Managing Digital Organizations
Case Study: DELL & Cisco
Team 6
04/25/05
Arsalan A. Lodhi
Pankaj Luthra
Daniel M. Li
Managing Digital Organization
DELL Inc – Company Profile
 52wk range:
32.71 – 42.57
 Historical Perspective: established - 1984
Year
Stock Price Range
1990-1991
12.00 – 33.50
1995-1996 77.37 – 61.88 (2:1 stock split on 10/95)
2000-2001
44.06 – 28.50
2004-2005
35.50 – 39.16
 Total Employees: 55,200
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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-Mar99 [2:1]
Managing Digital Organization
DELL Inc - TIMELINE
1983--
Michael Dell starts business of pre-formatting IBM PC HD’s on
weekends
1985-1986--
$6 million sales, upgrading IBM compatibles for local businesses
$70 million sales; focus on assembling own line of PC’s
1990--
$500 million sales; with an extensive line of products
1996-1997--
Dell goes online; $1 million per day in online sales; $5.3B in annual sales
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
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Managing Digital Organization
DELL Inc – Company Comparison
DIRECT COMPETITOR COMPARISON
DELL
HPQ
IBM
SUNW
Industry
Market Cap:
89.29B
60.17B
121.16B
11.79B
112.93M
Employees:
55,200
151,000
329,001
32,600
341
Rev. Growth (ttm):
18.70%
9.40%
8.00%
-2.20%
6.20%
Revenue (ttm):
49.21B
81.85B
96.95B
11.20B
116.36M
Gross Margins (ttm):
18.32%
23.87%
37.42%
40.88%
23.94%
3.04B
3.50B
8.25B
645.00M
-153.00K
Net Income (ttm):
Above Data shows DELL is a perfect example of a Lean Machine
 Enterprise System: servers, workstations, storage, network products
 Client Systems: notebooks, PC, printing, imaging systems, software and peripherals
 Dell Financial Services (DFS) – joint venture with Citi group
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Managing Digital Organization
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.
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Managing Digital Organization
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 products
Introduce configurators for high-end server and storage products
Source: Rob Rosenthal, Dell’s B2B web site strategy, October 2003, IDC #30202
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Managing Digital Organization
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
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Managing Digital Organization
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
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Managing Digital Organization
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
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Managing Digital Organization
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
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Managing Digital Organization
Cisco Systems, Inc – Company Profile
 52wk range:
17.22 – 24.20
 Historical Perspective: established - 1984
Year
Stock Price Range
1990-1991
23.75 – 68.00
1997-1998
63.63 – 92.87
2000-2001
109.94 – 18.45
2004-2005
24.36 – 17.50
 Total Employees: 34,000
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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-Sep98 [3:2], 22-Jun-99 [2:1], 23-Mar-00 [2:1]
Managing Digital Organization
Cisco Systems, Inc - Timeline
1984--
Founded by Len Bosack & Sandy Lerner (computer scientists from Stanford)
1989-1990--
$27M sales with only 3 products and 111 employees
$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.
Cisco becomes the first company in history to achieve a market capitalization of
$100B in 14 years. $8.5B in total annual sales.
1998--
2000-2001--
$18.9B in sales
$22.3B in sales
2005--
$23.6B in sales
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Managing Digital Organization
Cisco Systems, Inc
Cisco Performance
40000
30000
25000
20000
15000
10000
5000
Year
Revenue
|
05
20
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
0
19
Revenue in Millions
35000
Managing Digital Organization
Cisco Systems, Inc – Company Comparison
DIRECT COMPETITOR COMPARISON
CSCO
COMS
JNPR
NT
Industry
Market Cap:
112.67B
1.20B
12.30B
11.44B
101.10M
Employees:
34,000
1,925
2,948
35,160
248
Rev. Growth (ttm):
16.80%
-25.10%
90.50%
-3.60%
12.90%
Revenue (ttm):
23.58B
657.95M
1.56B
10.48B
61.74M
Gross Margins (ttm):
67.82%
37.70%
69.27%
41.30%
39.69%
5.39B
-156.22M
177.64M
305.00M
-690.00K
Net Income (ttm):
Cisco is the Undisputed Market Leader
 Master of Network Infrastructure
-The company on which Internet runs
-Supplies network equipment to wide-range of industries
-85% market share in the Internet switching market
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Managing Digital Organization
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)
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Managing Digital Organization
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
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