Dell Case Study 1

Running Head: Dell Case Study

Dell Case Study

Preston Boyd

Ashland University
 Dell Case Study 2

Background

Michael Dell had a vision of customizable home computers far before the idea

was even possible. Dell started his first company at the age of nine and was making

2,000 dollars a month. In college, he started a computer component and personal

computer company that he called PCs Ltd. He was innovative in his thinking and bought

all of his parts and computers directly from IBM wholesales. He would then place an

advertisement in the local newspapers and sell them for 10 to 15 percent less than

retailers. Dell was so successful at selling the computers that he decided to drop out of

college and running PCs Ltd full time. The company was selling IBM clones for nearly

half the cost. As computers became more popular, so did PCs Ltd. The company was

growing and needed to change its strategy as it expanded with the changing computer

market.

In 1987, PCs Ltd was renamed to simply Dell. In 1988, the company went public

and temporarily lost its direction. This seems to happen quite frequently to companies

that have a clear vision and then go through a public offering. Management begins to

focus more on the stockholders than they do on the customer. When this happens, the

vision of the company is changed in order to maximize bottom line profits. Dell

computers were being sold in retail stores and soft warehouses. This is something that

Michael Dell did not want to happen.

He always saw his computers as being completely custom and made as they were being

ordered. Trying to sell them in retail stores was making the company less profitable and

less successful.
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Michael Dell

In the early years of his career, Michael Dell was said to be the quintessential

CEO in the United States. This is because he was able to take his small idea and turn it

into a billion dollar empire.

It is in the most difficult situations when leaders do great things. Dell was in a

tight situation with its sales decisions and needed to do something to make the company

more profitable. Dell chose to revert to his original vision and offer affordable,

customizable computers to everyone. He did this by utilizing just in time production and

other operations strategies. Customers could go online and choose everything they

wanted on their computer as well as the things they did not want. These strategies and

ideas led Dell to be one of the leading personal computer companies in the world. In

2004 he made another noble decision as the leader of Dell computers and stepped down

as the CEO. I think that this shows his dedication to the company. He knew that his

original idea for Dell had worked, but the market was evolving and the company would

need fresh new leadership to lead it into the future. He knew that the new opportunities

were in the global market and he had no experience in these markets.

I feel that Michael Dell has done a great job as CEO and continues to do a great

job as the chairman of the board. Although Dell has had some problems recently with

some of the services it offers, they are adapting with customer feedback.

Dell is also positioning themselves globally, this is something that Michael Dell thought

he needed someone else to lead the company into a new era. He was able to put his ego

aside for what was best for his company. I think that these are signs of a great leader and

entrepreneur.
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Dells Strategy

The core of Dell Computers strategy from 2002 to 2004 was to use its strong

capabilities in supply chain management, low cost manufacturing, and direct sales

capabilities to expand into product categories where it could provide added value to its

customers in the form of lower prices (Strategy, pg C136). They accomplished this by

taking popular technology products and reengineering them. They could figure out how

the product was made and make minor changes to make the product more affordable to

the customer. If they could not build the product themselves they would outsource the

work to other firms and sell the product under the Dell name. This strategy was build

around a set of core elements. Theses core elements were cost efficiency, partnerships

with suppliers, direct sales to customers, timely and efficient support and being the first

to utilize the internet. Their relationship with suppliers is especially important. At this

time Dell was building the computers as soon as the orders came into the computer.

They used just in time inventory practices to make sure they were utilizing warehouse

and work space as well as cut costs. At times they would have to operate on as little as

two hours of inventory. If Dell did not have strong relationships with their suppliers,

their production time would suffer and customers would have to wait longer to get their

custom computer.

By following their core competencies and keeping solid relationships with suppliers,

Dell could effectively run their low cost supplier strategy. At the time the strategy was

working great because they were the only low cost computer supplier. In time other

companies would also offer low cost computer and Dell would have to find other ways to

sell their computers.

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Dell decided that in order to differentiate themselves from the other rising competition,

they would start offering other products and services to their customers. They set up

contracts with local computer stores to fix the Dell computers in the customers home.

Dell also set up technical support hot lines and web sites in order to help customers with

any small problems that came up. These types of services are what set Dell apart from

the low cost competitors. Once again they were able to come up with an innovative

strategy to develop a competitive advantage. The only problem with these services is that

they lacked in quality. I know from personal experience that when I use the Dell hotline,

I always talk to someone from another country that I cannot understand. I never get a

good answer and I am usually forced to take it to a computer repair store. Also the

websites are usually only helpful if your computer is running properly. I have seen the

customer forums where people leave feedback on the internet about the product they own

or the service they are using. I think that this is a great way to receive information from

the customer. People would rather use their computer to take a survey than sit down and

mail one back to the company. So to say that their services make good strategic sense is

a hard question to answer. I think that their idea was on point, but they need to refine

their services to make them worthwhile to the customer.

SWOT Analysis

Strengths

Dell has a major strength in market share and product cost. Consumers can not

buy computers, or any other form of technology, fast enough to keep up with the

advancements.
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Dell offers these products at a much lower price than its competitors and allows

consumers to be able to have the newest products as soon as they hit the market. This is a

huge advantage over their competitors. The people who purchase the technology are

getting younger and younger and the only way to take advantage of the growing customer

base is to offer the products at a lower price.

Weaknesses

The major weakness of Dell is the quality of the products and customer support.

As a consumer I do understand that you get what you pay for. When buying a $200

desktop from dell rather than a $2,000 desktop from Apple, I realize that the quality of

the two will differ. A way to level the playing field would be to have top notch customer

service to help the customers when something does go wrong. This is not the case with

Dell. They have chosen to outsource their customer service to foreign countries in order

to cut costs. This has only frustrated the loyal Dell customers and made buying a Dell

less attractive.

Opportunities

The global economy is a huge opportunity for Dells low cost strategy is a perfect

fit for growing economies around the world. As countries like India and China become

more productive, their people will have more disposable income. Dell can offer them

affordable computers that they will be able to use to be even more productive. In the

world today, if you are not a global company, you are not a major player in the industry.
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Threats

The threats to Dell are obvious. It would be very easy for another computer

company, like apple or IBM, to come up with an even more affordable computer than

what Dell is offering. This would force Dell to cut costs even further and I do not think

that would be a smart option. Next is the threat of the consumer becoming more

technically savvy. Consumers are beginning to learn everything they can about the

products they buy and the technology they use. If they are able to build their own

computers and buy the components themselves, they will have no need for companies

like Dell.

Dell should be able to capitalize on the transition to the global market. If they are

able to reach customers in growing nations, they should be able to see huge profits.

Although, if they do not fix their customer service and quality issues, they could be in

trouble as consumers look for new innovative products in the future.

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Competitive Strength Assessment

1= Weakest

5 = Greatest

Key Success Dell IBM Hewlett Gateway

Factors Packard
Quality 2 5 5 1

Price 5 1 2 4

Selection 2 4 3 1

Reputation 3 2 5 2

Global Position 1 5 5 2

Innovation 3 4 2 1

Total 16 21 22 11

The competitive strength assessment shows that Dell lags its competitors in quality and

global position. If Dell was able to increase these two areas, they would be the top

number on the chart. It also shows that they have positioned themselves to be one of if

not the top computer retailer in the world. The competitive advantage of being the low

cost provider has given Dell enough of the market to allow them to continue operations

and move into the new markets.

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Financial Performance

As you can see from the chart above, from 1998 to 2004 were great years for the stock

price of Dell. This was the time when the new marketing ideas were starting to take

effect and everyone had to have a dell.

Dell vs. Hewlett Packard

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The chart above shows the stock price performance of Dell and Hewlett Packard. As you

can see the growth of Dell far surpassed that of one of its main competitors. Since the

major growth years of 1998-2004 however, the stock price performance has been a

different story. Below is the stock price for the past 2 years compared to Hewlett

Packard.

Dell vs. HPQ over the past 2 years

As you can see, Dell has been outperformed by HPQ significantly over the past 2 years.

This shows us that Dell needs to change their strategy and come up with something else

other than being a low cost provider. Dell needs to revamp their customer service and

come up with new innovative products on their own, rather than using ideas from other

companies. They also need to move into foreign markets and secure a good section of

the market before it is overrun with competitors. If Dell can make the same types of

changes that it has in the past, they will be able to continue their history of success.
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Selected Financial Data

Fiscal Year Ended

January 28, January 30, January 31,
2005 Change 2004 Change 2003
(dollars in millions)
Net Revenue:
Americas:
Business $ 25,339 16% $ 21,888 13% $ 19,394
U.S. Consumer 7,601 13% 6,715 19% 5,653
Total Americas 32,940 15% 28,603 14% 25,047
Europe 10,787 27% 8,495 23% 6,912
Asia Pacific-Japan 5,478 26% 4,346 26% 3,445
T Total net revenue $ 49,205 19% $ 41,444 17% $ 35,404
Annual Share of Personal Computer Sales(a):
Americas 29.1% 1.4 27.7% 2.9 24.8%
E Europe 11.7% 1.2 10.5% 0.9 9.6%
Asia Pacific-Japan 8.3% 1.1 7.2% 1.4 5.8%
Worldwide 17.8% 1.1 16.7% 1.7 15.0%

This is a breakdown of their revenues and where they come from around the world.

Fiscal Year Ended

January 28, January 30, January 31,
2005 2004 2003
Days of sales outstanding(a) 32 31 28
Days of supply in inventory 4 3 3
Days in accounts payable 73 70 68
Cash conversion cycle (37) (36) (37)

This shows how quickly they are able to get inventory turned into finished products and

then shipped out to consumers. As you can see they only have 4 days of supply in

inventory this is very short compared to other in the industry.