GE, Dell, Intel, GM and Others:

The Competitive Advantage of Information Technology

Submitted By: 10th Group composed off: Corpuz, Mabelle Zinah Dungo, John Basil

Karunungan, Francis Louie Rabida, Kevin Mark Solidum, Miguel Alfonso Tan, Israel Submitted To: Ms. Nicole Noguera Instructor, BA 180.1

I. Brief Background of Dell Corporation

Company Overview Dell Corporation is a global purveyor of personal computers and is one of the largest companies in America, employing over 96,000 people worldwidewith approximately 33% located in US and the rest in other countries. In 2010, Dell earned revenues amounting to $59.9 billion. In addition to both desktop and notebook PCs, Dell sells peripherals, software, accessories, corporate servers and storage systems, and customer support services. In addition, Dells subsidiary Alienware offers desktops, notebooks, and peripherals specialized for high-end video and audio editing and gaming. Dell is listed as the #38 in the Fortune 500 and is ranked as the 5 th most admired company in its industry. In terms of IT, Dell is the third largest PC maker in the world.

II. Case Concept

IT Doesnt Matter is an article published in the Harvard Business Review which attracted attention not only because of its catchy title, but also due to the position it stands upon that Information Technology does not matter like it has before in a companys quest for competitive advantage. Its author, Nicholas G. Carr is an American writer who graduated from Harvard University and has since written books and articles regarding business and technology. The primary points of the article are as follows: Information Technology is a transport mechanism for businesses it carries digital information throughout different networks within as well as outside businesses. Optimal utilization of IT is done when it is used for sharing and information dissemination purposes. Nowadays though, its increasing

affordability and replicability, former scarce technology has been made available to everyone, thus making competitive advantage nearly infeasible. Delaying IT investments can be a powerful way to cut costs while reducing the chance of the company to be saddled by soon-to-be obsolete technology. According to Carr, the smartest users of technology like Dell and Wal-Mart, stay well back from the cutting edge until standards and practices solidify, making their competitors shoulder the costs of experimentation and then sweep past them and profit more. Carr then goes on recommending new rules for IT management. He urged firms to spend less on IT since it is getting much harder to achieve competitive advantage with an IT investment. According to Moores law, one will reap more benefits if you wait longer. With this concept in mind, he urged companies to follow and refrain from hastily purchasing IT hardware and software. He also encouraged the companies to focus on vulnerabilities in IT, such as bugs and technical glitches. Counter arguments: Carr fails to uncover the extent of difference among historical analogs. Electricity is an extreme form of commodity, absolutely undifferentiated on any dimension except for continued supply and price. Information Technology on the other hand, can (and often should) be industry, company, department and function specific. IT deals with the flow of highly differentiated information that has significant meaning and real impact on human lives. To a certain degree, Carrs claims are true for key point 1. The only problem is that Carr limited his definition of IT to hardware, to the physical mechanism that costs a lot and is basically found everywhere. The hardware maybe easy to replicate but the information part of IT is not. Carr failed to account that the manner and success in which technology is deployed is the part that distinguishes it from other companies. It is the information, the specific applications of IT supported processes and applications that give businesses their sought for comparative advantage. This seems like a smart idea. However, if every company started to wait on each other, development would come to a complete standstill. It was the innovations in IT that sparked the flames of modernization in our world and it will be the same innovating and reengineering that will lead to greater 3

achievements. This point actually contradicts Carr because it tells us that IT is indeed important, costly but all the more essential.

III. Statement of the Problem

How does Dell utilize Information Technology to maintain success and gain competitive advantage? Though the article cited more than five companies, this paper will focus more on Dell Corporation and how it was able to gain competitive advantage, and how it was able to make necessary expansions and internal developments that enabled the company to stay profitable.

IV. Solution to the Problem

In the past, companies all over the globe brooded over on corporate strategy on attaining global competitive advantage. Then Information Technology came a major innovation that made gaining competitive advantage a lot easier and exigent for companies today. However though, the use of IT in business cannot fully function without business strategies designed for profitability and expansion. Dell and other major companies have fully made their businesses efficient and effective through operational focus, collaboration and good relationship with customers and suppliers as well as virtual integration, etc. In this case, various counter arguments by different companies were made in reaction to Carrs point-of-view on IT and competitive advantage. JEFF IMMELT In a business world where there is a continuous brooding for competitive advantage, information technology has been a primary tool. As for General Electric Company which is a service oriented company, information technology has been necessary to increase profitability and efficiency. More than plants and equipment, the company has invested more on technological capitals because a huge chunk of the companys income comes from the technological investments.

The Bluest of the blue chip companies, General Electrics stock has been falling precipitously due to global credit crunch. General Electric (GE) had used the Lateral Diversification Strategy or Conglomerate Diversification Strategy as its growth strategy. By consistently increasing in performance objectives beyond past levels of performance, GE has been able to raise its dividends consistently for the past 32 years and has displayed its focus on growth. GE has taken advantage of Globalization trends and has penetrated into the emerging market aggressive. It has successfully continued to improve the bottom line. MICHAEL DELL Dell Chairman and CEO Michael Dell today emphasized the critical role of information technology (IT) and entrepreneurial thought-leadership in helping organizations to remain competitive and achieve long-term success and company profitability. Mr. Dell also described how todays computing advancements are driving competitive advantage across industries, including science and education. IT has become a strategic enabler of sustainable competitiveness for businesses, communities and nations, said Mr. Dell. Technology can play a key role in helping an organization develop and sustain its strengths while simultaneously creating new growth opportunities in response to changing market conditions. Dell Company as the main focus of this case study was able to maximize the use of Information Technology for the company expansion and profitability. However though, the company does not stop to where IT took them, instead, they incorporated it with other strategic plans that enable the company to function at its fullest. PAUL STRASSMAN For Paul Strassman, the Chief Corporate Information Systems Executive, Vice President of Strategic Planning for Automation and currently a view of Information Technology is that more than the hardware and the software, it is more of a knowledge-based capital issue. Most of the business powers today are waging information warfare. That is because Information Technology has made attaining competitive advantage a lot easier. ANDY GROVE

In all vocations and studies in life, there are parts and aspects that are limited. Limited in the sense that once all knowledge and information on a certain part of the field is known, there can be nothing more learned. This is true for many exact sciences. Information Technology is a major exception to this. Carr is saying that commercial transaction processing can no longer be improved. He says that it has reached the top part of an S-curve wherein there is no longer room for possible expansion. He failed to consider though the role that IT has played for commercial transaction processing. Technology is an outside variable to most fields. Even if the maximum output is reached, improvements and innovations brought about by technology can increase the maximum output. This is true even in business processes. IT has proven to be effective in providing efficient and effective management of data within and even outside a business. It is essential to businesses whether small or big. Through analysis of Groves last statement, IT is a big game-changer in the competitive market where businesses are not of equal footing. Competitive advantage is not only measured trough business strategies but also through mediums of improvement of business processes such as IT.

CHARLES FITZGERALD Having IT doesnt necessarily mean gaining the upper-hand between businesses. The important thing is how IT is used to solve business problems. A business can have the most advanced IT but can still lack competitive advantage if the business itself cannot optimally utilize the IT. IT has a broad range of hardware and software that caters to specific branches of a business. Studies and tests must therefore be made about the IT and how it can be used to solve specific business problems. In todays modern fast-paced world, transactions take place by the second in many product and service-oriented businesses. With this, data regarding these transactions cannot be accounted for, be organized and be presented without the help of IT due to the volume of information circulating the business at any time of 6

the day. Multi-national companies and conglomerates in particular cannot record and store the millions of transactions happening each day in different parts of the world. RALPH SZYGENDA Radical changes are taking place with regards to the way businesses work. The internet is now being used as a medium for consumer-business relationships. Business strategies are geared not just towards process optimization but also to gain advantage against business competitors by product and service analysis as well as cost minimization. IT serves to facilitate these changes. IT can serve to be a differentiator for it can provide the necessary competitive advantage to a business by providing uniqueness to business processes which will eventually create products and services. It is in itself a necessary evil for it is part of the bulk of the costs that businesses make to keep up with the rapidchanging technology of today. Carr indeed has a point when he associated IT investments possibly resulting to either competitve advantage or cost disadvantage. Analysis and further studies before an IT is bought and installed in a company is therefore essential to the issue of cost-effectiveness.

V. Dell: Competitive Advantages of Using IT

1. Strong Producer-Consumer Relationship Dell has a simple concept of selling computers directly to customers. Instead of using the indirect distribution channel, where products go through many distributors before reaching the customer, Dell sells directly to its customer. It sells computers to a diverse group of customers, ranging from individuals to businesses of any scale, and institutional organization. Whereas most competitors build computers in batches, Dell waits for the customers order. Dell pioneered the concept of interacting with the customer by phone or by way of the Internet to custom-build a computer specific to that customers needs and delivering that computer in a very timely matter. This has allowed Dell to custom-build a computer specific to that customers needs and delivering that computer in a very timely matter (Klinker et al, 2006)

In order to build a strong relationship with its customers, Dell has created a supply chain management (SCM) system that ensures that computer components are available from suppliers to meet customer demands. al 2006). For customer relationship management, Dell utilizes database The software, which store tables of data that can be used to search for information about clients and generate promotional campaigns. databases would include customer information, their interests, and products. The customer database helps increase profits because the database contains client information that helps determine effective and efficient ways to target and segment the customers. (Klinker et al, 2006) The direct customer focus is viewed as a distinct competitive advantage of Dell over its competitors. Examples of IT that Dell uses to create a strong ProducerConsumer Relationship E-Business software i2 Supply Chain Planner, i2 Collaboration Planner, and i2 Factory Planner This is used by Dell in their build-to-order processes to monitor order placement to customer support. The i2 systems help meet the customer demands by linking suppliers and planners. Premier Pages Premier Pages is a paperless ordering process that contains purchase data of the customers. This allows Dell to know less data about the customer already stored in their databases and more of new data about their customers that they still dont know about. ProClarity The Dell staff has easy access to the detailed demographic information about customers, customer sales history and trade relationships. Sales management can track activity within The marketing accounts, and lapsed quotes can be acted on. mixes (Klinker et al, 2003). It also ensured that a system was in place to get the product shipped and delivered to the customer effectively and efficiently (Klinker et

department can track customer activity, product sales, and marketing

1. Lower Cost of Production Dells lower cost of production is attributed to the use of the build-toorder strategy. By selling directly to its customers and only constructing computers when an order is placed, Dell is able to minimize the waste of inventory and as well as money costs. They only require suppliers to restock parts only when they are needed and thus the PC Company is pushing the upstream inventory problem onto the suppliers. (Kraemer et al, 2006) By directly selling to its customers, Dell has also eliminated the costs of distributing its computers to indirect channels. Before the implementation of a direct sales approach, The PC maker sells its products to distributors, who buy products from many manufacturers and then sell them to a variety of retailers, resellers, system integrators, and others, who sell products and services to the final customer. (Kraemer et al, 2006). Lower costs of production for Dell have allowed it to sell computers of better quality than its competitors but at a price that is near their competitors. There costs were able to stay competitive while delivering an exceptional product because their business kept internal costs low (Cloisters, 2003) IT is used by dell for build-to-order strategy. Dell Order Management System (DOMS) - In the DOMS, the order is first routed to the finance department, where the customers means of payment is checked. If approved, the order then goes to engineering, which reviews it to be sure that the desired conjuration is technically feasible. Then it goes to the plant, where a worker receives a print-out of the order, with complete information on hardware and software conjurations and any special requirements. The order is then checked against inventory to ensure that the required parts are available in the build area. Information on the order is available on PCs to the two builders and one tester in each assembly team. The printout travels with the parts and the computer as it is assembled, tested, burned-in, downloaded with software, and packaged for shipping. After the PC is assembled and tested, an Ethernet cable is attached to download software from a bank of servers in a nearby room. Corporate

customers can have software preloaded, including their own proprietary software, and can have startup screens and various interfaces configured so that the machine is ready to use out of the box. Finally, the PC is ready to be shipped to the customer, complete with shipping label and bar code for the customer. (Kraemer et al, 2006). The 2nd among the major applications used by Dell takes hold the manufacturing process the Work in Progress Tracking Coding System or WTCS. This system handles the manufacturing process of the company through creating a bill of materials and a unique service tag number for each system. These tag numbers were imprinted on each product and are used for warranty and maintenance purposes. Another application is the Engineering Materials Process and Cost Tracking or EMPACT. This basically takes control if the on-hand inventories of the company. It tracks the small parts that are ordered in quantities rather than by delivered on demand by an SLC. An addition of these applications is the Value Chain Management. It is an extranet portal for suppliers which provide direct internet-based access to dell documentation, forms, tools and supplier rating scorecards. Lastly, Dell also makes use of Operational Data Store or ODS, which is an optimized database used to support real-time manufacturing decision support queries. ODS has been a successful tool for Dell because it only contains specific information regarding the current days production among other things. Also, the granularity of the ODS data is the same as the data in the transaction system. (Foreman, 2001). 2. Efficiency of Production Given that Dell implements an efficient build- to-order strategy, production is made more efficient and latest technologies are brought to the market faster which can reduce costs, increase market share, and maintain higher margins (Curry & Kenney, 1999). In an industry where companies compete in a time-based competition where newer technologies carry a premium, Dell strives by having their latest technologies in the market. Dell introduces the latest relevant technology

10

much more quickly than companies with slow-moving, indirect distribution channels, turning over inventory every four days on average (http://www.dell.com). 3. Virtual Integration Dell is one of the first companies to use virtual integration. Instead of manufacturing, Dell simply outsources computer parts that they sell. By doing so, it has already eliminated problems caused by vertical integration the high cost of inventory and more factory buildings. One time, they were buying monitors from Sony. "With a supplier like Sony, which makes very good, reliable monitors, we figure theres no need for us(DELL) to have any inventory at all", said Michael Dell (Margretta, 1998). Although a company can benefit much from producing its own components, the maintenance and inventory costs outweigh the benefit. Setting up a new factory would cost more than buying from other companies (Kraemer, 2003). And it becomes more difficult to be competitive when a company tries to produce every component, as specialization becomes more difficult. By outsourcing not only the production of components, but also the IT services, Dell already cut down a huge amount of spending, both on personnel and production. In 1998, it has only about 15,000 employees, compared to others having more than 80,000 (Margretta, 1998). Additionally, because less cash is spent on factories, Dell could specialize in customer relationship, giving it more resources to improve customer service. The secret to this model is the way Dell handles information. Rather than hide millions worth of data about customer demands, Dell shares this information with its supplier (Kraemer, 2003). As a result, suppliers are treated as partners, and Dell even launches events to improve company relations, and create solutions (Margretta, 1998). With this, suppliers can provide components more efficiently, and creates more profit not only for Dell, but also for its suppliers. Dell currently has more than 120 suppliers worldwide. IT implementations:

11

1. i2 Factory Planner - The i2 Factory planner is an SCM module in the i2 Trade Matrix suite. It speeds up production workflow by building better communications between Supply Logistics Centers (SLC), suppliers, and factories. In addition to work-in-progress reductions, the factories have seen significant reduction in raw inventory, improvement in order fulfillment cycle time, improved SLC delivery, and lower headcount in planning and replenishment (Foreman,2001) 4. Customization Typical consumers buy the type of technology that is specific to their needs, demands and specifications. Using their direct customer approach Dell is able to identify customer trends early so it can respond with the desired products before its competitors can (Kraemer, et al., 2006). Customization of Dells computer according to consumers order is best illustrated by this process. Customers are aided by configuration management software that enables them to choose from menu of hardware and software options. The conjuror ensures the items chosen are compatible with the rest of the system and prices the system, permitting the customer to iterate through various choices. They also can call Customer Service, which can link directly into Dells inventory to determine whether the required components are available. (Kraemer, et al., 2006). IT technologies used: Dell Configurator Dell Plus Premier Pages Dell Online, Internet

VI. CONCLUSION
Carr's assertions and recommendations deserve to be challenged. If accepted, they could inhibit the most innovative and value-creative means currently available for increasing the economic benefits to enterprises as well as to customers. Carr's recommendations would be detrimental to businesses. Indeed, A

12

rear view mirror is not the best way how to examine the road ahead. (Strassman, 2003) Most of todays business leaders disagree with the argument pointed out by Nicholas Carr in his article IT Doesnt Matter. The counter-arguments pointed out by these people are quite factual and can be backed-up by current business trends and processes. IT is not necessarily vital to the continuity of a business rather it is a must for businesses to compete in todays dog-eats-dog world and to keep-up with the rapid pace of growth in this technology-driven era. Dell makes use of sophisticated IT software that is utilized well in support of it many business processes. The companys IT encompasses a wide variety of processes that is mainly focused on production geared towards specific consumer needs. With the type of strategy employed by Dell hand-in-hand with the competitive advantage brought about by its high-level of IT, it is without a doubt that Dell is in the path of greater success.

13