Value Chain and SWOT Analysis - Essay Example

(TO THIS IS THE PAGE) MODULE: ORGANIZATION: I. INTRODUCTION Strategic management is nonetheless one of the most indispensable areas for business entities. Devising, implementing, and executing a company's strategy have become top priority managerial tasks in any business organization. Thomson (2002) stated two reasons why strategic management this is so. First, strategic management is crucial as "there is a compelling need for managers to proactively shape how the company's business will be conducted (Thomson 2002)." Strategic management becomes a roadmap that guides the company in achieving its goals. It is highly important that the company designs and executes a specific strategy, as it will be the master plan with which it will pattern all its strategic moves and actions. Lack of a specific strategy is a "surefire ticket for organizational drift, competitive mediocrity, internal wheel-spinning, and lackluster results (Thomson 2002)." Second, Thomson argues that business entities need to devise and implement strategies, as the efforts of all the functional areas in the company should be molded into a "coordinated, compatible whole." A comprehensive strategy takes all the business units into account making each action mutually supportive. Without a well-laid out strategic plan, there will be no basis for uniting the efforts of all the functional areas, no clear direction on the business decisions and plans that the business takes, and no conscious business model for profit generation. Strategic management is therefore one of the most crucial areas in management. Coming up with a specific strategy, which will be the basis of company's actions, processes and decisions is a must. A well-crafted strategy is indispensable to the company's long-term success. It is therefore important that a business entity comes up with a unique strategy tailored for the achievement of its goals and objectives. Devising a purposeful and efficient strategy is a tedious task and managers should be armed with different techniques in diagnosing the company in order to prescribe the "right" strategy. Different models are employed to aid managers in this strategy making process. This paper will look at the two models, which are typically employed by managers in order to ascertain the needed strategy for the company namely, value chain and SWOT analysis. In order to fully look at the strengths and limitations of these models, they will be utilized to assess the performance of Dell Incorporated, one of the leading computer manufacturers and distributors. I. COMPANY PROFILE: DELL, INCORPORATED Michael Dell, who is also regarded as the computer industry's longest tenured chief executive officer, founded Dell Computer Corporation in 1984. Later in 2003, the company changed its name to Dell, Incorporated. The company is one of the most famous manufacturers of computer worldwide, which caters to the needs of individual and corporate clients with a very unique business concept (About Dell 2004). Dell Incorporated is headquartered in Rock Round, Texas. Dell, Inc. and its subsidiaries are actively involved in the design, development, manufacture, marketing, sale, and support of a range of computer systems and services worldwide. The main business activity of Dell is in the provision of products and services to customers, which enables them to establish their information technology and Internet infrastructures. Dell offers a wide array of products and services to its clients. The company's broad product line incorporates enterprise systems which includes servers, storage, workstations, and networking products; client systems, such as notebook and desktop computer systems; printing and imaging systems; and software and peripherals, including titles, monitors, plasma and LCD (Liquid Crystal Display) televisions, MP3 players, handhelds, and notebook accessories (Dell Inc. 2005). Aside from these products, Dell also offers a wide range of services, including information technology management services; professional services in technology consulting, application development, solutions integration, and infrastructure design; deployment services; support services; and training and certification services. In addition Dell also offers financing alternatives, asset management, and other customer financial services for its business and consumer customer base in the United States (Dell Inc. 2005). Due its wide ranged of product and services, Dell's client based is broad and diverse ranging from large corporate, government, healthcare and education accounts to small and medium business to individual customers. The company employs a direct marketing strategy in bringing its product to its target market (Dell Inc. 2005). Currently, Dell is the third largest computer manufacturer in the world. During 2004, the company generated a total net income of $41, 444 million. The company also generates employment for a total of 46, 000 employees. II. VALUE CHAIN ANALYSIS The Concept of Value Chain The concept of value chain was introduced and popularized by Michael Porter in his bestseller, Competitive Advantage: Creating and Sustaining Superior Performance (Value Chain 2005). In this book which was published in 1985, he clearly describes what value chain is. He has identified a set of interrelated activities common to a wide range of firms. Value chain is "a high-level model of how businesses receive raw materials as input, add value to the raw materials through various processes, and sell finished products to customers (What is Value Chain 2005)." This is possible, since Michael Porter, as stated above, has already devised a way to classify the activities of a firm in its operation. Value chain therefore, categorizes the "value-adding activities of an organization (Value Chain 2005)." Michael Porter classified business activities as either primary or support activities. Primary activities include: inbound logistics, production, outbound logistics, sales and marketing, maintenance. Meanwhile administrative infrastructure management, human resources management, R&D, and procurement comprise the support activities. The value chain framework is being utlized by managers in assesing the overall situation of a business entity and aids them in the strategic planning. Through a value chain analysis, customer value is maximized while costs of operation is minimized (Value Chain 2005). Figure 1 shows the primary and support activities in the typical value chain of a business organization. Primary activities involves those activitieswhich starts as the procurement of raw materials from suppliers to bringing them to customer. Inbound logistics involve the "receiving, warehousing, and inventory control" of the company's input. Meanwhile, operations comprise the value adding activities which transforms the raw materials into the final output. Outbound logistics are the activities which are necessary to bring the finished product to customers like storage, order fulfilment, warehousing, etc. Marketing and sales are the company's effort to attract buyers to purchase the products (The Value Chain 2004). Maintenance and ehancement of products' value through customer support and repair services. All these activities in the value chain are designed to add value that the customer derived from the company's products or services. Figure 1. Primary Activities of the Value Chain P Source: Adapted from Michael E. Porter, Competitive Advantage (New York: The Free Press, 1985), pp. 37-43 The main goal of support activities is to facilitate the primary activities. Procurement is essentially the purchasing of raw materials and other inputs utilized in value adding activities. On the other hand, technology and development, process automation and other technologies which are used to simplify and aid in the company's production. Human resource management involves the process of recruitment, development, motivation, and compensation of employees working for the business (The Value Chain 2004). Meanwhile, general administration refers to activities relating to the general management, accounting and finance, legal and regulatory affairs, safety and security, management information systems, forming strategic alliances and collaborating with strategic partners, and other "overhead functions (Thomson 2002)." Value chain analysis highlights the development of competitive advantage from the company's activities. The analysis looks at all the levels of the company's value chain and opts to identify the activities, which may yield competitive advantage to a company either through cost or differentiation. As business process outsourcing is becoming a global trend for business entities, these activities may be within the direct ownership of a company (in house) or outsourced. The Value Chain of Dell Throughout its entire supply chain, the computer manufacturer has designed and employed a unique business model, which is very different from the traditional ones. The company's aggressive effort to minimize cost while maximizing customer value is indicative of its unique business concept of introducing radical reforms its value chain. Dell is known in employing a unique production process called TQM (Total Quality Management) and a unique Just-in-Time (JIT) inventory system. It has significantly streamlined its processes through the reduction of production time, elimination of inventory, and shifting from the typical assembly line, and eradication of the thick level of marketing intermediaries by directly marketing to consumers. Inbound Logistics Most of Dell's inputs are sourced from different suppliers. As such, we would expect that Dell strongly collaborate with its various suppliers. In fact, Dell is an adherent of having tight and good partnerships with its backward linkages. With its partnership with Xerox, the Vice Chairman of Dell stated, "By adding Xerox to our roster of preferred printing partners, we are even better equipped to serve our customers with a full range of office printing technologies that provide end-to-end solutions. The Xerox brand is synonymous with quality, technology leadership and world-class services. We share these core values." ("Dell and Xerox Forge Strategic Marketing Tie" 2000). Dell is very efficient in its inbound logistics activities. An extranet which connects the company with its suppliers fully allow the operation of Just-in-Time inventory system. To ensure that materials and inputs needed for production will be delivered in time, Dell manufacturing plants are usually located within 15 minutes of travel time (Kleindl 2004). It should also be noted that Dell's suppliers deliver semi-processed inputs for production. This type of system lowers inventory costs, as no material inventory is stored in the company's warehouse. Operations With its efficient workforce, the computer is assembled in four to eight hours depending on the specification of the customer. Dell's products are customized as they are made according to the customer's specification. It is notable that Dell, in contrast with other manufacturing firms is not utilizing an assembly line in its production. A computer system is assembled by a group, which specializes in each of the production process. Outbound Logistics After assembly, the computer is directly delivered to the customer displacing the distributors and other intermediaries in a typical distribution system. It should be noted that Dell pioneered the direct selling model in the computer industry. Dell's distribution system is outsourced. At such system, contract-shipping rates as well as fixed costs are reduced (Kleindl 2004). FedEx essentially contributes to the fast delivery of Dell's products to its customers within days after they place an order. A system provided by FedEx allows it to track and monitor the assembly of each PC on order. After the production process, FedEx serves as a "conveyor belt" from the manufacturing plant to customers (Thomson 2004). The fast and efficient delivery system of FedEx allows in time distribution of Dell's products. Marketing and Sales Dell Incorporated is essentially customer oriented and market driven. This can be seen by the customized products they offer to their clients. It should also be highlighted that the company employs the Just-in-Time production and inventory system, which necessitates zero inventory. Thus, the company manufactures only those products, which are ordered by the customer. Dell fully utilizes a new business model in servicing its customers. Ordering and payment are done online through a customizable web based interface. This significantly lowers marketing costs as ordering and promotion costs are reduced (Kleindl 2004). Customer Service After sales service is given to customers for maintenance and computer repairs (Lutz 2004). Like its marketing system, the customer relationship management system is database supported. Customers receive customized interface for sales and support (Kleindl 2004). The online system of Dell not only enables online ordering and payment but also allows customers to track the progress of their orders. Support Activities Dell maintains very strong support activities to aid its primary business processes. Technology development is highly sustained through a technology infrastructure across the internet. As the product of Dell has a very short obsolescence period, management is technology and innovation oriented to cope with the rapid development in the industry. The company's workforce is also comprised of employees who are technologically savvy (Kleindl 2004). III. REFLECTION ON THE VALUE CHAIN ANALYSIS The value chain analysis gives us a comprehensive view on Dell's performance as a computer manufacturer. It allows us to look at the company's different business processes and individually examine the activities, which provides value to the customer. The real value of the value chain analysis is to provide an in-depth knowledge regarding the different levels of processes involved in the entire supply chain and ascertain the value that these activities incorporate in the product of the company. Value chain analysis is a potent way of evaluating the value of certain process to the entire business process by looking at the satisfaction that it gives to the customer. If a process doesn't add value to the products offered by the company, it is abolished in the value chain so as to eliminate the cost and time associated with it. The result then is a lean and streamlined value chain whose components are only those which promotes quality of the company's products and services and enhances the perceived value of the product to the customer. For me, employing the value chain alone is not sufficient to accomplish the aforementioned task. Furthermore value chain analysis does not give us the whole story about the real performance and capability of Dell. Value chain analysis gave us a glimpse of how Dell conducts its business operations. However, it leaves us clueless about how the company will be facing the future challenges posed by the changes in its environment and trends in the upcoming business periods. The focus of value chain is on the company's present, which discounts the possibility of development and revolution. Value chain analysis then becomes only a viable technique in evaluating the present strategy of the Dell's value chain without taking into consideration the future strategies that the company plans to utilize. The focus of value chain analysis in the present strategy of Dell leads to the second limitation of the evaluation technique. The value chain analysis is often utilized in revolutionizing the entire process. I believe that value chain analysis will not be able to accomplish its required task if it is not accompanied by a strategic cost analysis. Strategic cost analysis should be utilized hand in hand with a value chain analysis, as it is essential to compare the costs associated with a business process and the value that the company and customers attribute to it. A strategic cost analysis will reveal the cost structure of the company and will be able to identify the major costs drivers in the company's business process. Cost and business process efficiency is usually attained through the identification and elimination of non-value adding cost drivers. Just looking at the value chain without considering at the costs of these processes and their related value. Strategic cost analysis involves process costing of the different activities in the value chain. I strongly believe that this technique should be further employed when employing value chain analysis. Furthermore, a tool should also be employed in ascertaining the value a customer associates with a certain business process. The costs of the process and customer value should be at par. A process, which entails significant cost but does not significantly add to customer satisfaction, should be eliminated. Also, one of the pitfalls of value chain analysis is that it focuses only on the value chain of a single company. In ascertaining the efficiency of Dell's business processes, comparison of value chains across companies should be done. Dell can always learn new ways from its competitors in conducting its business processes. Furthermore, Dell can assure that it has the superior and most efficient value chain by looking at the ones employed by its rivals. IV. SWOT ANALYSIS The Concept of SWOT Analysis SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis is one of the most widely utilized business models in assessing the current position of a business entity. This analysis is an integration of the results of other tools like the PESTEL analysis, industry analysis, and internal analysis. The company's strengths and weaknesses are derived from internal analysis while the PESTEL and industry analyses provide the required information to ascertain the opportunities and threats specific to the company. Putting all the information together will yield the needed data for the SWOT Analysis. According to Thomson (2004), a company's strength is "something a company is good at doing or a characteristic that gives it enhanced competitiveness." A strength can take several forms like a skill or important expertise, valuable physical assets valuable human assets, valuable intangible assets, competitive capabilities, an achievement or attribute that puts the company in a position of market advantage, and alliances or cooperative ventures. Meanwhile, a weakness denotes to a something that a company lacks or is not good at doing relative to its competitors. A weakness is also a condition, which puts the company in a disadvantage. Thomson identifies three areas, which can be considered as weaknesses of a business entity. These are "deficiencies in competitively important skills or expertise or intellectual capital of one kind or another, lack of competitively important physical, organizational or intangible assets, or missing or weak competitive capabilities in key areas." Summing up, weaknesses are thus "shortcomings in a company's complement of resources (Thomson 2004)." Opportunities are essential external factors, which can propel the business entity into higher profitability. However, distinction should be made in order to determine whether an opportunity is an industry or company opportunity. While company opportunity is an opportunity specific to a business institution, industry opportunity needs to be thoroughly evaluated in order to assess if a company has the required resources to take advantage of the opportunity. Threats are external factors which causes threats to a business entity's profitability and competitive well-being. Examples of threats are the emergence of cheaper or more efficient technologies, competitors' introduction of innovative and improved offerings, and others. Dell's SWOT Analysis Dell, as introduced above is employing a new business model, which enables it to reap a unique core competence relative to its rivals. However, the new system introduced by Dell in the computer industry also represents some loopholes. Strengths Largest Market Share Dell is currently the largest maker of personal computers worldwide. The company recorded net income of more than US$1 billion in July 2005 that represents a quarterly growth rate of 28%. In addition, the company sells around $5 million worth of products daily. Dell undoubtedly flourished for the last couple of years, dislodging its major competitor Hewlett-Packard. Strong Brand Equity The large market shared capture by Dell gave the company the recognition of being the best-known and most renowned computer brand in the world. Dell computer undoubtedly commands strong brand equity. No Inventory Buildup Huge amount of inventory stocked in the company's warehouse usually means huge holding costs. For a company who operates in the computer industry, inventory buildup also indicates huge losses, as the risk of product obsolescence is high. Dell has eliminated inventory buildup thereby driving down inventory costs and combating the risk of product obsolescence. Cost Efficiency Dell is known for being able to devise a business model that enhances cost efficiency. As discussed in the previous section, Dell has streamlined its value chain, which significantly drive down costs. The company shows efficient cost management by eliminating inventory costs, ordering costs, marketing and promotion costs, and mark-up charged by traditional distribution channels. Direct to Customer Business Model-Latest Technology Rapid technological advancements facilitated the proliferation of new business models to harness the benefits of these developments. Dell had irrefutably utilized the latest technology in crafting its business model. This advancement had greatly helped in boosting the profitability of the business entity as it enhances its operational efficiency. Direct to customer business model is the winning trend as it focuses on serving the company's main stakeholders-the customers. This is a plus for Dell as companies are becoming more and more market driven and customer oriented. The firm employs information technology and Customer Relationship Management approaches to capture data on its customer loyalty (About Dell 2004). Customization Unlike other computer manufacturers, Dell does not mass-produce in manufacturing its products. Computers therefore are customized and are tailored to suit each customer's need. Customization is a winning strategy for Dell as it is able to service and deliver more value to its customers. Total Command of Supply Chain By employing a direct to customers business model, Just-in-Time inventory system, Total Quality Management, and unique Customer Relationship Management, Dell has a total command of its supply chain. Weaknesses No Proprietary Technology Though Dell delivers computer products in its target market, some industry experts consider it as a computer maker and not a computer manufacturer. Looking at the company's inbound logistics, the components used by Dell in its computer assembly and those delivered by the suppliers are already semi-processed. This implies that Dell has no proprietary technology. High Dependency on Components Suppliers Employing a Just-in-Time inventory system poses setbacks in the company's production. As stated earlier, Dell is required to establish a strong collaboration with its component suppliers. However, this collaboration is locks Dell with few large suppliers making it strongly dependent and reliant to them. Also, contractual obligation locks Dell with a certain supplier in a significant period of time. Opportunities Strong Potential Market in Europe, China and India The global computer industry is not yet saturated with suppliers and Dell can take advantage of this by establishing presence in emerging economies like China and India. These countries are currently growing and developing which can signify a growing demand for high technology products like computers. Market development, which involves capturing the European market, will also prove to be a profitable venture. Low Costs and Advanced technology As the world economy is becoming more and more integrated towards the creation of a global economy, the possibility of operating at lowers costs through business process outsourcing. The advancement of technology also facilitates more efficient processes, which can further drive down costs and enhance efficiency thereby increasing profitability. Growth in Business, Education and Government Markets On of the increasing trend in the world business arena is the growth in business, education and world markets. This development necessitates the utilization of latest technology, which requires the employment of computers in different operations. This in turn, broadens the market, which can be served and captured by Dell. Threats More Intense Rivalry One of the most formidable threats faced by Dell is the more intense rivalry among the players in the computer industry. This competition does not only involve more intense rivalry in market share but also involve aggressive price competition. New entrants with more advanced and efficient technology pose threat to Dell. Its rivals can easily adopt and take advantage of the technologies currently utilized by Dell to strongly compete with it. Other players can even launch a more intense R&D effort to find better technologies which can outdo the ones currently utilized by Dell. Currency Fluctuations As a company that has diversified globally and serving other markets, Dell faces the risk of currency fluctuations. Although Dell is a very lean organization, customer's orders are placed ahead in time due to their size and value. Changes in the exchange rates can leave huge losses to some parts of the company's supply chain. V. REFLECTION ON THE SWOT ANALYSIS SWOT analysis is indeed a useful tool in determining the internal capability and incapability and the external forces that affects the operation and profitability of Dell. SWOT analysis is very useful in assessing the strengths and weaknesses of the company. The strengths of Dell can be used for its advantage by matching at the opportunities that are also presented in the SWOT analysis. Furthermore, the identification of the company's weaknesses can give way for the improvement of the company. Once these weaknesses are discovered, the company can take corrective actions to transform these weaknesses into advantages. The real value of the SWOT analysis lays on the company's ability match its strengths with the available opportunities in the market. This however, is not clearly presented in the SWOT analysis. The technique only enables to give the management of Dell the company's strengths and the opportunities present but does not indicate what strengths should be employed in taking advantage of each of the opportunities. This is certainly a limitation of the SWOT analysis. SWOT analysis lists all the strengths of Dell in a way, which do not show their importance in the company's success. The random arrangement of these strengths does not allow the management to determine the relative importance of these strengths in the company's operation. This in turn, will not enable management to know what strengths to further boost and enhance especially when the company is faced with a tight budget. Since SWOT analysis is only a matter of listing the strengths, weaknesses, opportunities, and threats of Dell, it is not prescriptive in the sense that it does not give the decision makers an idea on how to correct the company's problems. Another limitation of the technique is its focus on the current performance of the Dell. As economies are increasingly becoming more past faced and developed, changes which shapes the performance of a business entity. This implies that the SWOT analysis of Dell is only valuable in a certain period of time. As changes occur, other SWOT analyses should be conducted to give a reliable picture and assessment of the company's resources and the factors affecting it. This constant updating of SWOT analysis can be time and budget exhausting considering that to come up with an in-depth analysis, managers should first conduct PESTEL, industry, and internal analyses. Another limitation of the SWOT analysis is its inability to identify whether an opportunity is specific to a company or an industry as a whole. As discussed above, distinction should be made between company and industry opportunity. A company opportunity is an opportunity, which can specifically be taken advantage by Dell while industry opportunities are those that any player in the computer can service. In a company opportunity, profitability is more viable as there is no rivalry among competing players. Industry opportunities, meanwhile requires tougher decision making from the management as it should take into account the strategies which can be possibly employed by competitors who will also plunge in the new opportunity. VI. CONCLUSION Different tools and techniques are prerequisites in devising and implementing purposeful and effective strategies. These models allow decision makers to perform an in-depth assessment on the internal and external well being of a company. These techniques, when utilized in the most efficient manner can provide an overall diagnosis and give the management an idea on the corrective measures to take in order to boost the performance of a business entity. This paper has applied two of the models usually used in coming up with strategies in Dell Incorporated. Value chain and SWOT analyses, were able to provide an ample knowledge on the performance of the company. However, further analyses reveal the limitations of these models. Value chain and SWOT analyses are only as good as the data and information that they give to managers. Decision makers should further consider the limitations of these models and their respective implications for strategy making. 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