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Apple vs Dell

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Apple vs. Dell A Comparative Analysis

Submitted in partial fulfillment of the requirement for
Elephants and Cheetahs: Systems, Strategy and Bottlenecks

Submitted to
Prof. Saral Mukherjee
Ms. Kavya Sajwan
01-September-2013

Prepared by
Anubhav Sinha

Indian Institute of Management
Ahmedabad

EXECUTIVE SUMMARY
The computer industry is highly competitive and is characterized by large number of competitors and price based competition. Factors like technology, income levels and internet usage are drivers of growth in the industry. In this industry Dell and Apple have followed two distinct strategies to succeed.
Dell has Just-in-time manufacturing facilities, direct sales to customers, mass customization and build-to-order manufacturing. It basically operates assembly plants and purchases all the components from partner suppliers and tries to achieve a virtual integration of suppliers, manufacturing and customers. Dell products appeal to customer segments that are looking for affordable, high performance products and are typically large businesses. The manufacturing practices at Dell have helped in cutting costs and delivering latest technology products to the customers. The direct sales strategy has also provided Dell with a feedback mechanism which helps it forecast demand trends much better and reduce the risk. R&D at dell is geared towards process improvements and quality controls. Dell however, cannot bring architectural innovation, and it is limited to helping its suppliers with improving their component based technology.
Apple makes high quality, user-friendly products with high aesthetical value. It targets customers who are willing to pay a premium for the innovative devices and are looking for user experience. Its retail stores also serve as a place for providing pre-purchase experience of using the products. Apple makes use of scale economies and has outsourced its manufacturing facilities. It keeps it suppliers in tight control and is able to get huge discounts because of the volumes. Even though Apple cannot rollout the technological advancements in components as quickly as dell it is able to create architectural innovation and provide customers with and integrated product with bundled features of high quality networking and media. Forecasting is an important aspect at Apple as well, and it can forecast the demand for each store and plan production schedule accordingly. It spends heavily on R&D to improve the product performance and bring frequent product launches.
The marketing, HR and support functions at Dell and Apple are designed accordingly to create an unified strategy for both firms. Dell focuses on providing solutions to its customers and has a resonating focus CVP whereas Apple has a CVP of favourable point of difference. Dell has huge variety and mass customization whereas apple looks to reduce customization as far as possible. Service and support of both Dell and Apple are of high quality, for Dell it is a strategic choice in order to maintain long term relationship with customers, whereas for Apple it is in line with the overall high quality image of the company.
Some functions at Dell are characterized as Cheetah, like roll-out of technology, high variety, and small drop sizes. Whereas some characteristics like build-to-order and forecasting are responsible for minimizing risk.
Apple overall has the essence of an artist. However some functions like manufacturing deriving scale economies, bulk purchasing are characteristics of an elephant. The distribution function at Apple has the characteristics of a Cheetah during product launches.

Table of Contents COMPUTER INDUSTRY 4 Market 4 Competitors 4 Customers 4 CHOICE OF FIRMS: DELL & APPLE 4 DELL 5 Customer Segmentation 5 Manufacturing 5 Distribution 6 Research and Development 6 APPLE 6 Customer Segmentation 7 Manufacturing 7 Distribution 7 Research and Development 7 COMPARATIVE ANALYSIS 8 STRATEGY – Closing Doors 12 DELL 12 APPLE 12 BOTTLENECKS & BARRIERS TO GROWTH 12 ESSENCE OF FIRM 13

COMPUTER INDUSTRY
The global personal computer industry is US $215 billion and is expected to grow at 3 to 4% in the next five years. The Asia Pacific region dominates the industry with 34% market share. The industry is significantly affected by factors such as income levels, technological innovation, computer education and internet usage. Introduction of notebooks and ultrabooks have led the growth of PC industry in the last five years, with consumers demanding high performance and latest technology.
Market
The marketplace is highly competitive and is characterized by a large number of competitors, aggressive pricing and reduction in margins. The introduction of new product is frequent and products have short life-cycle making sustained cash-inflows very difficult. Customers are price sensitive and seek continual improvement in price and performance. It is also characterized by rapid advances in software technology, hardware performance and new features.
PC industry as a whole is also moving towards consolidation and there has been a lot of acquisitions and sell-offs. At present it is also facing stiff competition from mobile devices like cell phones and tablets.
Competitors
The industry is dominated by few global players like HP, IBM, Apple and Dell, with a large number of local manufacturers. The firms have created a differentiation in their offerings in terms of differentiated product offering or service provision. Price is one dimension for competition for many computer manufacturers. Others have also chosen to compete on product quality, innovation, customizability and durability.
Customers
The customers are price sensitive and at the same time are looking for latest technology and good performance. They can be broadly segmented into two categories: * Corporate/ Business * Personal
The customer needs varies across these two segments. While corporate customers are looking for high quality, reliable and affordable solutions, individuals purchasing PC for personal use may go for value for money options, aesthetics or ease of use. Thus, even within the segment the customer needs varies significantly.
CHOICE OF FIRMS: DELL & APPLE
The market dynamics dictates that the firms operating in computer industry follow the steps of the customers. This has been the reason for aggressive pricing and short product life-cycles. Apple and Dell however followed very different and distinct strategies which led to their rise in the industry.
Dell was influenced by the Toyota production system and applied just-in-time manufacturing, with strong ties with its suppliers and direct sales channel, thus having a strong virtual integration of the value chain. It was able to provide the two needs of customer, i.e. affordability and quick technology roll-out because of its operating model which made it possible to cut costs and increase responsiveness.
Apple on the other hand focused on designing and innovating its products and bringing about a change in the customer’s behaviour making them oriented towards high quality, durable, user-friendly and sleek devices. Apple’s customers were ready to pay a premium for the additional features provided by Apple products. Apple marketed its product well and its operation and supply chain strategy fully supported the marketing functions.
Though other competitors in the industry also have created a differentiation and customer segmentation of some kind or the other, none are as successful and distinct in their approach and implementation as are Dell and Apple.
DELL
Dell Computer Corporation was formed in 1984 by Michael Dell with the idea of selling computers in a better way. Dell believes that direct sales to customers create a much better level of service and it is seen as the final competing element in a matured industry. With its computers as assembled machines, Dell has approached providing service as a product.
Dell is at present a leading provider of products and services worldwide and has been among the top three companies by market share. It has a huge employ base and co-operates with different strategic partners to be innovative. Dell’s strategy is built around a variety of elements like, * Just-in-time manufacturing * Direct sales, customer service * Mass Customization, Build-to-order * Partnership with suppliers and extensive data and information sharing
Dell tries to achieve a virtual integration with its suppliers and customers in real time by following this strategy such that they appear part of the same organization.
The various elements of strategy are coherent and thus it has resulted in the resonating success of Dell. A detailed analysis of the various elements of its strategy is given below.
Customer Segmentation
In a highly competitive product marketplace which is more like an assembly of components for most of the manufacturers with standardized features, Dell focused on its service and solutions to gain an edge over others. The customer segmentation that Dell focuses on is the corporate segment and it sells mainly to large businesses. This segment targeting is more likely a result of its operational strategy and not vice versa. However, with corporate segment customers, seeking reliable, high performance, affordable solutions, Dell fits in perfectly. Dell also appeals to those customers who want to get their hands on the latest technology and the idea of customized machines appeals to them. For Dell, it focused on providing superior services to its customers through its sales representatives. Dell also shifted its advertising communication from customization to empowering customers, thus stressing on the service and support aspect tailored to customer’s needs.
Manufacturing
Dell has followed lean manufacturing practices and has adopted just-in-time unlike any other company. For this it has established partnerships with its suppliers and goes on to form cross-company design teams to deliver better quality products. Some of the Dell’s suppliers are located in close proximity of Dell’s assembly plants thus reducing lead times and associated costs.
This has provided three benefits: i. Dell is not competing in the highly competitive market of component design and manufacturing. It evaluates the potential suppliers and picks the one best suited for its operations ii. The just-in-time manufacturing system has resulted in cost savings which it can pass over to the customers who are price sensitive and thus get market share away from competitors. iii. Dell can be much more responsive in introducing component based innovations in the marketplace because of its manufacturing systems.
Dell also follows build-to-order manufacturing and provides an option of mass customization; hence, it further increases the value proposition to customers. It also reduces the risk of obsoleteness and that of carrying inventory.
Distribution
Dell sells its products directly to the customer. Service being a core element of Dell’s offering, direct sales helped Dell to better understand customer requirements. Dell received immediate feedback on its products and instances of glitches on which it could take corrective action in a matter of few days. It could quickly detect the sales trends and by sharing the info with its suppliers, it could plan its operations efficiently. It has integrated demand in its supply chain, and is trying to integrate suppliers, plants and logistic networks. The direct sales model is an extension to the just-in-time, build to order, customized production system.
Demand forecasting is also an important aspect in Dell’s strategy. Having direct sales distribution enabled Dell to better understand the customer’s business needs and thus it could better forecast the demand for PCs. Through training of its sales account managers, it could estimate the need of its large corporate customers with high accuracy.
Research and Development
Dell’s R&D effort is mainly focused on improving its assembly process and quality control. It also worked with its vendors to help and track the developments in the component space thus contributing towards the development of the computer models it could deliver. An example is the higher life batteries which Dell provided in its computers because of the ties it had with its suppliers and its participation in their development work. The development work in general includes improving quality and incorporating best technology to make devices user friendly and to cut costs.
APPLE
Steve Jobs co-founded Apple together with Steven Wozniak in 1976. He left Apple in 1986 following an internal conflict after which the company struggled till 1996 when Steve returned back to Apple. Since then it has been a resounding success for Apple. Apple products are innovative, user-friendly and have a seek design. Since Apple designs the product from scratch they are geared to provide efficiency in performance.
Apple’s business is divided in geographic segments with America, Europe and Japan being the core divisions. The divisions provide similar products and services. Apple’s strategy is built across the premise that customers are buying in an experience together with the product, i.e. computer. It therefore focuses on improving the experience of customers both through its product features and in-store buying process.
The core elements of its strategy are: * Innovative products * Ease of use and sleek design giving an aesthetic appeal * Superior experience by bundling networking and graphics, in-store experience * Marketing effort to guide customer behaviour
The coherence of different elements of Apple’s strategy is discussed below.
Customer Segmentation
Apple believes that it is selling its product bundled with the experience. Its target customers are thus those who value the ease of use of apple products, experience of purchase process in apple stores. Apple computers have the Macintosh operating system which many PC users are not familiar with, for this Apple has stationed trained personnel in the stores who can explain and show the features which creates an overall experience of getting used to the Apple products. Apple customers value innovation, high quality and durability, aesthetics and user-friendliness. Apple also targets small business and helps them setup their IT system.
Manufacturing
Apple has outsourced its manufacturing process. It makes use of scale economies in purchase of supplies as well as manufacturing process and tries to sell the product through its marketing efforts. Apple does little customization and focuses on few product lines which gives it a huge advantage in terms of manufacturing capabilities and cost reduction. Apple produces in huge volumes which give it a negotiating edge with its suppliers, contractors and logistic agencies.
Demand forecast thus plays a vital role for Apple’s operations and it is able to forecast demand at each store location. This works well to reduce the production risk for Apple, a part of which is also taken care of by frequent product launches. Apple’s suppliers are held tightly at an arm’s length but the volumes are lucrative for them to enter into the deal.
Distribution
Apple has an outstanding distribution network and efficiency. The distribution function supports the marketing effort and Apple and hence matters like leakages while distribution for a product launch are taken very seriously. The Apple stores form the last leg of its distribution chain and play a strategic role in achieving this anonymity and also providing buying experience. Because of its high volumes, Apple gets deep discounts for air-transport which is also a reason for its responsive supply chain.
It uses information technology to keep a track of all the shipments and has been known for using disguised packaging to avoid leakage. All this helps Apple successfully execute an efficient distribution and logistics exercise.
Research and Development
Apple invests heavily on research and development. It comes up with new and innovative products periodically and has created an image of being an innovative company. The philosophy is to spend excessively where required and reap the benefits in later stages. Apple’s innovation is not only limited to product features but includes operational improvements too. It is able to come up with architectural innovations in an industry space which is dominated by component manufactures, both hardware and software. The R&D effort includes development of aesthetic aspects of the product as well as integrated features of networking and media that would enhance user experience.
COMPARATIVE ANALYSIS
Dell and Apple have followed two very distinct strategies to capture the highly competitive market. The different functions from marketing, operations, HR etc. are aligned in a similar way. The comparative analysis on each of these dimensions is discussed in the table below. FUNCTION | ASPECT | DELL | APPLE | CUSTOMERS | Customer Behaviour | Reasoners: Prefer to collect information on their own before making purchase. | Believers: Base their purchase decision on past purchase preferences. | | Customer Value Proposition | Resonating Focus * Customized solutions designed to fulfill customer’s requirements * Product enables the customer perform their task better | Favourable Point of Difference * Highlight the differentiating elements, like, high resolution, long battery life * Product has an experiential value because of its quality, innovation and sleek design | | Customer Needs | Utilitarian: customers need * High performance * Affordable * Reliable * Latest technology | Aspirational: customers need * Superior quality * User-friendly * Innovative features * Aesthetic value | | Customer Segment | Business and government institutionsLarge corporate customers | Small businesses looking to setup new IT systemIndividuals: value seekers, loyal | | | | | MARKETING | Product | Customized products * Designed to customer’s needs, no frills * Huge variety out in the market | Standard models * Designed to provide user experience * Limited variety – minor elements like disk space, colour | | | Bundled with services and strong support facilities | Provide pre-purchase and post purchase experience | | | Products are launched with latest technology in terms of components | Integrated product with overall innovation and product features | | Price | Affordable price * But not necessarily competing on price * Satisfy price sensitive customers | Perceived as premium price * But difficult to beat the price for similar features * Customers who associate price with quality | | Place | Direct Sales * Company website | Through Apple stores * Purchase through website available, but not popular | | Promotion | Abundant * Frequent sales * Free-shipping * Multi-purchase offers | Rare * Fixed discounts available to certain individuals and businesses (students etc.) | | | | | DISTRIBUTION | Channel | Direct shipping to customer | Through apple stores | | Logistics | Strategic partnerships to enable high service levels | Negotiations, discounts for high volumes | | Inventory | Almost Nil * An extension of just-in-time manufacturing | Huge inventories, esp. to support demand during product launches | | Tracking | Each consignment can be tracked separately through the courier service | Electronic tags attached to some devices in the lot for tracking purpose, to avoid leakages | | Customer Engagement | Direct sales helps Dell understand customer needs * Detect demand trends * Detect faults and deliver fast response | In store sales are meant to deliver purchase experience * Personal interaction * Touch-feel the products before purchase | | | | | MANUFACTURING | Process | Just-in-time manufacturing * Assembly plants * Components purchased from suppliers | Outsourced manufacturing operations * Scale economy * Only major components are purchased | | Supply | Partnership with key suppliers * No attempt of backward integration * Rather creating a virtual integration with suppliers as well as customers * Piggy-riding the brand of component suppliers * Few vendors but long-term relationship, enables just-in-time | Suppliers at arm’s length * Best quotes taken and justification required * High negotiating power because of high volume, deep discounts * High control on each supplier | | Forecasting | Direct sales enables Dell to accurately forecast the demand for its products * Dell’s sales representatives talk with its major customers and help them access their computing requirements * Accurate forecasts are important for sustaining zero-inventory and lean manufacturing practices | Apple also uses advanced forecasting techniques and is able to estimate the demand at each store * Production plans are adjusted accordingly * Accurate forecasts are important as risk of inventory going obsolete is quite high because of frequent product launch | | | | | TECHNOLOGY | Product Technology | Both Dell and Apple sell high technology products. | | R&D | Dell’s R&D effort is focused on: * Improving quality * Cutting Costs * Helping partner suppliers to improve component technology | Apple is seen as a highly innovative company. The R&D is an important function and focuses on: * Developing superior design * High performance and quality * User-friendliness, user experience * Integration of H/w & S/w components | | Innovation | * Dell is able to roll-out component based innovation much quickly to its customers because of JIT and direct sales * Enables customers to take advantage of latest component features to do their tasks * This is aligned with the value proposition of empowering customers * Low spend on R&D * Focus is on process invention | * Apple is able to come up with architectural innovation which a setup like Dell cannot achieve * Its highly integrated, user-friendly, sleek designs are valued by target customers * Customers can take advantage of high quality bundled features like networking and media * High R&D expense, one of the core functions * Product invention | | | | | HR | Training | The sales team is trained to understand customer’s business and access their requirements | High spend on training of store personnel as they facilitate the interactions that customers have before purchase | | Reward | Dell gives its employees a stake in the company | Apple does not offer any such awarding option | | Core function | At dell the relationship managers and support service staff are key to its service operations | At Apple the R&D team does the core function designing superior products and aiding frequent launches | | | | | SERVICE | Standard | Both Dell and Apple provide high quality service and support | | Customer complaints | Dell listens closely to its customer’s problems * Works after the slogan “feet on the street” * Offers 24-hours phone and online support | Service quality is very important for overall image of Apple, viz. “high quality” * Even though the support is not as extensive as Dell it is perceived to be good by customers | | Support | Dell provides on-site support for all its customers | Apple has support centers and if a customer fails to hand faulty product at the center it also does pick-up and then returns it after correction | | Reliability | Dell offers a 30 day guarantee period | Apple is perceived as great service without any guarantee | | Responsive | Dell runs 24X7 support center to answer the customer | Apple trains it store employs to answer the multiple queries customers have about Mac | | Relationship | Dell’s personal seller for its major customers ensures good relationship and makes them feel valued | Apple builds its relationship with customers through its stores and face to face interactions | | | | | COMPETITION | | Dell’s competitiveness is on low prices and service * Low margin * High volume | Apple’s competitiveness is on quality and innovation * Low volume * High margin |

STRATEGY – Closing Doors
To have a unified strategy a firm needs to focus on specific segments and activities. This means that many other segments and activities have to be done away with. Dell and Apple have also closed many doors in order to successfully implement their respective strategies
DELL
Dell has followed the strategy of JIT manufacturing and direct sales which made its products and offerings appropriate for some customer segments while they did not appeal to many others. The following doors were closed by Dell while following its strategy: * Component manufacturing: When component based innovation was the primary industry Dell opted to keep its operations away from it. Instead of becoming another component manufacturer it chose the roe of an assembler who would select the best among the other component manufacturers * Supplier discounts: Dell had to do away with getting best deals for purchasing components as it valued long-term relationships which were essential for JIT manufacturing * Retail Stores & Pre-purchase interactions: Since Dell chose to ship directly to its customers it could not provide customers the option of checking out the products in a conducive retail atmosphere which some customers value * Customer Segment: Dell’s offerings are more suited for value seeking customers who need high-performance products. It therefore focused on large businesses and had to neglect those customers looking for ease of use and integrated, sleek products. * Innovation: Dell’s R&D effort is limited to helping its suppliers come up with improvement in components. It cannot achieve an overall design or architectural innovation
APPLE
Like Dell Apple also closed many doors. * Roll-out speed: Even with frequent launches Apple cannot match the speed with which Dell can roll-out the latest technologies through its products. To get architectural innovation as per its core strategy it closed the door of quick adoption of technology in a marketplace where customers are looking to use them and life-cycles are short. * Customer Segment: Apple devices are perceived to be priced high, which is associated with its high quality image, but it does not appeal to majority of the customers who are price sensitive. Apple thus closed doors to volumes but got high profit margin on each product. * Outsourced manufacturing: To make use of scale economies Apple manufactures in huge volumes which are also required for its marketing objectives during launches, but since manufacturing is outsourced Apple has to bear risk of inventory. It thus closed its door on less risky build-to-order type of manufacturing to provide high service levels.
BOTTLENECKS & BARRIERS TO GROWTH
DELL
For dell whose core strategy lies in JIT manufacturing and direct sales the bottleneck should lie in demand. For Dell it should make sufficient capacity investments so as it can fulfill all demand as it is vital as per its service provided to customers. But given the option to choose internal bottleneck it should be “personal seller” who manages the accounts of Dell’s customers as most of its volumes comes from large customers.
The barrier to growth for Dell now is the booming mobile devices industry which has hit the whole notebook PCs and desktops industry. Since Dell’s attempt to enter tablet and phone market did not succeed, it faces a huge risk of demand slump.
APPLE
Apple is known for its innovative designs and high quality products. For it the design and R&D team is responsible which continually make product improvements. Hence the bottleneck should be the R&D team which determines how many product launches and in a way the prospect of success of the product in the marketplace.
The barrier to growth for Apple is the niche segment it targets and appeals to. Since most of the customers are price sensitive volume growth is limited and it has to depend on high margins for making huge profits. The barrier is in terms of its ability to change the behaviour of customers towards buying experience and not just a computing device.
ESSENCE OF FIRM
DELL
Dell shows different characterization for different functions, in some aspects it behaves like a Cheetah, with huge variety, quick roll-out of technology, unit drop-sizes, partnering with suppliers to create a Cheetah back-end.
But some aspects like manufacturing as build-to-order, forecasting are responsible for reducing risk, thus the characteristic of a tortoise.
Dell does not demand premium for its variety of services rather offers low price and focuses on minimizing costs.
APPLE
The overall essence of Apple is that of an artist. It has established a cult of customers who are said to be believers and are loyal to the brand.
However, even at Apple certain other functions can be seen to behave differently.
The use of economies of scale and forecasting are characteristics of Elephant and the purchase function is also done on similar lines.
The overnight delivery during product launches requires stealth and speed and for this Apple uses air transport; this is the characteristics of Cheetah.

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