Dell Inc is a multinational information technology corporation based in Round Rock, Texas, United States, that develops, sells and supports computers and related products and services. Dell was founded in 1984 with only $1000 by Michael Dell, the chairman of the Board of Directors and chief executive officer, on a simple concept: : by selling computer systems directly to customers, they could best understand their needs and efficiently provide the most effective computing solutions to meet those needs.
Their evolving business strategy combines their revolutionary direct customer model with new distribution channels to reach commercial customers and individual consumers around the world. In 1992, Mr. Dell became the youngest CEO ever to earn a ranking on the Fortune 500. In my report, I will try to analyze the crafting and executing strategy of Dell Incorporated I. Evaluation of Michael Dell’s performance……………………p1 II. Elements of Dell’s Strategy……………………………………. 3 III. Financial analysis………………………………………………. p7 IV. SWOT analysis reveal about the attractiveness of Dell………p11 V. Recommendations………………………………………………p14 I. Evaluation of Michael Dell’s performance As the leader of the Company, M. Dell has developed a new style of management based on both technical knowledge and marketing know-how. He had lot of good marketing ideas that allow the company to be a strong competitor on the I.
T. especially in PCs, internet and e-commerce practices. He was very clever when he choose to use a social strategy that allows him to motivate people winning their loyalty and respect. He was also considered as a very accessible CEO because he chooses to delegate authority to subordinates. Michael Dell justified his excellent performance by performing well in all the five areas of Crafting & Executing Strategy.
He formed a strategic vision for Dell which had five tenets: * A direct relationship is the most efficient path to the customer; * Allowing customers to purchase custom built products and custom-tailored services is the most effective way to meet customer needs; * Non proprietary, standardized technologies deliver the best value to customers * Searching a low-cost structure where cost savings can be passed along to customers in the form of lower prices; * Dell should endeavor to deliver added value to customers by: researching all the technological options, trying to determine which nes are “optimal”, and being accountable to customers’ for helping them obtain the highest return on their investment in information technology (IT) products and services. These five tenets were the key to delivering a superior customer values. He made sure that all company executive believe strongly in those five tenets. Under his leadership he developed the business model which uses the company’s strong capabilities in supply chain management, low cost manufacturing and direct sales capabilities to expand into product categories where Dell could provide added values to its customer in the form of lower prices.
Under his leadership, Dell has become the low-cost leader using his business model and strategy. II. Elements of Dell’s Strategy In accordance with five tenets, Dell’s strategy had six core elements:(1) a cost-efficient approach to build-to-order manufacturing,(2) partnerships with suppliers aimed at squeezing cost savings out of the supply chain,(3) direct sales to customers,(4) award-winning customer service and technical support,(5) customer-driven R;D,(6) emphasis on using standardized technologies, and product-line expansion aimed at capturing a bigger share of the dollars, its customers spent for IT products and services. . Cost-Efficient Build-To-Order Manufacturing Dell built its computers, workstations, and servers to order; none were produced for inventory. Dell customers could order custom-equipped servers and workstations according to the needs of their applications. Dell was regarded as a world-class manufacturing innovator and a pioneer in how to mass-produce a customized product.
Dell’s build-to-order strategy meant that the company had no in-house stock of finished goods inventories and that, unlike competitors using the traditional value chain model; it did not have to wait for resellers to clear out their own inventories before it could push new models into the marketplace-resellers typically operated with 30 to 60 days inventory of prebuilt models. Equally important was the fact that customers who bought from Dell got the satisfaction of having their computers customized to their particular liking and pocketbook.
All assembly plants had the capability to run testing and quality control process on components, parts, and subassemblies obtained from suppliers, as well as on the finished products Dell assembled. 2. Partnerships with Suppliers Michael Dell believed that it made much better sense for the company to partner with reputable suppliers of PC parts and components than to integrate backward and get into parts and components manufacturing on its own.
Dell management evaluated the various makers of each component; picked the best one or two as suppliers; and then stuck with them as long as they maintained their leadership in technology, performance, quality and cost. Dell just-in-time inventory emphasis yielded major cost advantages and shortened the time it took for Dell to get new generations of its computer models into the marketplace. New advances were coming so fast in certain computer parts and components (particularly microprocessors, disk drives, and wireless devices) that any given item in inventory was obsolete in a matter of months, sometimes quicker. . Dell’s Direct Sales Strategy and Marketing Efforts With thousands of phone, fax, and Internet orders daily and ongoing field sales force contact with customers, the company kept its finger on the market pulse, quickly detecting shifts in sales trends, design problems, and quality glitches. Management believed Dell’s ability to respond quickly gave it a significant advantage over PC makers that operated on the basis of large production runs of variously configured and equipped PCs and sold them through retail channels.
Dell saw its direct sales approach as a totally customer-driven system, with the flexibility to transition quickly to new generations of components and PC models. Dell’s Customer-Based Sales and Marketing Focus whereas many technology companies organized their sales and marketing efforts around product lines, Dell was organized around customer groups. Dell had placed managers in charge of developing sales and service programs appropriate to the needs and expectations of each customer group. 4. Customer Service and Technical Support
Service became a feature of Dell’s strategy in 1986 when the company began providing a year’s free onsite service with most of its PCs after users complained about having to ship their PCs back to Austin for repairs. Dell contracted with local service providers to handle customer requests for repairs: onsite service was provided on a four-hour basis to large customers and on a next day basis to small customers. Dell was aggressively pursuing initiatives to enhance its online technical support tools and reduce the number and cost of telephone support calls.
The company was adding Web-based customer service and support tools to make customers’ online experiences pleasant and satisfying. 5. Customer-Driven Research and Development and Standardized Technology Dell’s R;D focus was to track and test new developments in components and software, as certain which ones would prove most useful and cost-effective for customers, and then design them into Dell products. Management’s philosophy was that it was Dell’s job on behalf of its customers to sort out all the new technology coming into the marketplace and help steer customers to options and solutions most relevant to their needs.
The company talked to its customers frequently about “relevant technology,” listening carefully to customers’ needs and problems and endeavoring to identify the most cost-effective solutions. Studies conducted by Dell indicated that, over time, products incorporating standardized technology delivered about twice the performance per dollar of cost as products based on proprietary technology. The company’s R;D unit also studied and implemented ways to control quality and to streamline the assembly process. . Expansion into New Products Dell’s recent expansion into data storage hardware, switches, handheld PCs, printers, and printer cartridges represented an effort to diversify the company’s product base and to use its competitive capabilities in PCs and servers to pursue revenue growth opportunities. Michael Dell tends to look at what is the next big opportunity all the time. They can’t take on too many of these at once, because it kind of overloads the system.
But they believe fundamentally that if you think about the whole market, it’s about an $800 billion market, all areas of technology over time go through a process of standardization or commoditization. And they try to look at those, anticipate what’s happening, and develop strategies that will allow Dell to get into those markets. III. Financial analysis Dell’s Financial Analysis Year (Numbers In $MiL)| 2001| 2002| 2003| 2004| 2005| 2006| 2007| 2008| 2009| Revenue| 31,888| 31,168| 35,404| 41,444| 49,205| 55,908| 57,420| 61,133| 61,101| COGS| 25,445| 25,661| 29,055| 33,892| 40,190| 45,958| 47,904| 49,462| 50,144| SG&A| 3,193| 2,784| 3,050| 3,544| 4,298| 5,140| 5,948| 7,538| 7,102| Operating Income| 2,663| 1,789| 2,844| 3,544| 4,254| 4,347| 3,070| 3,440| 3,190| Net Income| 2,177| 1,246| 2,122| 2,645| 3,043| 3,572| 2,583| 2,947| 2,478| | | | | | | | | | | Total Assets| 13,435| 13,535| 15,470| 19,311| 23,215| 23,109| 25,635| 27,561| 26,500| Total Liabilities| 7,813| 8,841| 10,597| 13,031| 16,730| 18,980| 21,307| 23,826| 22,229| Total Equity| 5,622| 4,694| 4,873| 6,280| 6,485| 4,129| 4,328| 3,735| 4,271| | | | | | | | | | |
COGS as % of Revenue| 79. 79%| 82. 33%| 82. 07%| 81. 78%| 81. 68%| 82. 20%| 83. 43%| 80. 91%| 82. 07%| SG&A as % of Revenue| 10. 01%| 8. 93%| 8. 61%| 8. 55%| 8. 73%| 9. 19%| 10. 36%| 12. 33%| 11. 62%| Operating Income as % of Revenue| 8. 35%| 5. 74%| 8. 03%| 8. 55%| 8. 65%| 7. 78%| 5. 35%| 5. 63%| 5. 22%| Net Income as % of Revenue| 6. 83%| 4. 00%| 5. 99%| 6. 38%| 6. 18%| 6. 39%| 4. 50%| 4. 82%| 4. 06%| Return on Assets| 16. 20%| 9. 21%| 13. 72%| 13. 70%| 13. 11%| 15. 46%| 10. 08%| 10. 69%| 9. 35%| Return on Equity| 38. 72%| 26. 54%| 43. 55%| 42. 2%| 46. 92%| 86. 51%| 59. 68%| 78. 90%| 58. 02%| Financial Leverage (Assets/Equity)| 2. 39| 2. 88| 3. 17| 3. 08| 3. 58| 5. 60| 5. 92| 7. 38| 6. 20| Dell’s selling products directly to customers and expansion into other IT products made company lose the number one position in computer world to Hewlett-Packard (HP). Dell lose revenue and market share to HP, the biggest competitors. IV. SWOT analysis reveal about the attractiveness of Dell SWOT analysis of Dell Strengths| Weaknesses| – Direct business model: Just-in-time manufacturing and Build to customer rder- Competitive pricing- Cost/ differentiation strategy – Highest quality and technology- Best-in class service and support- Flexible customization capability – Superior corporate citizenship- Real time adaptation to environmental changes- Effective leverage of skills, technologies and core competencies while competing against rivals- Highly qualified and professional employees- Overall operating and cost efficiency| – High dependency on component suppliers and manufacturers of subassemblies and other devices (drivers, printers, scanners, modems, memory cards, data storage, etc…)| Opportunities| Threats| Mass customization- Potential growth in overseas markets- Perpetual expansion of Pc’s industry market| – Fierce competition (prices and market shares)- Emerging of new competitive forces- Tariffs, taxes and trade barriers- Currency fluctuation- Political instability in some countries| Looking at the SWOT analysis of the company’s business, it is evident that Dell does still hold a very strong competitive position.
The key factor of the company’s success is its “Direct Business Model” concept, in addition to the close relationship both with customers and supply partners, but definitely a better understanding of its business and the ways to keep it efficient everlasting. Indeed, Dell’s business model proved its efficiency and its attractiveness since the company entered to the “Fortune Global 500”, and especially when its major competitors started copying it, but never succeed in implementing Dell’s innovative concept correctly: they didn’t realize that it’s a matter of a whole different way of operating.
Hewlett-Packard is a global technology company and after its merger with Compaq it became world’s biggest computer hardware and peripherals Company in the world over Dell: * Hp is doing business in more than 170 countries including the ones that are developing and under-developed with network of distributors and retailers. * Selling computers online and through retailers. * Product diversity with many customers. * Using of cutting-edge technology. * Access to timely information V. Recommendations Dell losing the number one position as the world’s top supplier of new computers to Hewlett-Packard (HP).
How can Dell take again from HP? Here are my recommendations: Dell has to go back to basics. What made Dell the number one computer company in the first place? The answer is Computers. Dell computers, laptops and servers were considered the best in the industry. And Dell became the household name when it came to buying computers. Dell was the perceived high quality brand. Dell must focus on the core business: Computers rather than creating average computers and discounting the computers to gain market share, Dell needs to design a new line of computers that appeal to the masses, business, government and IT.
Dell should focus on diversifying products to all customers. Such as: computers for students, computers for teenager like Apple do, computers for businessman… The Dell Direct model made sense during the Internet boom years and when the model was new and not easily imitable by Dell rivals such as HP. However, Direct model cannot be the only business model for buying computers. HP can sell computers online and also through retail channels, why can’t Dell do the same? Dell has to go retail – not just as an extension of the Dell Direct model, but as a completely new business.
Only a small segment of customers buy computers direct outside the U. S. The majority of the market does not buy direct. If this is the case, Dell must reinvent itself if it were to become a truly global player. Dell cannot sell only through “Direct model” outside the U. S. at least to emerging countries such as India, China, Russia, and Brazil. Dell should rather leverage the Dell brand and sell through the normal channels that the customers of these countries are acquainted with. HP’s market share grew in large part due to the worldwide shipments outside the U.
S. HP has established retail, reseller and distribution channels worldwide. Dell must quickly do the same. And once the Dell brand is established in the country, Dell can then begin to introduce the “Direct model”. But Dell cannot, must not lead with the “Direct model”. Michael Dell is a visionary, innovator and a creative leader, focused on execution and results. He made Dell the number one computer company in the world. Dell is on a mission to turnaround Dell, beat HP and make Dell the number one computer company in the world again.