Value Chain Assignment

1. Value Chain Assignment 2008 MBA/ENG 290G International Competition in Technology

2. Team 1 • Team 1: Cloud 1Project: Software cloud • Franck Formis - franck_formis[at]mba.berkeley.edu • Vincent Wai-Shan Ng - vincentng[at]berkeley.edu • Jameson Slattery - jameson_slattery[at]mba.berkeley.edu • Robert Ka Chun Kong - rkong[at]berkeley.edu • Chuohao Yeo - zuohao[at]eecs.berkeley.edu

3. PC Value Chain Analysis MBA 290G.1 9/24/2008 Team 1: Franck Formis, Robert Kong, Vincent Ng, Jameson Slattery & ChuohaoYeo

4. Acer value chain and its dependencies • Apacer • AQR • Kingdom Corp. • Animeta System • Toshiba • Fujitsu • Sony • Hitachi • Mitsubishi • Lite-On • IBM • Ambit • Sumida • Sanyo • Wistron • BenQ • AMBIT • ALi • Aegis • Semiconductor • Yam Digital Tech. • Legend Tech. • RDC Semiconductor • Feiya Tech. • Channel Business Model – indirect • Resellers partnership • Global distributor • Acer Computer • Logistron Service • Broadwalk Capital Red – heavy presence by Acer Blue – no or light presence by Acer

5. Example Source: http://somo.nl/html/paginas/pdf/Acer_Incorporated_Company_Prof_2005_EN.pdf

6. Asus value chain and its dependencies • R&D center • Core technology center • Chips • Logic IC • PCB • Connectors • DRAM • Intel, nVIDIA etc • Procurement and material management center • Motherboard • LED display • Sound blaster • Eee PC • Eee PC • Ultra Mobile PC • phone • Sales, marketing and PM groups • Sales, marketing and PM groups Red – heavy presence by Asus Blue – no or light presence by Asus

7. Dell Value Chain Red – heavy presence by Dell Blue – limited presence by Dell

8. HP value chain and its dependencies • PSG • HP Labs • ODMs • PSG • ODMs • ODMs • CMs • Third-party vendors • PSG • CMs • OEMs • ODMs • Direct • Retailers • Resellers • Distribution partners • Independent distributors • OEMs • Independent software vendors • Systems integrators • PSG • TSG PSG – Personal systems group TSG – Technology solutions group Red – heavy presence by HP Blue – no or light presence by HP

9. Lenovo PC Value Chain Red – heavy presence by Lenovo Blue – limited presence by Lenovo

10. Comparison of PC Value Chains • Same core set of component and software suppliers across all PC vendors • Minimal feature differentiation across vendors • R&D still seen by most as a way to differentiate their products • Still little differentiation • Minimal R&D investments compared to other high-tech industries • Dell’s use of the direct sales model minimizes its reliance on distributors, retailers and other channel partners • HP and Lenovo are attempting to differentiate through software • HP “skunkworks” team working on an alternative to Windows • Lenovo could follow HTC’s strategy in mobile – develop a custom UI on top of Window • Oustourced vs. in-house manufacturing • Acer, Dell and HP outsource to EMS partners • Asus and Lenovo maintain manufacturing facilities while attempting to move up the value stream • Lenovo and HP are heavily reliant on “solution selling” – distributors, VARs and integration partners delivering PCs as a component of an overall service package • Lenovo is particularly reliant on IBM Global Services • HP Personal Systems Group relies on Technology Solutions Group and EDS • Consumer PC players rely on retailers – Best Buy, Circuit City, other category killers

11. Dell & Box.net • A partnership to offer online storage services for Dell’s Inspiron Mini 9 (subnotebook) • Dell’sbet on online computingrevolution (Data Center) • Potentially a similar spin-in strategythan Cisco ‘s (e.g. Andiamo, Nuova) • Link alliance throughpartnership to limitrisk (limitedfunding) instead of JV or M&A • Harness R&D efforts and impact on capital markets

12. Direction of PC industry • Vertical dis-integration • Most components are commoditized and outsourced • Focus on marketing, branding and distribution • Move from products to services (not only support) • PC value chain gets subsumed • Other parts play larger roles, needs for Corporate Governance

13. Key linkages in value chain • Companies provide support to their customers, or the next partner in the value chain • For example, if Dell sells through BestBuy, then BestBuy can provide support to the end user. If Dell sells the PC to end user directly, they have to provide customer support. • Customer feedback or the last part of the value chain provide linkage and guidance to every other partner in the value chain • End user preference directs R&D directions, component choices, and marketing strategies

14. Team 2 • Team 2: Cloud 2Project: Software cloud • David Exposito Cossio - david_exposito[at]mba.berkeley.edu • Rachel Vera Simon - rachel[at]ieor.berkeley.edu • Jon Wiesner - jon_wiesner[at]mba.berkeley.edu • Emrehan Kirimli- emrehan[at]berkeley.edu

15. Team 2: Jon Wiesner, Rachel Simon, David Exposito Cossio, Yanpei Chen, Emrehan Kirimli Comparing PC Value Chains Dell, HP, Acer, Asus, and Lenovo

16. Dell Firm Infrastructure Visionary founder. Worldwide operations. Currently cutting operating expenses: downsizing employees and facilities. Hedging activities protected from impact of weakening dollar. Human resource ~90,500 (majority abroad); activities associated with recruiting, development, and compensation of employees. Inbound Logistics Marketing & Sales Service Technological Development increased 22% this year to $610 million. Focus on shortening development cycle & tailoring regional solutions for international growth. Strengthening IT & sever offerings. Relationships over integration. Quality components. Flexible purchasing to adjust for cost, needs, quality, availability. Procurement • Just in time warehousing, minimal inventory; made-to-order for demand and no old technology Customized assembly of systems for user specs • Direct sales model – insight into customer needs • Online ordering Outbound Logistics • #1 in personal PC systems in U.S., and #2 worldwide • Adding new channels • Adjusting to new markets: payment upon delivery • High quality support, customer access to help info Operations

17. Hewlett Packard Firm Infrastructure 6 business units. Highly decentralized. Presence globally. In the process of reducing the number of facilities to reduce costs. Human resource 172000 employees. Extensive training for sales force. Inbound Logistics Outbound Logistics Marketing & Sales Operations Service Technological Development Strong R&D culture.$3.6B invested in 2007 (3,4% of net revenues). They capitalize with patents and licensing technology. Huge negotiating power. Always use secondary sources of supply. High volume to reduce costs. Procurement One of the biggest in High Tech industry Manufacture high volume of basic product configuration to maximize efficiencies • Extremely complex to reach huge number of customers Consumer and commercial customers. Currently reinvesting in increasing sales force HP offers consulting service and customer support. Very important for HP strategy

18. Acer Firm Infrastructure Spun off manufacturing operations in 2000. Low capital costs business model. Human resource Outside of administrative and management functions, all employees fulfill sales, marketing, customer service or R&D roles. Inbound Logistics Outbound Logistics Marketing & Sales Operations Service Technological Development Incorporates advanced feature sets in high end brands. Focused on worldwide growth in notebooks and ultra-mobile devices. Seeking scale and efficiencies through acquisitions in major markets Procurement • Outsources manufacturing • Spun off manufacturing operations in 2000 • Lean operating model • Minimize capital and operating expenditures • Channel Business Model • Purchased brand names in major markets (e.g., Gateway) • Brand positioning • Small investments in service offerings

19. Asus Firm Infrastructure Based in Taipei. Facilities in Taiwan, China, Mexico and Czech Republic. Presence globally. Human resource 8885 employees. A world class R&D design team. Inbound Logistics Outbound Logistics Marketing & Sales Operations Service Technological Development Emphasis on R&D, design. Simple, innovative products. Selected as 9th most growing tech company by Business Week. Big negotiating power. High volume to reduce costs. Procurement Production capacity: two million motherboards and 150,000 notebooks per month In the process of restructuring into three distinct operational units Great emphasis on Total Quality Management and fast delivery A significant amount of money for marketing, advertise on green products Emphasis on customer service. Trying to overcome the bad reputation in some countries

20. Lenovo Firm Infrastructure Four geographic segments, two major product groups. Presence globally. “Worldsourcing,” but mostly manufacture in China. Human resource 23000+ employees, ~17000 in China, ~2000 in U.S. Strong commitment to talent management. Inbound Logistics Outbound Logistics Marketing & Sales Operations Service Technological Development Emphasis on innovation – 17% annual R&D spending increase. Gains in market share driven by new products. Huge negotiating power in China. Committed to use diverse suppliers. Emphasis on trust, reciprocity, integrity etc. Procurement Trying to manufacture closer to key customer base. Major push to streamline supply chain and decrease end-to-end cost. Retail store network essential, especially in China Sponsoring Olympics etc. Vigorously trying to build the Lenovo brand. Emphasis on “customer intimacy” and support for SMB. Simplified product lines.

21. Value Chain Differences

22. Value Chain Dependencies Dell: • suppliers as it adopts a just-in-time manufacturing approach • customers as Dell uses a direct sales model HP: • suppliers as it uses many different parts to produce very different models • service as HP also delivers solutions with its big consulting division. Acer: • suppliers as it outsources manufacturing Asus: • consumers as Asus designs very innovative products according to the needs • product design team and green products Lenovo: • Chinese consumers and suppliers

23. Dell & Box.net Partnership Why Partner? • Allows Dell to continue to focus on product innovation and faster development cycles • Low barriers to entry ($200K) and insignificant revenue source (Dell would rather sell them servers) • Fragmented competitors with better brand recognition in space (e.g., Google, Yahoo, Microsoft, Mozy, etc.) • Doesn’t leverage Dell’s competitive advantage in manufacturing processes • Allows Dell to focus service offerings on higher value enterprise customers • Brand dilution

24. Future Projections • Possible directions of the industry: • Scenario 1: China completely overtakes U.S. as the largest computer market – Lenovo has advantage. • Scenario 2: U.S. remains the largest market – Dell has advantage. • Scenario 3: Server/datacenter segment completely overtakes consumer segment in terms of volume – quickest innovator has advantage. • Scenario 4: PC/cellular convergence, ultra-mobile PCs and ultra-capable cell phones – strong partnerships and large customer base has advantage. • Possible changes in the value chain: • Logistics know-how gradually spreads – even out the playing field there. • Ever higher quality products reduce the need for extensive/expensive service. • Commoditization of products means less brand differentiation. • Efficient operations & manufacturing vital to establish cost/value differentiation. • Marketing also vital – turning the PC into a fashion product like cell phones.

25. Team 3 • Team 3: Japan 1Project: New Product for Japanese Company • Gonzalo Antonio Baez Mendoza - gonzalobaez[at]berkeley.edu * • Ryan Stanley - ryan_stanley[at]mba.berkeley.edu * • Yanpei Chen - ychen[at]berkeley.edu * • Brian Gawalt – gawalt[at]eecs.berkeley.edu • Silvio Junqueira Filho - silvio_junqueira[at]mba.berkeley.edu *

26. PC VALUE CHAINS Gonzalo Baez Yan-Pei Chen Silvio Filho Brian Gawalt Ryan Stanley MBA290G, Sep 24, 2008

27. Acer Value Chain % of employees 4% 28% 56% R&D Design + Manufact. Marketing & Sales Distrib. Customer service + Sales support End customer In-house / Make Outsourced / Buy • Multi-product and services + multi-brand strategy • Time-to-market, scale and focus on customer needs as KSFs • Supply chain management business model

28. HP Value Chain R&D Services and assembly Markt. & Sales Direct distrib. Customer service + Sales support End customer R&D Manufacturing & assembly Indirect distrib. In-house / Make Outsourced / Buy • Shifting towards higher margin businesses adding software and services to portfolio • Reducing real estate and other unprofitable capital employed • Very dependent on key suppliers, such as Intel and Microsoft

29. Asus Value Chain R&D Their future: phones Design + Manufact. Low margin products outsourced Marketing & Sales Europe est’d. Working on Russia, China Distrib. Many products still OEM; joint distro nets for others Support Exclusive centers in India End customer • Recently spun off it’s 4C OEM businesses into two corporations, Pegatron (computer components) and Unihan (everything else) • ASUS brand heavily vested in EeePC product line • Ultimate strategy: compete on price thanks to new Intel direction • 80% of sales to top 3 customers (Apple)

30. Lenovo R&D Com- mitted to talent Dev. Design + Manufact. Moving closer to key cust. base Marketing & Sales Sponsorships (Olympics, etc) to build brand Distrib. Building retail store network Support Simpler product lines, SMB support, & “customer intimacy” • Procurement: Chinese roots grant large advantages in negotiations • Personnel: 75% Chinese, 9% US • Tech. Dev.: Most market share gains driven by new products End customer

31. Dell Value Chain R&D Build-to-order MFG Direct Sales Few Retailers Customer service End customer In-house Outsourced • Mass customization and online ordering of products • Direct sales approach as a totally customer-driven system • Customer service through outsourced call centers and repair agents

32. Dell & Box.net Partnership • Dell Inspiron users get 2 GB of storage absolutely free by signing up for a Box.net account through a direct link on their new notebook. • Box is offering affordable plans for users that need as much as 25 GB of online storage. Box.net R&D Build-to-order MFG Direct Sales Few Retailers Customer service End customer In-house Outsourced • Box.net: Online storage feature added to Dell Inspiron by end user • Dell and Box.net have very different core products so they • partner to complement an overall competitive product • Inspiron + Box.net = NETBOOK

33. Contrast Compare • Lenovo and Asus are both one-time OEM providers to giants trying to move ahead with their own branding • Not a great business for Ph.D.s! • Established Brands vs. Emerging Brands grown from one-time OEM

34. Where next? • Supply chain + logistics management become critical • Value-additive services as a differentiating factor • Commoditization of hardware manufacturing/assembly • Branding/marketing strategy become more important in differentiating products

35. Team 4 • Team 4: SAAS 1Project: SAAS applications • Lakshmi Jagannathan - ljaganna[at]eecs.berkeley.edu • Christopher Quek - chris_quek[at]mba.berkeley.edu * • John Michael Wyrwas - jwyrwas[at]berkeley.edu * • Christian Huth - huth[at]berkeley.edu * • Daisuke Tanaka – daisuke_tanaka[at]mba.berkeley.edu *

36. Value Chain Analysis: Personal Computers Christian Huth Lakshmi Jagannathan Christopher Quek Daisuke Tanaka John Michael Wyrwas

37. HP Value Chain • HP depends heavily on its partners – however HP is able to leverage its size to create favorable terms and prices • Like other competitors, they are heavily dependent on Microsoft and Intel

38. HP Divisions • Technology Solutions Group (TSG) (36% of revenue) • Includes: Enterprise Storage & Servers (ESS), HP Services (HPS), HP Software • Manages direct sales for volume and value products • Manages enterprise and public sector customer relationships • Drives HP’s vertical sales & marketing approach in communications, media and entertainment, financial services, manufacturing, and public sector • Personal Systems Group (PSG) (35%) • Manages SMB relationships and commercial reseller channels • Imaging & Printing Group (IPG) (27%) • Manages HP’s overall consumer related sales & marketing activities • Manages consumer channel relationships w/3rd party retail locations • Manages direct consumer sales online • HP Financial Services and Corporate Investments(2%)

39. HP Divisions TSG

40. Dell Value Chain

41. Dell Value Chain and Supplier Relationships • Suppliers: • Dell’s horizontal integration makes the company dependant on its suppliers to provide high quality/low cost computer parts in a “just-in-time” delivery cycle. Any disruptions in component availability has serious implications for Dell’s profitability. • Dell attempts to mitigate the power of suppliers by using multiple suppliers for the same components. This also reduces the risk that the company will experience a shortage of components. • In the case of a single supplier (Intel) Dell usually negotiates long-tern deals to reduce the variation in its cost structure. • Customers: • Dell’s customers include governments, large corporations, and individual consumers. • Dell generates significant revenue from government accounts. Maintaining these contracts is a crucial element to protect Dell’s profitability. • Dell tries to reduce customer power by diversifying its sales across different customer segments and geographies. No single customer accounts for more than 10% of Dell’s net revenue.

42. Acer Value Chain

43. Acer Value Chain and Supplier Relationships • Suppliers: • In 2000, Acer divested its majority ownership stake of Winston, its major supplier to focus on marketing and branding. Acer’s “New Channel” model focuses on a “Multiple-Suppliers, Multiple-Products, Multiple-Channels” strategy. • Customers: • Acer’s corporate strategy is to not compete with its channel partners, but rather create a win-win collaboration.

44. Acer Example Supply Chain Centre for Research on Multinational Corporations (SOMO), 2005

45. Asus Value Chain • Asus’s value chain is focused on manufacturing

46. Asus Value Chain Dependencies • Suppliers: • Supplier of raw materials (chips, DRAM, PCB etc.) like Intel, AMD, nVidia and Qimonda • Close relationship for product development necessary e.g. need to develop specific motherboard for each new chip • Customers: • Before foundation of separate holdings in 2008 conflict of interest • As a contract manufacturer also own brand – competing for same end consumer with manufacturing customers • Internal: • Contract manufacturing business is competing for volume from branded-business therefore effective processes are ensured

47. Lenovo Value Chain • Inbound Logistics • Lenovo outsources components that go into its final products to companies such as Intel and some other companies in China • Lenovo, like Dell, relies on speedy and just in time delivery of components and parts, keeping in mind low inventory costs, and customer’s satisfaction in terms of timely delivery of quality products • Transportation of these components and parts from outsourced companies is done by designated and committed transportation agencies that specialize and service just in this area; Lenovo micromanages these activities to a certain extent to make sure of its on timely delivery • Some of its assets come from the acquisition from IBM (for ex: ThinkPad series) • Operations • Lenovo’s processes, including production and other operation processes are conducted in company-owned global ‘hubs’ of excellence around the world • Main manufacturing (of IT and hardware) hub, and property holding and management occurs in the Chinese Mainland • Procurement Agency, group treasury, supply chain management, and other managerial processes occur mainly in Singapore (Lenovo’s base) • Most of its other operations are distributed around the world, in Netherlands, Sweden, and HongKong, just to name a few • Communication and collaboration amongst the different hubs is driven and managed by Lenovo’s strong management team

48. Lenovo Value Chain • Outbound Logistics • Lenovo uses external partners such as UPS and Fedex to get its product to its customers • Lenovo and the external partners work together very closely in each step of the distribution process, thereby providing the customers with the best service and satisfaction • All shipping and distribution questions are addressed directly by Lenovo • Customer Lenovo UPS/Fedex/External Partners • Marketing and Sales • Promotion and Sales is done through a network of channel partners, retail stores, Teleweb, and Lenovo authorized dealers across the globe • Lenovo also promotes environmental friendly ‘green’ products- ThinkPad X300 series is the first notebook to earn ‘greenguard’ certification • Acquiring a reliable/well-known company such as IBM has helped boost its products, especially ThinkPad and IdeaPad • Targets home users, small businesses, and large corporations, essentially covering the whole spectrum • Service • Best-in-Class Service within company- 24/7 Technical/Sales Support centers across the globe • Provides various channels for service around the world- Lenovo authorized service providers, partners, dealers, ‘SmartCentres’, and other repair/service locations

49. Lenovo Dependencies in the Value Chain • Suppliers: • Since Lenovo is horizontally integrated, it depends on the outsourced companies for in time delivery of quality products; like many companies, keeping the customer always in mind, time and quality becomes very important for Lenovo. Therefore, it is very dependent on the timely delivery from the companies in this horizontally integrated system • Manufacturing of most of its IT products is done in Chinese Mainland; therefore, relationship with China is critical • Customers: • Lenovo’s customers include home users, small businesses, and large corporations • Lenovo’s main customer is in China, bring in a total revenue of about 37%; Since China is a major supplier and customer, Lenovo is dependent on China in both areas and directs a lot of its marketing and sales towards the Chinese market • Operations and Marketing • Since Lenovo operates through different ‘hubs (countries) of excellence’ throughout the world to deliver its final products, it’s very much dependent on these hubs for excellent communication, collaboration and delivery of quality products • Any disruption/disagreement in this system is likely to cause big problems • Similarly, marketing is done across the globe; Lenovo’s management of retailers and other service entities around the world in order to assure best quality and service for its customers becomes critical

50. Comparison of the Value Chains Inhouse Manufacturing Outsourced Manufacturing Customization as Added Value Less customization Wide Spectrum of Products Fewer Products Focus on Product Development Commoditization Many Distribution Channels Fewer Channels Customer Service as Added Value Fewer Services