sustained competitive advantage Starbuck Resources and Sustained Competitive Advantage
Resources High quality coffee beans Over 18,000 locations worldwide Brand name Excellent customer service Adaptability to customer needs Store expansion capability Valuable Rare Difficult to imitate Without Substitutes Implications Temporary competitive advantage Temporary competitive advantage Sustainable competitive advantage Sustainable competitive advantage Sustainable competitive advantage Competitive parity

Yes Yes Yes Yes Yes Yes

Yes No Yes Yes Yes No

Yes Yes Yes Yes Yes No

No No Yes Yes Yes No

Exhibit 1.2: Value chain of Starbucks

Firm Infrastructure

Chain value activities, they have world- wide recognized brand name that they dont have to advertise in the media about their products. Margin Training, employee benefit plan, two way communication between the employees and management Starbucks website for purchase of specialty items and customer feed back Purchase of high quality beans , and the location of the coffee is carefully chosen Setting Contract With coffee farmers purchasing of best quality coffee beans roasting the coffee beans and distributing to other subsidaries they have over 18000 stores worldwide high quality service, brand name, motivated HR, Margin premium price

Human resource management Technology development Procurement

Partnering With Vendors

Purchasing goods

Managing & distributing inventory

operating stores

Marketing and Selling

BUSN 6200 Fall2-2010-Class Assignment#3 Student Name: Alexander Ruijs, Andreas Weege , Ashim Kayastha, Paul Silanont

Exhibit 1.3: Dell value chain

Firm Infrastructure Human resource management Technology development Value creating activities, value integration and information sharing

Low employee turnover

????

Margin

Lagging behind in technology research and development Partnership with suppliers, information sharing with suppliers, mass customization and build to order Just in time, cell manufacturing, delivery at home aggressive advertisement, online service, telephone customer Margin

Procurement

locating near wide range of vendors communication

mass customization support .

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Services

Exhibit 1.4: Dell Competitive analysis checklist Threats of new entrants is high when Economies of scale are Product differentiation is Capital requirements are Switching costs are Incumbents control of distribution channels is Incumbents access to raw materials is Incumbents access to government subsidies is High Low X X X X X X X Power of suppliers is high when Concentration relative to buyer industry is Availability of substitute product is Importance of customer to the supplier is Differentiation of the suppliers products and services is Switching costs of the buyer are Threat of forward integration by the supplier is High X Low

X X X X X

Threat of substitute is high when The differentiation of the substitute product is

High X

Low

BUSN 6200 Fall2-2010-Class Assignment#3 Student Name: Alexander Ruijs, Andreas Weege , Ashim Kayastha, Paul Silanont

Rate of improvement in priceperformance relationship of substitute product is

Intensity of competitive rivalry is high when: Number of competitors is Industry growth rate is Power of buyer is high High Fixed costs are when Storage costs are Concentration of X Product differentiation is buyers relative to Switching costs are suppliers is Exit barriers are Switching costs are Strategic stakes are Product differentiation of suppliers is Threat of backward X integration by buyers is Extent of buyers profits is Importance of the suppliers input to quality of buyers final product is

High X Low X X X X X X

Low

X X X

X X

Conclusion Dell Competitive analysis checklist: Threats of new entrants in Dells case is medium Power of suppliers is high Power of buyers Threat of substitute Intensity of competitive rivalry is high 6

BUSN 6200 Fall2-2010-Class Assignment#3 Student Name: Alexander Ruijs, Andreas Weege , Ashim Kayastha, Paul Silanont

Exhibit 1.5: Dell resources and sustained competitive advantages Dell Resources and Sustained Competitive Advantage
Resources Just-in-time operation Partnership with suppliers Brand name Proprietary assemly techology Mass customization Supplier management system Valuable Rare Difficult to imitate Without Substitutes Implications Temporary competitive advantage Competitive parity Sustainable competitive advantage Temporary competitive advantage Temporary competitive advantage Temporary competitive advantage

Yes Yes Yes Yes Yes Yes

Yes No Yes Yes Yes Yes

No No Yes No No Yes

No No Yes No No No

Exhibit 1.6: SWOT analysis of Dell Strength 7 Low Inventory Low Turnover rate Mass Customization Partnership with Suppliers JIT Location near vendor No Showrooms Low Innovation Service delay Quick time to market Customization

Weaknesses

Opportunities

BUSN 6200 Fall2-2010-Class Assignment#3 Student Name: Alexander Ruijs, Andreas Weege , Ashim Kayastha, Paul Silanont

Threats

Direct Sales Business model can be copied High Competition Low margins