No, you’re missing the point - people learn from their customers AND suppliers AND employers AND competitors all the time. Asus came out from Acer, when 4 of the senior engineers at Acer left and created Asus. And they learned from Acer what they needed to get business from Dell.
Then they learned from Dell and others about how to sell finished computers. And have done so since 2003 when they introduced their own branded product on the market.
Is this a bad thing? No - Dell is still in existence, we have another brand to choose from (more competition), and the market survives. What’s the down side?
This is as old as the tech industry. Gordon Moore and Robert Noyce left Fairchild Semiconductor to found Intel. Fairchild Semiconductor itself was founded by the “Traitorous Eight” who left Shockley Semiconductor.
Good exchange so far. I appreciate it!
Here is the down side (STRICTLY from the perspective of Dell).
Once you start outsourcing your core work, you will be killed by margins. This is the HIDDEN rule of business.
As I mentioned in my previous post, I used to assemble PCs early in my career because it was cheaper for my company to assemble PCs than buy them.
That is exactly how Michael Dell got started. He, like me, went to UT-Austin. He, like me, started assembling PCs. He, UNLIKE me started a company.
One of the lessons he immediately took to heart was margins. If all he did was assembly, then he would never be cheaper than his competitors. It would come down to who could pay his assemblers less.
The original Dell tried to make as much in-house as they could. Obviously you had to buy Intel Chips and pay Microsoft for a Windows license, but Dell tried to make everything else inhouse. They combined those cost savings with a fluid on-demand manufacturing process and lack of retail outlet overhead to create the MOST profitable computer hardware company in America
At some point, some Harvard type MBA gets hired into the mix. He looks at Dell’s research budget and says “Why do we need this”. He looks at Dell’s current motherboards costing $20 and says “Cant we just keep using these forever?”
Someone says “No, we need new motherboards for the Pentium chips coming out. We will need to spend some money designing those”
Harvard MBA says “Well..I got these Asus guys that say they will design a new motherboard for us and sell it to us for $22. While that is $2 more than we spend on a motherboard today, we just saved $100 million, which is more than the 2 dollar overhead for all the PCs we sell THIS year”
The key here is short term saving. With this decision, Dell has created short term savings with a long term loss. They violated their own rule about keeping costs lower than their competitors.
By using industry made parts, they gave up any cost advantage. Their other model of on demand manufacturing powered by Internet only orders is easily copied by dozens of manufacturers.
Now Dell has become an also ran. Any part they order is an off the shelf part that their competitors can also order.
If Dell still had the ability to create their own motherboards, they would be saving $2 a PC on that. Add that ability for memory chips or fans or electrical systems or cases and suddenly you realize that Dell is paying $100 per system MORE for its components than Asus or Acer do.
Now, that does not sound like a lot, but multiply it by 30 million PCs and suddenly that is REAL money.
So, now, Dell struggles and struggles and is rapidly in the danger of going the way of IBM and HP and giving up on the PC business.
Meanwhile Asus and Acer both continue to post healthy double digit net margins despite selling cheaper computers.
And.. it is NOT due to labor. Dell has assembly plants all over the world and has access to cheap labor.
The fault lies solely in Dell’s decision to give up ALL internal component manufacturing.
MORAL OF THE STORY: There is always a need for outsourcing. Even if Dell built their own cases, they would still need to buy screws, as screws have no value add and Dell does not consume enough screws to be even in the top 100 consumers of screws. However, when it comes to Motherboards, Dell engineers CAN engineer a world class motherboard that COULD have provided an edge. Notice the new Macbook Air. It kicks ass and takes names because of its motherboard. Yes! Dont get fooled by the slimline etc. THe first MBA was a DOG! But Apple designed the new motherboard with built in flash memory and now MBA can be had with a built in 256 GB SSD and 4 GB Memory all built into the motherboard!!!!
NO OTHER computer manufacturer has that capability. That is why they cannot build a laptop as thin as MBA that has equivalent battery performance.
If Dell had kept the ability and facility to make motherboards they could have followed easily. Dell is the largest PC seller and they certainly could have made the value case to make a state of the art motherboard.
But, they gave it up for the sake of short term profits. Now they pay the price