Porter (1980) explained the importance of focusing on cost leadership and product differentiation to gain competitive advantage - producing an excellent product which is a complete solution to a perceived need. It will then use system lock-in to sustain its competitive edge - locking in complementary products, maintaining a proprietary standard whilst locking out potential competitors.
Between 1996 and 2006 the PC industry underwent two major revolutions. Firstly the way in which PCs were ordered changed with the commencement of e-commerce and secondly the methodology for manufacturing PCs altered radically with the introduction of lean manufacturing and supply chain management.
1996 Dell began selling on-line in 1996 recognizing the importance of having an encompassing e-commerce strategy. By 2000 its on-line sales were $50m/day. Dell became the largest manufacturer of personal computers in the world in 2001.
Many have argued that the Internet renders strategy obsolete. In reality the opposite is trueit is more important than ever for companies to distinguish themselves through strategy. The winners will be those that view the internet as a complement to, not a cannibal of, traditional ways of competing.
The great paradox of the Internet is that its very benefits - making information widely available; reducing the difficulty of purchasing, marketing, and distribution; allowing buyers and sellers to find and transact business with one another more easily - also make it more difficult for companies to capture those benefits as profits. (Porter, 2001)
Figure 3 The Five Forces
Being online increases competition. However there are opportunities there - particularly the removal or reduction of barriers to entry, and potentially equal access to consumers.
Dell has no research and design costs thus increasing its advantage. IBM had already shown that marketing and distribution skills were more important than the latest technological innovation as the market for low cost PCs matured faster than anticipated. Dell simply adopted IBM's strategy:
Open source software
Supply Chain Management Strategy