Monday, February 3, 2014
Dell, Competition and Porter's Diamond
One of the many keys to Dell's success include its relationship with suppliers and its ability to require its suppliers to provide parts 90 minutes (exactly) after receiving the order. This power - and their data driven approach to requiring further internal advances- has allowed Dell to turn its inventory an incredible 107 times per year.
This lean approach to the supply chain reminds me of Porter's Diamond and what he coined "competitive advantage". The idea behind the competitive advantage is one of a value-added chain, in which clusters appear together based on four major inter-connected principals:
· Factor conditions (basic human capital as well as physical capital like machines, etc.)
· Demand conditions (conditions specific to a location that create specialized demand, and make firms innovate faster and better )
· Related and Supporting industries (industries that are supply the main industry with parts and specialized human capital)
· Firm Strategy, Structure and Rivalry (essentially, this speaks to the fact that competition/rivalry can spark intense chains of innovation that would not have happened in more geographically dispersed conditions.)
(Chance and government also factor into this, but for the purposes of a basic structure- and in a location like the United States where the government and/or public institutions are relatively benign/less corrupt than most- I’ll only discuss the main four in this post)
The competitive advantage and clustering is explained by Porter as the main driver of innovation and what economists normally call comparative advantage. He uses examples like the Italian leather district: it was an area dense with many leather artisans, with intense competition between them, discerning consumers, and a number of suppliers as well as trained labor in the area.
Lean manufacturing at Dell uses many of these components- most specifically that of related and supporting industries- to run its company as efficiently as possible, most specifically its supply chain. While its customer base is geographically dispersed, Dell has discerning customers willing to go elsewhere for products which feed into both rivalry and demand conditions. The supporting industries have tailored their entire supply chains- and business strategy- around Dell. And its continued success is driven by its ruthless need for innovation in all aspects of its business.
While I’m not sure I believe the Porter Diamond concept in its entirety applies to Dell (or isn’t actually more than just the basic comparative advantage concept in international trade), it’s certainly an interesting framework through which to think of their success. My question, then is: in industries with high levels of competition, do you see the lean model being more successful or even needed, given the generally high levels of substitutability and general demand conditions?
 Living in Dell Time | Fast Company | Business + Innovation. (n.d.). Fast Company. Retrieved February 3, 2014, from http://www.fastcompany.com/51967/living-dell-time
 Diamond Model. (n.d.). Summary of Diamond model. Retrieved February 4, 2014, from http://www.valuebasedmanagement.net/methods_porter_diamond_model.html
 Porter's Diamond. (n.d.). Innovation for a Better World. Retrieved February 4, 2014, from http://ibii.co.il/images/1_InternationalBusiness2.pdf
Posted by Patty at 11:05 PM