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Dell: Computer Maker Gets By On Scant R&D Budget

Dell: Computer Maker Gets By On Scant R&D Budget
-->Oct. 28, 2002

http://informationweek.com/story/IWK20021025S0004
http://www.themacobserver.com/article/2003/11/24.5.shtml
http://www.gsm.uci.edu/NewsAndEvents/InTheNews/InTheNews.aspx?NewsArticleID=367

Dell Computer spent just 1.3% of revenue for its second quarter on research and development.By Aaron Ricadela InformationWeek

While many of the largest technology companies budget 5%, 15%, and higher portions of revenue for research and development, one computing industry star isn't even in the ballpark. Dell Computer spent a paltry 1.3% of revenue for its second quarter ended Aug. 2 -- about $111 million -- on R&D.

The investment is typical for Dell, which has been profitable in the tough PC and enterprise computing markets where others have faltered. A year ago, Dell spent 1.5% of revenue on R&D.
By contrast, Hewlett-Packard spent 6% of revenue, or $983 million, on R&D during its third quarter ended July 31. Sun Microsystems spent 16% of revenue, or $437 million, during its first quarter, ended Sept. 30. And IBM's R&D spending was $1.2 billion, or 6.1% of revenue, for its third quarter ended Sept. 30.

Kevin Rollins, Dell's president and chief operating officer, says the company relies on "collaborative R&D," leveraging the research and engineering investments of its suppliers -- including Microsoft and Intel -- to reduce costs as more business-computing products become standardized. "There are myriad suppliers who have developed the components that go into our systems," Rollins says. "We think there's a lot of hoopla about big research budgets in companies."

Dell is trying to pare $1 billion in costs this year from product design, manufacturing, and other areas, and slipstreaming innovation from other vendors into its products could help.
For example, Dell's network-attached storage products use a component operating system from Microsoft, while products in development could employ technology from Intel and others to offload work from the computers' CPUs to their host adapters.

V.S.
http://www.sopheon.com/inknowvations.asp?id=5-1-2005
Granted, Marks's vision is more than a tad extreme. True, despite the tech recovery, many corporate R&D budgets have been tightening. HP's R&D spending long hovered around 6% of sales, but it's down to 4.4% now. Cisco Systems' R&D budget has dropped from its old average of 17% to 14.5%. The numbers also are falling at Motorola, Lucent Technologies, and Ericsson. In November, Nokia Corp. said it aims to trim R&D spending from 12.8% of sales in 2004 to under 10% by the end of 2006.

http://www.macobserver.com/article/2004/12/01.3.shtml
Apple spent US$471 million in 2003 on R&D, a 6% increase over 2002, or $25 million more than the previous year.

Apple R&D accounts for 8% of its sales, the survey showed. The Mac and iPod maker spends $34,719 on R&D for each of its employees.

The 2004 R&D Scorecard of the top 150 spenders showed Apple sixth among the top nine computer hardware makers in spending. IBM was first among computer companies and 19th overall, followed by Hewlett-Packard in second and 24th overall. In comparison, IBM spent $5 billion on R&D in 2003; HP spend $3.6 billion. IBM had a 7% increase in R&D spending, or $318 million more. HP spent 10% more, or $340 million.

The trend among computer manufacturers in 2003 was to spend less on R&D, with a .4% overall decline.

Extral Credit #2 for my blog on yahoo

my blog on Yahoo.

Facts comparing: India Vs China

Lots of our classmates talked about the bombing ecnomic growth in India and China, and I googled totoday and get a comparision from an india website:

Some compare data here, interesting article here:Where India Trumps China: Software

China started their family planning policy in 1970, India in 1952
In 2001 our birth rate was nearly 3 times more than China. 27 births per 1000 as against 8.8 for China! India is adding 18 million people per year, against 9 million per year in China. Total addition to population is a function of total births minus total deaths.

How will we provide additional 10 million jobs per year?
The Public Sector and State/Central Government, which is already overstaffed, has a total of 18.7 million employees, therefore offers very little scope for new employment. We have to look outside the government for new employment.The unorganized sector and the SME’s (SSI is not SME) offer the maximum scope for employment, like in all other countries of the world, including China. SME’s account for nearly 75% of employment and 80% of trainees!

The Government can only facilitate jobs, they cannot provide jobs for the 300 million partly or fully unemployed in India!
At 10 million jobs per year it will take us 30 years to remove unemployment, at 5 million jobs for year it will take us 60 years! The present Indian ‘mind set’ will require rethinking and reorganization of the existing perceptions about Public Sector enterprises, and the actual role they are supposed to play! Only efficient organizations can deliver results and growth. Only better governance and efficient administration can deliver results!

India's per capita earning is US$440 per year against US$990 per year in China
As per the World Bank, the poverty line definition is US$1 per person per day or US$365/person/year, for underdeveloped countries like India, China etc. As per the official data from both governments, China has 3% population below the poverty line, compared to India’s 26 to 29%! Only better governance will help.

China attracts 87 million tourists per year (this is expected to reach 90 million in 2002) against 2.5 million per year to India.The international Tourism Industry is [7 times the size of I.T. or software] about, US$3700 billion per year. India, in spite of its old history and 21 cultures and languages, seems to have ‘missed the bus’, in Tourism. Tourism is a very big employment generator. It is estimated that every one tourist generates 2 to 4 jobs. Tourism promotes International trade and understanding.

In Foreign Direct investment, FDI, China + Hong Kong received US$106 billion last year [US$70billion from NRC's] vs US$3.6 billion [US$0.2b from NRI's] for India! Only better Governance can attract FDI and Tourists. In exports, China is nearly +700% of IndiaTaking the exports of Hong Kong + Macau into account, China's exports would be +1000% of India! China’s GDP is 50% in manufacturing or $ 650 billion per year. India’s GDP is 25% in manufacturing or $110 billion per year. China’s manufacturing base is nearly 6 times of India’s.

In agriculture our yields per acre, are well below the international normsIndia could be a giant exporter of food, only if we could put our ‘house in order’ to near world class standards! China with lesser cultivable land, produces double the food grains, at 415 million tons per year compared with India's 208 million tons per year. God has been very kind to India with a lot of sunshine, rain, rivers, lakes, coastline and good hard working citizens.The governance of hamlets, villages, cities, districts, Government and Semi-Government agencies, as facilitators, have not done enough to show the results that India is able or capable of achieving. India would definitely rate as the No.1 country in the world, for Potential vs Performance!Indians score high marks on performance, outside India! This is because the Governance is better outside. In countries where the Governance & Administration is poor, the performance of its citizens is also low!

In Education, 99.1% of Chinese children attend school for 9 years, this ensures a high level of literacy. In India, literacy is 50 to 60%
While IIT's, IIM's are important, the country's real growth will come because of primary and secondary education and vocational and educational training in all districts of the country. India can rise and shine in exports, agriculture, literacy and other areas with better governance.The only Constant in Life is CHANGE!

Market/Technology Post #2 Pricing and Positioning for Entrepreneurial Marketers

Pricing and Positioning for Entrepreneurial Marketers
In this article from knowledge@wharton, according to Wharton marketing professor Leonard M. Lodish, "positioning and pricing are the most important entrepreneurial marketing decisions that you can make. They are the two basic issues that are critical not only for the marketing of an entrepreneurial venture, but for the venture itself.

Positioning a product [Product position, kotler, P259-261], Lodish suggested that entrepreneurs follow several key principles:
· Give someone a reason to buy your offering over the competition.
· What are the unique differentiating characteristics of my product or service
· Remember that humans cannot make decisions balancing more than two to four differentiating attributes at a time.
· Features vs. benefits. People buy benefits, perceived value. They don't buy features.
· Never underestimate the value of a good name and a good slogan.

In order to gain a competitive advantage, Lodish suggested use greater value/benefits instead of just lower price, as we know from text book, valued based pricing strategy.

Pricing.
Pricing is completely dependent on the rest of your marketing mix, especially positioning, said Lodish. That all customers what to know is what the price is; that customers begin to unbundle your services and perceive your product as 'just another bid'; that salespeople have to battle constant price objections. If that's true, you have a problem. Because you are not going to make the kind of money you want to make from that industry unless you get to the point where you are perceived as valuable enough - compared to your competitors - so that you can charge some kind of a premium."

Lodish recommend premium pricing [Value based pricing, Kotler, P 359-360]. Premium pricing means continually improved perceived value to customers vs. the competition. How do customers get perceived value? From everything they see about your company," which includes reputation, trust, design, brochures, sales force, web site, interactions with products, other customer's recommendations, packaging, and yes, pricing.

Pricing and positioning are the most critical marketing decisions for entrepreneurial ventures." The techniques, methods and concepts discussed during the session "should help you make these decisions more profitably.

Market/Technolgy Post #1 How Store Location and Pricing Structure Affect Shopping Behavior

In the “How Store Location and Pricing Structure Affect Shopping Behavior”, a article written on knowledge@wharton, the authors take a close look at the shopping behavior of consumers to determine what makes shoppers choose one place over another and how retail managers can drive traffic to their stores. While the authors offer a complex explanation of consumer behavior, their message is simple: In order to improve store performance, retailers must begin to think like shoppers.

Research on retailing typically attributes the success of a store to its location. At the same time, marketing experts have focused a great deal of attention on the role of pricing in store performance, but without considering location. In this recent study, Bell, Ho and Tang provide managers with a new shopping framework that takes both criteria into account. By weighing such factors as distance to the store, customer service, familiarity with layout, product assortment and pricing strategies, a store manager can begin to predict how and where people will shop.

As a result of studying the behavior of consumers, the researchers also discovered that a tremendous amount of inertia exists among shoppers—that is, people don't switch stores easily or often. Although Bell attributes this inertia mainly to psychological factors, the finding is especially significant for EDLP stores. Once consumers have settled into satisfying the major share of their needs at one store, it is very difficult to get them to switch. Because EDLP shoppers tend to buy most of their things at one main store, the EDLP managers can take steps to retain their customers and develop a loyal customer base. A HILO store, however, is more vulnerable because people shopping at those stores generally buy smaller amounts and end up filling their needs in multiple locations.

People also develop store loyalties for particular products, according to the study. Although a consumer may do half of his or her shopping at store A and half at store B, the purchase proportion of certain products is not necessarily 50/50. For example, a person may buy 90% of his soda from one store, even though he buys half of his shopping list at another store. Stores can use advertising, promotions and private labels to create a draw on a particular category of products that causes people to perceive the benefit of buying a product at one store to be higher than it is. And, if you are able to do this over enough categories, you will eventually tip the scale so those shoppers do all their shopping at your store.

"The lesson for everyone," says Bell, "is that it is always cheaper to keep customers than to try to attract new ones. Therefore, all stores should be creative about enhancing store-specific benefits in ways that keep customers coming back."

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Product Topic Post #3, Shrinking Product Development Time

Shrinking Product Development Time

This is an article discussing on how car manufacturers trying to shrink their product development time on new auto product development. As know from our text book, a firm can obtain new products in two ways; one is through acquisition-by buying a whole company, a patent, or a license to produce someone else’s product. The other way is through new product development in the company’s own R&D department. [kotler, P315]

“All the competitors are trying to figure out how to get to market faster,” says Ford's Theodore. “It doesn't matter whether it's the auto business or the cell-phone business. There's a strategic advantage to getting quicker and that has to do with the product-creation process [product development phase, kotler, P323].”

In the 1950s GM could develop brand new cars like the Chevrolet Bel Air in just 22 months, but when government safety and emissions standards were enacted in the 1960s, bureaucracies within the companies ballooned and by the 1970s and early 1980s it took 60 months or more to bring a new car to market after everyone signed off on the final design. That spelled disaster when fuel prices soared and Americans suddenly developed a taste for smaller, front-wheel-drive cars.
That led to a dramatic and well-publicized push to so-called simultaneous engineering,[simultaneous product development, Kotler, P328 ] where designers, engineers, and manufacturing folks all were supposed to start working together during a vehicle's initial design to speed the development process.
When GM was able to bring out the 1988 Chevrolet Corsica in just 45 months, engineers celebrated.
By the mid-1990s everyone was talking about 36-month development times, and that's when auto makers started turning to eye-popping virtual-reality tools.

In 20 years or so on automobile manufacture market, auto’s development times have gone from 60 months to 36 to 24 and now to 18, with Toyota reportedly targeting 12 months. Will it ever end?

Topic Post #2: Apple's Tipping Point: Macs For The Masses

Apple's Tipping Point: Macs For The Masses

This is a very interesting thought about Apple's product marketing strategy. As the auther mentioned in this article:

Until January 2005, Apple had no iPod or PC products that served the mass market. With the launch of iPod Shuffle and Mac mini they have finally converged two product paths with the mass market in mind. ( Typical product line extention [Kotler, P289-290] and brand extention.[Kotler, P296-297]) This will not only drive more iPod sales (via the Shuffle), but also fulfill the promised "halo" effect of the iPod products as PC users jump to the Mac mini. This is through apple's products mix[Kotler, P290] The Mac mini could bring Apple to a tipping point in which a combination of factors create strong double digit market share in the mass-PC market, as Windows-based PC's continue to suffer from viruses and adware and users are drawn to the elegant and affordable simplicity of the Mac mini. From the concept of product line extention, [Kotler, P289-290], these two products perfectly fits into Apple's original line products through product line stretch.

The Three market sections defined here:

High-end Market/Middle Market/Mass Market:

The Sweet Spot: Inside the Mass Market Psychological Price Barriers ($100 for MP3 players, $500 for personal computers)

With the Mac mini, Apple further expanded the old Macintosh model matrix that had once cleanly separated desktop from laptop, consumer from professional.

Extending discussion on Marketing Promotion on Prius(Lisa Krause)

Celebrities flock to Toyota Prius
Hollywood crowd loves gas-electric hybrid car

In my teammate Lisa Krause's blog, promotion on Prius, she gived a excellent post on prius's promotion strategy. I want to add a little more on Toyota's promotion strategy of using promotion via celebrities.

Marketing via celebrities, government agencies and strategic partnerships
–Promote critical "Green" messages
–Help influence the governmental debate on environmental issues
–Expand upon Toyota’s reputation for environmental leadership and innovation
–Create unique opportunities for Toyota to deliver its environmental messages

Toyota is trying to build on Prius' popularity among celebrities, which has earned it the title of "Unofficial Car of Hollywood." The Environmental Media Association, EMA, which works with the television, film and entertainment community in an effort to increase environmental awareness, is holding an opportunity drawing for one of the first 2004 Prius vehicles available in America. In addition, print ads will appear in such publications as Entertainment Weekly and Oprah Magazine.

I believe this will send out strong positive influence over the target car driver, especially younger generation which are the fans of celebrities.