AGENDA FOR TODAY 8:30 - 9:20 Managing in the physical and virtual worlds 9:20 - 9:30 Break 9:30 -10:00 Group discussion 10:00- 11:00 Case DELL ONLINE 11:00 - 11:10 Break 11:10 - 12:00 Exploiting the virtual value chain

For Tomorrow Please prepare: WEBVAN

Managing in the physical CEDIR Program Summer 2001 Professor Ramiro Montealegre Managing in the physical and virtual worlds

The Value Chain Firm Infrastructure M Human Resources Management A R Technology Development Procurement M A R G I N N I G R A M Marketing and Sales Inbound Logistics Outbound Logistics Operations Service

Internet Value Chain: Customer Relations Capability Benefits to Company Opportunities for Advantage Marketing and Sales and Support and Product Research Distribution Customer Feedback Data for market Research new Access to customer research customers comments on-line Establishes Low cost More staff in contact consumer response distribution with the customer to new products method Environmental Multiple contact Immediate response Scanning points at no to customer problems incremental cost Incremental market Lower cost Enhanced customer share margins satisfaction Source: Cronin 1994

The Customer Continuum CUSTOMER NEEDS INTERNET RESOURCES company material home page new products, announcements MARKETING gopher server specific information newsgroups direct e-mail product description commercial platforms ordering options SALES privacy enhancements remittance on-line electronic catalogs individual problem resolution help desk changes & updates SUPPORT fixes & updates general product support user discussion groups Source: Cronin 1994

LOW TOUCH PRODUCTS WINS US online transactions in 2000, ($bn) 0 2 4 6 8 Computer h/s Travel Financial brokerages Collectibles Music/video Books Clothes/sporting Flowers/cards/gifts Department store Event tickets Consumer electronics Automotive Home/garden Toys Food/wine Source: Boston Consulting Group

Internet Value Chain: Inputs from Suppliers Capability Benefits to Company Opportunities for Advantage Pricing and Delivery/Order/Tracking Product Ordering On-line Inventory Support Easy, efficient Faster turnaround Direct access to access expertise Information Improved Interactive constantly updated planning Not locked in to Less inventory Faster problem proprietary system stockpiled resolution Lower cost of Faster, more flexible Improved reliability obtaining materials delivery and performance Source: Cronin 1994

B2B E-Commerce Projections 1,200 1,000 800 600 400 200 $ Billions 1999 2003 U.S. World Source: IDC

Internet Value Chain: Internal Operations Capability Benefits to Company Opportunities for Advantage Global R&D/ Collaboration Location-independent connectivity sharing/distributed resources Work Savings in Facilitates business Flexible work telecommunications partnerships and arrangements joint ventures Improves connec- Shortens develop- Telecommuting and tions to business ment time contract employees partners/customers Promotes global Disseminates Virtually teams based awareness resources more on expertise, not broadly location International Flexibility & effectiveness Increased reach in information-based activities productivity Source: Cronin 1994

Case Discussion: DELL ONLINE CEDIR Program Summer 2001 Professor Ramiro Montealegre Case Discussion: DELL ONLINE

Integrated Electronic Commerce The Power of Virtual Integration Suppliers Dell Customers Integrated Electronic Commerce Enhanced velocity throughout supply chain Advantaged relationships Trading inventory for information Cost reduction for all parties

Dell’s Internet Objectives Why Dell & the Internet Dell’s Internet Objectives Differentiate Dell Dell is building more customer connections than its competitors Opportunity for industry leadership Extend the Direct Model Dell can offer more services and information than indirect/channel Opportunity for increased customer loyalty and penetration Compelling Economics Greater leverage of investments in staff, marketing, and infrastructure 1 2 3 Make it easier to do business with Dell Reduce the cost of doing business for both parties Enhance customer relationships`

Dell Online History Late 1980 1994 1995 Early ‘96 Late ‘96 Early ‘97 Current ‘99 REVENUE Q1=$5M/day Q2=$6M/day Q3=$10M/day E-commerce is launched on www.dell.com Q1=$1M/day Q2=$2M/day Q3=$3M/day Q4=$4M/day 80,000 online visits per week 225,000 online visits per week TRAFFIC 400,000 online visits per week 2,000,000 online visits per week MILESTONES Dell launches an FTP site for file downloads www.dell.com launched including tech support content Configurator generating online quotes is launched Marketing content; Premier Pages (SM) Service begins Online store launched Over 200 Premier Pages (SM) Service Over 10,000 Premier Pages Asia/Europe launch websites Dell Tech launched in UK; 30% online revenue int’l INTERNATIONAL Websites in 36 countries; Japan store launches

The Turning of Dell’s Business eSupport B2B Commerce Customer Care Premier Pages Value Chain B2C Commerce Share data and develop common applications to eliminate redundancy and ensure consistent experience Recruiting Internet Data/Common Services Intranet Role Specific Applications Purchasing - supply chain management Marketing - product site content management Sales - order management and customer specific content SCM - configuration management Product Engineering - tech support content Customer Care - service content HR - job postings Manage the Business Applications Intranet applications, including: Financial reporting Pay and Performance Mgmt. Benefits changes Corp. Director

Dell’s Activity System Relationship marketing Knowledge- able Clientele Direct Sales Model Reduced parts & finished goods inventories Transactional marketing Monitors shipped directly Dell Online Cost Structure Advantage Customized Service Just in time ordering Build-to order computers Few ‘touches’ per machine Training and education campaign Fewer suppliers One Stop Shopping Newer parts than competitors High quality products

Lessons Learned Dell On-Line Case A good example of maintaining competitive advantage through the entire system of activities. Provides an exploration into a company whose strategy is dependent on IT and the Internet. Provides insight into the strategic development of systems of activities, rather than individual activities to achieve sustainability and a unique Business model that is hard to duplicate.

Exploiting the virtual value chain CEDIR Program Summer 2001 Professor Ramiro Montealegre Exploiting the virtual value chain

Building the Virtual Value Chain Inbound Production Outbound Marketing Sales Physical Value Chain Virtual Value Chain

Exploiting the Virtual Value Chain Inbound Production Outbound Marketing Sales Physical Value Chain Virtual Value Chain Inbound Production Outbound Marketing Sales

Value Matrix: Building Relationships Physical Value Chain Gather Organize Select Synthesize Distribute Virtual Value Chain New Markets New Markets New Markets

Implications for Managers The Law of Digital Assets New Economies of Scale New Economies of Scope Transaction-Cost Compression Rebalancing Supply and Demand