How Digital is Your Business

Adrian Slywotzky  and David Morrison

2000  Crown Business, NY NY

DELL GOES DIGITAL

Nineteen ninety-six was a watershed year for digital business. Cisco Systems started selling computer networking gear on-line. Charles Schwab created the eSchwab electronic brokerage business. And Dell started selling computers via Dell.com.

The business world didn't pay much attention to this confluence of events. (It's disquieting to reflect: "We missed the advent of digital business in 1996. What are we missing this year?") Ninety percent of all the businesses out there could have done what Dell, Cisco, and Schwab had begun to do--substituting bits for atoms. Ninety percent chose not to. Because of the choices they made that year, Dell, Cisco, and Schwab are still their industries' leaders today:

Dell had already made it possible to track order status via the Internet. In the late 1990s, customer readiness to use the Web for buying had in- creased to the point where selling via the Internet was the logical next step-especially for a PC company: By definition, everyone on the Web was part of the target audience for Dell's products.

 
Dell's transition to digital was not an overnight event. For a time, the vast majority of its business was still done by telephone. This transition to a hybrid business model is typical of smart organizations that are in the process of going digital: Schwab, Cisco, and Cemex have all employed similar mixes of on-line and nondigital business. Dell drove the mix to evolve toward digital very; very quickly:

 The key step was the creation of Dell's on-line configurator, a digital system for designing a customer's own PC and one of the world's first Choiceboards. By permitting customers to design a PC that has only the options they really want, the configurator makes possible a precise fit between the customer's needs and the product's features, rather than the compromise for which customers have traditionally settled.

The Dell configurator still offers the easiest way to buy a PC anywhere.  Among its benefits to the customer are:

Simplicity: Dell offers two models of laptops and desktops, and three models of servers, so the differences are quick and easy to grasp. The models' simplicity is balanced by Dells customization.

Customization: Choosing from among a variety of options (memory size, hard drive capacity, modem type, and so on), customers can configure Dell's computers according to any of over 16 million possible permutations.

Instant feedback: For each choice a customer makes, the exact cost (or savings) is immediately available.

Digitized human touch: Customers can easily request additional information to aid in their decision making.

Less obvious but equally important are the benefits to Dell:

Perfect accuracy and speed: Because no salesperson or order- entry clerk is required to record customers' choices, there is no delay in processing an order, and no opportunity for costly errors or miscommunications.

Upselling: The configurator makes it easy for customers to buy accessories or options that will upgrade the power and quality of their equipment. The fact that customers are no longer forced to spend money on features they don't want may encourage such upgrading.

Capture of customer information: Because the configurator instantly records every customer's preferences, Dell can track buying patterns in real time instead of on a quarterly, monthly, or weekly basis.

Dell's configurator works only because of the information-intensive production system Dell has created. This system makes it possible for Dell to build computers to customers' specifications quickly; accurately, and co, without stockpiling inventory. The system's features include:

Radical reduction in parts: In the PC industry, as in most others, 10 to 20 percent of stock-keeping units (SKUs) account for 90 percent of customer demand. Dell focuses on that vital subset.

Digitization of information: Ordering details and specifications are transmitted down the line electronically---"following" the computer as it is assembled, and precluding errors and miscommunications.

Digital supply network management: Dell has developed unusually close relationships with a small number of suppliers that are kept fully informed (electronically) of changing order patterns and component needs. They supply parts on a just-in-time basis, limiting the amount of money and space Dell must invest in stocking supplies

Process simplification: The original standard of 130 "touches" during assembly of a typical PC system has been reduced, over time, to just 60.

Dell engineers are continually working to improve and streamline these processes; collectively; they own over 200 process patents. As a re- sult of these and other digitization steps, the total production time for a Dell PC-from the moment the customer places the order until the computer leaves the assembly line ready for shipping is only six hours.