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How Product Lifecycle Management makes a difference in your industry: 
AEROSPACE
AUTOMOTIVE
CONSUMER
CONSUMER ELECTRONICS
DEFENSE
EDUCATION
INDUSTRIAL EQUIPMENT
HIGH-TECH ELECTRONICS
LIFE SCIENCES
PLASTICS
SHIPBUILDING
TELECOM
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Value Opportunity One: A Classic Example of Increasing Market Share with Customer-Focused Products By Kevin P. Hopkins The spectacular success of Dell Computer Corporation's build-to-order manufacturing model demonstrates that a commitment to finding new ways of meeting customer needs can be a powerful way for product-focused manufacturers to increase market share. Perhaps no company better illustrates the power of innovation in marketing and manufacturing than Dell Computer Corporation. By the mid-1990s, the company--then less than 15 years old--was an established but clearly second-tier player in the personal computer market. In 1995, Dell was number 6 in desktop computer sales and number 7 in notebook computer sales and, by 1997, it had risen to number 5 in the computer workstation market. But progress was slow, and there were some who thought that the company's growth in market share would stall. But Michael Dell knew differently. By returning to the company's roots and adopting one of the industry's most aggressive, product-centric manufacturing strategies, Dell Computer vaulted forward faster than almost anyone expected. Michael Dell's secret: designing and selling products in a highly modular fashion so as to quickly and cost-efficiently meet a wide range of consumer needs. The numbers vividly document the success of this strategy. By 2000, Dell Computer Company was number one in desktop sales, number one in notebook sales, and number one in workstation sales, and it had already risen to number two in Wintel server sales. Building Computers to Order The Dell story had begun almost two decades earlier when Michael Dell adopted what was, at the time, a virtually unknown approach to selling computers: build computers to order. Dell Computer would offer customers a menu of choices (add this, take away that, supersize this), and then assemble the individual computers to the precise customer specifications. It was then, as it is now, one of the most powerful examples of product development software maker PTC's first Value Opportunity, "Grow Share with Customer-Focused Products." (As discussed in previous columns, PTC's Product First Roadmap defines paths and strategies that companies can take to create and capture value for their firms.) The build-to-order manufacturing strategy proved to be very successful, boosting Dell from its startup position to nationwide prominence within less than a decade. But then, in one of his rare missteps, Michael Dell decided to change strategies. Seeking to accelerate revenue growth, Dell Computer in 1991 copied its competition and entered the retail channel by selling a select set of pre-determined product configurations through large retail stores like CompUSA, Staples, and Sam's Club. The approach wasn't without its merits. While it was true that Dell would no longer have direct contact with its customers, that the retailer would now own that relationship, and that Dell would be able to offer consumers a much more limited array of products, there was a significant upside: Dell could quickly gain access to many more customers through some 20,000 retail storefronts. To a degree, the strategy did work: as noted above, it helped the company to climb solidly into the second tier of computer makers. The Best Competitive Weapon Still, something was amiss. Dell executives soon realized that conventional retail channels and pre-configured computer models did not allow the company to leverage its most effective competitive weapon: mass-customization of products. Moreover, Dell's stock configurations could not command their accustomed price premium while sitting on retail shelves because they were insufficiently differentiated from competitors' offerings. Worse, Dell experienced a sizable increase in its capital costs, as it had to maintain 60-day finished goods inventory for the channel, whereas before it needed no finished good inventory. This set of consequences highlighted what Dell officials should have known all along: that mass-customization was more than a mere manufacturing alternative; it was, instead, a very powerful way of placing the product--and the customer--first. Dell executives discovered that not just the quality of Dell products made the company stand out, but also the highly customized way in which the products were designed. Perhaps most importantly, Dell learned that mass-customization, by requiring the tight integration of product design with the computer maker's supply chain, actually promoted closer and more cost-efficient relationships with the company's suppliers, which provided the significant additional benefits of lower cost and faster component shipments. As it happened, Dell's mass customization was not particularly onerous to implement. Dell only had to maintain sufficient quantity of the various hardware components on hand, and then pre-test all possible combinations of components ahead of time to make sure they worked together flawlessly. Dell's close relationships with suppliers also gave Dell early access to new peripherals, allowing the company sufficient time to test new product configurations before offering them to customers. The Benefits of Putting Product First> The benefits to of this changeover to a Product First-style strategy were immediate. Dell soon was able to turn inventory over twice as fast as retail-only computer sellers because it did not have to hold channel inventory. And although customization increased manufacturing costs by 5%, it allowed Dell to once again secure a 12% price premium through add-ons and upgrades. But the most notable accomplishment was the most basic: as indicated above, Dell ended its stall and accelerated, within a few short years, to virtually unchallenged leadership in the core computer markets. The key lesson from this experience? Providing customers with the specific products they want, both quickly and cost-efficiently, is one of the most effective ways of boosting market share, and thereby increasing corporate value. PTC's Product First Roadmap highlights this and eight other Value Opportunities, which we will continue to explore in upcoming columns. |
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Copyright 2003, by The McGraw-Hill Companies, Inc. |
