The results are in, and for PC sales they are neither good, nor bad – but ugly! The pundits are out to find a scapegoat – and the most convenient scapegoat at the moment is Microsoft. For example see this report in today’s Wall Street Journal – which hails Microsoft’s mea culpa.
There is no doubt Microsoft is partly to blame for the debacle. I am no fan of Microsoft’s ketchup strategy (constantly throwing money to catch-up with the successful rivals). On top of it the company itself admits that “The world is changing and changing fast, and frankly we also didn’t get everything we dreamed of done in the first release,” of Windows 8. The report quoted above goes on to say:
Windows 8, the operating software launched in October, was intended to catapult Microsoft and its allies into the market for new kinds of computing devices—including tablets—and help generally get consumers more interested in buying new personal computers. Six months after the operating software’s debut, it isn’t yet a hit by the accounts of some PC executives and research firms.
One market-research firm, IDC, went so far as to say that Windows 8 did more than fail to revive the PC market—it actually turned off users with changes to basic elements of the widely used operating system.
Ms. Reller disputed IDC’s contention, and said the company is seeing steady if not steep sales progress. She said Microsoft has sold 100 million copies of Windows 8 since October, up from 60 million in January.
However, let’s pause to think about it for one moment. What about the roles of hardware vendors – HP, Dell, Lenovo, Asus, Acer and others. What have they done to create products that consumers would like. Where is the innovation in the hardware arena that would appeal to the customers?
As I said in the comments to the above article:
I think it is wrong to blame just Microsoft or Windows 8 for this debacle in PC sales. As I discuss in my recent book The 5-STAR Business Network (http://www.amazon.com/The-5-STAR-Business-Network-Corporations/dp/061579419X/ref=sr_1_2?ie=UTF8&qid=1367705465&sr=8-2&keywords=vivek+sood) it is always the business eco-system that is responsible for the success or failure of a concept. The entire Wintel business network has failed to innovate to improve the customer experience much beyond windows XP. I am still using the same laptops with same programs with marginal improvement in speed. Apple, on the other hand, and Google/Samsung in its footsteps has created entirely new categories of products, as well as, improved the customers’ usage experience much better. If you want to look at the success of a product or concept, look at the Business Network that works behind the scene to create the user experience – not at an individual company.
In a previous blog post I spoke about Intel’s role in this picture. Here is what I wrote at that time:
No doubt, the continued softening of the PC market is not only hurting HP and Dell, but also partly responsible for what is happening at Intel. The key question is that while Intel is extremely good at Advanced Product Phasing (APP), is it capable of proving itself adept at Fire-Aim-Ready (FAR) Innovation? Without innovation, and creation of new product for where the market is moving too – cloud based mobile gadgets, Intel is likely to continue to lose ground.
Troubles at HP continue to make headline news with regular periodicity. Dell is not immune to such news either. Lenovo is now thinking about selling its low end server business. The fact remain that the business model is changing again. Cloud is doing to Wintel, what Wintel did to AS400’s. The entire Business Network must move in line with this changing business model. Those companies who can configure a new 5-STAR Business Network that fits in with this new business model will prosper. The rest will continue to look for scapegoats.
Dell has not made as much news as it is making in the last few weeks for nearly a decade. Dell is once again back in the news this week, after opening its books to scrutiny by activist investor Carl Icahn. It has been a rocky road for Dell of late; 2012 saw Dell’s share prices plummet and while they have risen again over the course of 2013, they are not yet back up to their price of this time last year. The latest fluctuations are in response to founder Michael Dell’s plans to buy out his firm, plans which are opposed by other shareholders. The latest twist in the tale is the opening up of Dell’s books to activist investor Carl Icahn. The business press is watching eagerly for the next installment.
Dell’s only trick so far was its CASH ACTUALIZATION acumen as discussed in the new book, The 5 Star Business Network. There is no doubt that at one time Dell was the poster child of the global supply chain management.It stood up the industry model in the PC industry on its head, reduced the Cash-to-Cash cycle from an average of 46 days to a negative number and created a competitive advantage that lasted it nearly a decade and a half. That one trick allowed the company to coast for the last several years, while its former suppliers metamorphosed themselves into formidable competitors.
Even today when looking for an ideal example of CASH ACTUALIZATION for my book The 5-Star Business Network, I could not find a better example than Dell. Yes, I am well aware of the irony involved. Yet, the transformation that Dell created in Cash-to-Cash cycle has no parallel in the history before or after its crowning achievement.
This brings us to the critical question – Is Dell a one trick pony? Or, does it have more tricks up its sleeve? And, what could be these other tricks?
I do not have an answer to this question, but I am eager to hear as many different opinions as possible. Obviously, all opinions are just opinions, for only time will tell what actually happens.
Has Apple learnt the lesson that Dell never learnt?
Apple has grappled with this conundrum for a while now – when, if at all, to dump Samsung? There comes a point in every business network when the erstwhile suppliers become more powerful than the ‘customer’. Dell continued to rely on its suppliers in far east while they were eating his lunch. Look where it landed Dell?
Dell’s supply chain conundrum is not well explained by the market analysts – many of its suppliers are also some of its biggest competitors. Ten years ago, when Dell was a far bigger company that its much smaller suppliers it Asia, this did not matter much. But they have now copied Dell’s business model to perfection – making its business model redundant. They won market share by under-cuting Dell in the market place, while Dell could not invent a newer business model. No wonder Dell lost the competitve advantage it had created so assidously in the 90s by shrinking the cash-to-cash cycle and building volume.
Apple is concerned that Samsung is doing exactly the same thing to it in the mobile devices market. While it continues to persist with its lawsuit against Samsung, it does not yet desist from continuing to buy critical components from Samsung.
At the same time it also continues to expand its business network – e.g. see its attempt to enrol Intel into its fold. The news report from BGR explains:
The move could improve the quality of Apple’s mobile chips thanks to Intel’s leading process technology, and an added benefit for Apple would be to finally sever all ties with rivalSamsung (005930), which continues to supply components for various Apple devices.
However, this move may not be an easy one. Intel itself is re-inventing its own business business model in the post-pc world. With the shrinking margins in the PC market, and the growing volumes in the mobile world, Intel needs to get into the mobile chip market in a much bigger way than it currently plays in that game. Yet, ‘Intel Inside’ branding strategy may not be popular at Apple. Afterall Apple knows where that left the PC makers in their business networks.
This newsreport from Reuters explains the situation better:
After Intel upped its capital spending budget by $2 billion to $13 billion this year, speculation grew that Apple could ink a deal to use Intel’s leading process technology to make better chips for its iPad and iPhone. Doing so could help Apple end its foundry relationship with Samsung, which has become a fierce competitor with its own smartphones and tablets.
Sunit Rikhi, vice president and general manager of Intel custom foundry, told Reuters last week his group is ready to take on a potential large, unidentified mobile customer, although he declined to discuss Apple specifically.
Intel spokesman Chuck Mulloy said the chipmaker is in constant discussions with Apple, which buys its PC chips, but he would not comment on negotiations about a potential foundry relationship. An Apple spokesman declined to comment.
That is the conundrum then, On one hand is Samsung, a known follower who keeps becoming into a bigger rival. On the other hand is Intel, a hard negotiator where only the paranoid survive.
I talk a lot more about Apple’s business network efficacy in my book 5-STAR BUSINESS NETWORKS – it appears that unless Apple continues to come out with some more designs and gadgets, it will have to now play this game on both fronts.
US PC makers’ market is showing classic symptoms of short term strategic thinking taught by Harvards and other such august institutions, and which has become endemic of the American industry on the whole.
Other commentators have written sufficiently on the hollowing out of the US economy and the conversion of the economy into a FIRE (Finance, Insurance, Real Estate) economy. I have nothing more to add to that discussion.
However when Hewlett – Packard recently announced its decision to sell off the PC division to potential buyers to the middle east I was again reminded of how some of the most brilliant minds can be so wrong.
Looked at in isolation, the decision makes perfect sense for the board of HP. They purchased Compaq, they made a fair go of trying to clean up the supply chain and compete with Dell, they tried every trick in the book, and finally they threw their hands up in the air.
At least, as we say in Australia, they gave the sauce bottle a fair shake before discarding it.
IBM did not even do that when it decided to sell out to Lenovo.
IBM’s missteps in the PC industry are well chronicled – right from the decision to outsource the operating software to Microsoft, to supply chain problems in manufacturing to the final decision to sell the PC division to Lenovo.
HP, on the other hand, has had relatively benign coverage, though in my view their saga was even worse.
Right from acquisition of Compaq, to the price wars against Dell, to the supply chain machinations have neither been discovered, not analysed by strategic analysts working on the assumption that HP knew what they were doing, and it was only a matter of time before they will have it all under control.
A bit like Ben Bernanke and the Fed saga at the moment!
Meanwhile, all these strategic moves have ruined the PC business for the lone US survivor – Dell.
This little pig is still standing, though barely able to keep up with the pricing onslaught of HP as well as the copycats – the Acers, the ASUS, Benqs and other brands – many of whom are related to its erstwhile suppliers.
Once a darling of the Supply Chain world, Dell has also now morphed into a case study in how NOT to manage your supply chain. Almost all the competitive advantage has been lost to the former suppliers (or their associated entities) and there seems to no other tricks up its sleeve.
How long will Dell brave the onslaught of the low cost copy-cats without any competitive advantage what-so-ever?
A refreshing contrast to this whole saga is provided by Apple (whose CEO Steve Job finally pronounced today the long awaited words – iQuit).
Despite all the criticisms evoked by one of its suppliers (Foxxcon), Apple has managed to run a tight supply chain ship. It has kept the key components of the supply chain inhouse, and outsources only what is not a critical source of competitive advantage.
If it maintains its current strategy under the new CEO, there is no reason it can continue to launch one successful product after another – every few months.
So the key questions for the readers are:
Please comment and share your thoughts freely…