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

1. Case Study: DELL & Cisco Team 6 04/25/05 Arsalan A. LodhiPankaj LuthraDaniel M. Li

2. DELL Inc – Company Profile • 52wk range: 32.71 – 42.57 • Historical Perspective: established - 1984 • 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-Mar-99 [2:1] |

3. DELL Inc - TIMELINE 1983-- Michael Dell starts business of pre-formatting IBM PC HD’s on weekends 1985--$6 million sales, upgrading IBM compatibles for local businesses 1986--$70 million sales; focus on assembling own line of PC’s 1990--$500 million sales; with an extensive line of products 1996-- Dell goes online; $1 million per day in online sales; $5.3B in annual sales 1997-- 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 |

4. DELL Inc – Company Comparison |

5. 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, Dell’s 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 HP’s core competency was product innovation and development, Dell’s expertise was in assembling and catering to business needs. |

6. 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 productsIntroduce configurators for high-end server and storage products Source: Rob Rosenthal, Dell’s B2B web site strategy, October 2003, IDC #30202 |

7. 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 |

8. 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 |

9. 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 Compaq’s 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 – Farmer’s market |

10. 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 |

11. Cisco Systems, Inc – Company Profile • 52wk range: 17.22 – 24.20 • Historical Perspective: established - 1984 • 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-Sep-98 [3:2], 22-Jun-99 [2:1], 23-Mar-00 [2:1] |

12. Cisco Systems, Inc - Timeline 1984-- Founded by Len Bosack & Sandy Lerner (computer scientists from Stanford) 1989--$27M sales with only 3 products and 111 employees 1990--$69M sales; goes public with market cap of $224M 1994--$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 1997-- Cisco reorganizes/aligns products and solutions into 3 customer segments: enterprise, small/medium business, and service provider. 1998-- Cisco becomes the first company in history to achieve a market capitalization of $100B in 14 years. $8.5B in total annual sales. 2000-- $18.9B in sales 2001-- $22.3B in sales 2005--$23.6B in sales |

13. Cisco Systems, Inc |

14. Cisco Systems, Inc – Company Comparison |

15. 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) |

16. 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 |