The Information Society, 16:5–21, 2000Copyrightc
2000 Taylor & Francis0197-2243/00 $12.00 + .00
Rening and Extending the Business Model WithInformation Technology: Dell Computer Corporation
Kenneth L. Kraemer, Jason Dedrick, and Sandra Yamashiro
Center for Research on Information Technology and Organizations (CRITO), Graduate Schoolof Management, and Department of Information and Computer Science, University of California, Irvine, Irvine, California, USA
The exceptional performance of Dell Computer in recent yearsillustratesaninnovative responsetoafundamental competitivefac-tor in the personal computer industry—the value of time. This ar-ticle shows how Dell’s strategies of direct sales and build-to-orderproduction have proven successful in minimizing inventory andbringing new products to market quickly, enabling it to increasemarket share and achieve high returns on investment. The Dellcase illustrates how one business model may have inherent advan-tages under particular market conditions, but it also shows theimportance of execution in exploiting those advantages. In partic-ular, Dell’s use of information technology (IT) has been vital toexecuting both elements of its business model—direct sales andbuild-to-order—and provides valuable insights into how IT can beapplied toachievespeedand exibilityinan industryinwhichtimeiscritical.Many of theinsights gained fromthis casecan beappliedmore generallytoother time-dependent industries,suggestingthatthe ndings from the Dell case willhave implications for a growingnumber of companies and industries in the future.
Received 1 December 1998; accepted15 July 1999.The authors gratefully acknowledge the assistance of intervieweesat Dell Computer, the Boeing Company, IBM, Seagate Technology,Solectron, and WesternDigital, as well as the anonymous reviewersof thismanuscriptfor
.Thisresearchhasbeensup-ported by grants from the CISE/IIS/CSS Division of the U.S. NationalScience Foundation and the Industry University Cooperative ResearchProgram in the Center for Research on Information Technology andOrganizations (CRITO) at the University of California, Irvine. Indus-trymembersofthe Centerinclude ATL Products,theBoeing Company,Bristol-Myers Squibb, Canon Information Systems, IBM, Nortel Net-works,Rockwell,SeagateTechnology,SunMicrosystems,andSystemsManagement Specialists(SMS).Address correspondence to Kenneth L. Kraemer, Graduate Schoolof Management, Center for ResearchInformation Technology and Or-ganizations, University of California, Irvine, Irvine, CA 92697, USA.E-mail: email@example.com
build-to-order, business model, clockspeed, customerrelationships, Dell Computer, direct sales, distributionchannel,informationtechnology,time-basedcompetition,virtual integration“Itisn’t somuch thatwe have a neweconomy, aswe havea new understanding of the importance of technology in theeconomy.” Paul Roemer, quoted in the
Wall Street Journal
,May 1999.“Dell Computer Corporation is perhaps the purest exam-ple of the efcienciesmade possible by information technol-ogy.”
New York Times
, 2 January 1997.
The exceptional performance of Dell Computer inrecent years illustrates an innovative response to afundamental competitive factor in the personal computerindustry—the value of time. Product life cycles in the per-sonal computer (PC) industry have shrunk from about 22months in 1988 to 6 months in 1997 (Mendelson & Pillai,1998), and the price/performance of key components hascontinued to double every 18 months or less. As a result,excess inventory depreciates rapidly. In addition, gettingnew, quality products tomarket on time iscritical to main-taining competitiveness in an industry where customersare willing to pay a premium for the latest technologiesand reward quality by repeat purchases.Dell’s strategies of direct sales and build-to-order pro-duction have proven successful in minimizing inventoryand bringing new products to market quickly, enablingit to increase market share and achieve high returns oninvestment in a highly competitive industry. The impacton the industry of Dell’s success is seen in the effortsof other leading PC makers and distributors to developtheir own direct sales and/or build-to-order capabilities(Stafford, 1999).The Dell case illustrates how one business model mayhave inherent advantages under particular market condi-tions, but it also shows the importance of execution in