SM0495

Business Environment and Strategic

Management

Example of a very good assignment

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Table of Contents

1. Introduction .............................................................................................................. 2
2. Analysis of the Current Business Environment Affecting the Industry............... 2
2.1. Macro-Environmental Analysis ............................................................................ 2
2.2. Micro-Environmental Analysis ............................................................................. 3
2.3. Main Opportunities and Threats .......................................................................... 3
3. Analysis of Dell’s Strategic Capabilities ................................................................ 4
3.1. Value Chain Analysis........................................................................................... 4
3.2. Benchmarking ..................................................................................................... 5
3.3. Main Strengths and Weaknesses ........................................................................ 5
4. Evaluation of Dell’s Recent Strategies ................................................................... 6
4.1. Offering Products Through Retailers in Addition to Internet ................................. 6
4.2. Moving Into Consulting/Solutions ........................................................................ 6
4.3. Reducing Costs ................................................................................................... 7
4.4. Other Strategies .................................................................................................. 7
5. Evaluation of the Challenges Faced by Dell as it Implements Strategic Change ..... 8
5.1. Retail ................................................................................................................... 8
5.2. Cost Reduction .................................................................................................... 8
5.3. IT Solutions ......................................................................................................... 8
5.4. The Change Process ........................................................................................... 9
5.5. Dell‟s Leadership ................................................................................................. 9
6. Conclusion ............................................................................................................. 10
7. References.............................................................................................................. 11
8. Appendices ............................................................................................................. 16
A. PESTLE Analysis .............................................................................................. 16
B. Five Forces Analysis ......................................................................................... 18
C. SWOT Analysis ................................................................................................. 18
D. Value Chain Analysis ........................................................................................ 19
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1. Introduction

Dell was founded in 1984 by Michael Dell, who has been Chairman since 1992 and
in 2007 also took on the role of CEO (Dell Inc., 2009a). Headquartered in Round
Rock, Texas, Dell‟s core market is the U.S. where it recently lost its position as the
largest supplier of personal computers (PCs) to Hewlett Packard (HP) in the first
quarter of 2009 (IDC, 2009). Worldwide, Dell is the second largest PC provider after
HP, with 13.6% market share (IDC, 2009).

Dell started out as a computer hardware manufacturer for the commercial sector.
Dell‟s business model differed from other multinational technology companies as it
built its products to order from components supplied by third parties and sold directly
to customers. Dell has begun to branch out from this original concept but the core
business remains the main source of revenue. As well as PCs Dell also designs,
manufactures and markets a range of other products including servers, storage,
peripherals and IT services.

Dell‟s revenue for the year ending February 2009 was $61,101 million, slightly lower
than the figure for 2008 (Global Markets Direct, 2009). Operating profit and net profit
however were significantly lower, with the latter falling 15.9% to $2,478 million
(Global Markets Direct, 2009). In the last quarter, 45% of Dell‟s revenue came from
commercial sales in the U.S. followed by 22% each from European commercial sales
and global consumer sales (Dell Inc., 2009a). Although Dell is part of the wider
technology industry, in the first quarter of 2009, 56% of its revenue came from
desktop and mobile PC sales and the following analyses will therefore focus on the
computer hardware industry.

2. Analysis of the Current Business Environment Affecting the Industry

2.1 Macro-Environmental Analysis

The PESTLE analysis (appendix A) details the main macro-environmental trends

affecting the computer hardware industry. Of these, the economic downturn is the
most pressing current issue but in the longer term, the increasing prominence of
environmental issues is an important trend within the industry. There is great
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potential for growth in developing countries but this comes with some difficulties in
overcoming trade barriers and piracy as well as avoiding the deterioration of margins
through the commoditisation of PCs. Technological advancements remain central to
the industry‟s progression and there is a growing trend towards mobile computing
(Stross, 2009).

2.2 Micro-Environmental Analysis

Porter‟s Five Forces analysis (appendix B) indicates that the threat of substitution in
the computer hardware industry is fairly low, with PDAs and blackberry‟s offering
some of the functionality of a PC but not yet providing an adequate replacement.
Threat of entry is quite high because PC assembly does not require highly skilled
employees or huge set-up costs and therefore risks being replicated.

Suppliers, such as Intel and AMD, are large and therefore have some power over PC
manufacturers due to compatibility requirements but this is not a very strong
influence as the computer manufacturers themselves are extremely large. The power
of buyers has increased somewhat due to ease of switching, transparency of costs
and commoditisation of PCs. Large commercial buyers have greater power than
consumers, but with only a few large computer companies serving the majority of the
market, the power of buyers is medium rather than high.

Overall, competitive rivalry within the computer industry is very high due to the
presence of a large number of competing organisations, rapid technological change
and intense product and price competition (Hoover‟s Inc., 2009).

2.3 Main Opportunities and Threats

The most prominent threat currently faced by the industry is the economic downturn.
The GDP of the world‟s major economies is set to contract in 2009 (Schifferes, 2009)
and this will have an adverse effect on the computer industry, with consumer
demand for expensive technological goods and commercial spending on IT in
decline.

While commoditisation and intense price competition pose a threat to the profitability
of the industry, there are still some opportunities as sales of mobile devices have
grown despite the recession and as growth in Western markets has declined,
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developing countries have provided opportunities for significant growth as well as a

threat in terms of controlling piracy and overcoming trade barriers.

Technology also provides both opportunities and threats for organisations within the
industry. Those that develop and harness the potential of new technologies in their
products are likely to succeed and those that do not, to fall behind. Environmental
issues are also holding an increasingly influential place in the industry and
organisations are under pressure to demonstrate their commitment to protecting the
environment.

3. Analysis of Dell’s Strategic Capabilities

Dell has moved away from some of its traditional sources of distinctive capability and
the following section will discuss some of these issues, which are covered in Kay‟s
(1993) model of the sources of distinctive capability. Firstly, aspects of Dell‟s
architecture will be considered using a value chain analysis and its innovation and
reputation will be considered in benchmarking Dell against some of its closest
competitors and in the summary.

3.1 Value Chain Analysis

The value chain (appendix D) shows that the organisation‟s core competence
remains its information system, which enables the coordination of a complex process
of operational and management control and feedback to minimise costs. This
includes ordering components from numerous suppliers and efficient coordination of
their movement through the assembly line. Dell‟s distinctive capabilities used to be
based around its direct-sales model, with a highly efficient information system
allowing „just-in-time‟ (JIT) production at low cost, mainly as a result of minimising
inventory in the system. One of Dell‟s distinctive capabilities is the ability to
customise products, providing a source of competitive advantage. However,
although some of its retail sales follow the direct-sales route, the stock held in retail
outlets has reduced these advantages.
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3.2 Benchmarking

HP and Acer are Dell‟s closest rivals. In the first quarter of 2009, HP grew by 2.9%
and Acer grew 6.8% compared with the same period in 2008, while Dell‟s market
share fell considerably, by 16.8% (IDC, 2009). By looking at some of the differences
between these companies we can gain an insight into the reasons behind this
substantial difference in performance.

Dell‟s main value to customers is providing customisable products at low prices but it
now faces stiff price competition from competitors such as Acer. This is evident in
Dell‟s recent financial performance; although sales increased by around $5 billion
between 2006 and 2008, operating income fell by nearly $1 billion as it struggled
with fierce competition (Schofield, 2008). Acer sells its products solely through
retailers, predominantly to consumers and has had particular success with its low-
cost netbook range (Hille & Kwong, 2009). In contrast, less than one quarter of Dell‟s
business comes from the consumer market and it has been hit hard by declining
commercial IT sales (Gelles & Waters, 2009).

Both HP and Acer have invested more in research and development than Dell. HP
spent $3,543 million last year compared with Dell‟s $663 million (The Financial
Times, 2009a) and it has a greater presence in IT consulting and solutions. While
Dell has been very innovative in the design of its information systems and logistics, it
does not have a strong reputation for product innovation. This puts Dell behind both
HP and Acer in terms of product innovation and retail presence and behind Acer in
manufacturing cost efficiencies.

3.3 Main Strengths and Weaknesses

Dell‟s main weakness is its lack of R&D which prevents it from developing innovative
products and essentially leaves it unable to differentiate its products significantly
from those of its competitors. Dell is in essence an assembly line; heavily reliant on
third party suppliers for components and on their commitment to innovation rather
than its own. This reliance leaves Dell with little scope to add value other than in cost
efficiencies, which have now been imitated by competitors. Dell also lacks sufficient
presence in the retail sector to grow its consumer sales and its customer services
are designed around the commercial sector and do not provide the level of
assistance required by consumers, both before and after purchase. In a report by
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Forrester research, Dell‟s customer service in 2008 was rated as “very poor” and this
must improve for Dell to succeed in the consumer market (Stone, 2009).

Dell‟s strength is primarily in its highly effective information system which controls the
supply chain to achieve cost efficiencies and allows product customisation. It
remains one of the world‟s top 100 brands, ranked 32nd in 2008 (Business Week,
2009) and as the world‟s second largest PC producer, Dell has high buying power
and benefits from economies of scale.

(For a SWOT analysis summary, see appendix C).

4. Evaluation of Dell’s Recent Strategies

The following section will refer to development strategies outlined in Ansoff‟s matrix
(Johnson, Scholes & Whittington, 2008, pp.258) and Porter‟s generic strategies
(Campbell, Stonehouse & Houston, pp.160).

4.1. Offering Products Through Retailers in Addition to Internet

Dell has established relationships with a number of retailers, including Wal-Mart

(Turner & Guglielmo, 2009) and Tesco‟s (Lloyd, 2007). This represents a market
development strategy as Dell is using existing products in a new market segment,
shifting from commercial clients to consumers. This will help Dell to address its
weaknesses in the consumer market by allowing consumers to see products and
receive greater guidance prior to purchase.

This does, however, need to be supported with better after-sales customer service,
tailored to consumers rather than businesses, in order to be successful. Consumers
need reassurance that they will be taken seriously alongside large businesses
ordering hundreds of Dell computers. Acer has had huge success in the consumer
market with its affordable and stylish netbooks (Einhorn, 2009) and this is a key
growth area for Dell to pursue.

4.2. Moving Into Consulting/Solutions

This capitalises on Dell‟s strength in information systems. This is a form of related

diversification, with Dell retaining its core business of PC manufacture, although
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there are elements of product development as Dell must adapt to this new market. In
contrast, IBM recently sold its PC manufacturing business to Lenovo and is now
entirely focussed on IT services (Musil, 2005). IT services is highly competitive and
cyclical, with IBM, HP and Accenture just some of the biggest players in the market
(The Financial Times, 2009b). However, with evident competence in IT systems and
logistics and its skills in dealing with business customers, there may be a niche for
Dell. This is particularly critical as the PC market becomes increasingly
commoditised and price competitive.

4.3. Reducing Costs

Dell has traditionally been the PC industry‟s cost leader, but as this competence has
been eroded by competitors, so too has Dell‟s position as cost leader. Dell appears
to be trying to regain its title as the industry‟s cost leader with its plans to cut costs by
$4 billion by 2011 (Gelles & Waters, 2009). It aims to achieve this through job cuts
(Rappeport, 2008), moving factories to areas with cheaper labour (Gergely & Jones,
2009) and adopting a defensive strategy, such as the potential withdrawal from
financial services (Austin Business Journal, 2008). With falling profit margins (Arthur,
2008) and increasing price competition from rivals, it is difficult to see a future for
Dell in simply chasing its previous position as cost leader.

4.4. Other Strategies

Having lost its position as cost leader, Dell needs to invest more in R&D to develop
more innovative, consumer-friendly products in order for it to differentiate its product
range from that of its competitors. This is particularly important due to
commoditisation in the consumer market in order to avoid continual erosion of profits
due to price competition. To succeed in the consumer market, Dell also needs to
improve its customer services. There is also potential for market development in
emerging markets where growth is higher than in the West, for example in China
where Dell‟s sales grew by 28% in 2008 (Back, 2009.
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5. Evaluation of the Challenges Faced by Dell as it Implements Strategic

Change

5.1. Retail

Dell‟s alliances with retailers and more recently, with distributors (Campbell, 2009)
are designed to increase its share of the consumer market. However, this is a less
profitable distribution channel than direct-sales due to the increased inventory levels
and retailers‟ margins. To increase its consumer appeal, Dell also needs to invest
more in R&D in order to improve innovation and differentiation of its products and
improve after-sales support.

5.2. Cost Reduction

One way Dell can achieve its cost-reduction targets is by subcontracting

manufacture out to specialised companies. This is something Dell has shown an
interest in, however it is believed it may struggle to sell its factories in North America
(Paul & Finkle, 2008). To achieve the greatest savings, Dell would need to use
manufacturing companies in developing countries, where labour costs are lower, but
cutting jobs in its home country would generate negative press.

Dell‟s spending on R&D increased 23% between 2007 and 2008 but only 9% the
following year, most likely in reaction to declining sales as the recession set in. It is
clearly a difficult time for Dell as it strives to make $4 billion in cost savings while
strategically it is more likely to benefit from increasing its investment in R&D.

5.3. IT Solutions

Dell is looking to build on its strengths in information systems and logistics with a
series of acquisitions to assist its move into IT services (Dell Inc., 2008). These
acquisitions allow quicker access to new markets by circumventing the lengthy
process of internal development of the necessary technology and skills but they
bring integration challenges, especially in cultural terms, and a risk that synergies do
not emerge (Bijlsma-Frankema, 2001).

Dell does not have a reputation for providing excellent service and they may struggle
to overcome this negative image in a service-led industry. Dell also faces intense
competition from larger organisations such as IBM and HP who have a strong hold in
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the services market and are likely to retaliate against Dell‟s efforts to gain market
share.

5.4. The Change Process

In 2007, Michael Dell admitted that the company had suffered from a period of
strategic drift, saying that its once incredible supply chain had “stagnated” and this
was reflected in its poor financial performance and declining market share (Lohr,
2007). It was therefore necessary for Dell to undergo the rapid transformational
change discussed in this section, described by Hope Hailey and Balogun (2002) as
revolutionary change. This addressed some of Dell‟s problems but some of the
strategies adopted appear incoherent, with massive cost reductions accompanying a
move into a new and highly competitive industry, and an attempt to move its product
range upmarket (Schofield, 2009b).

5.5. Dell‟s Leadership

In 2006, Dell‟s performance plummeted and Michael Dell was brought in to lead the
company forcefully in a new direction, with Dell‟s board stating that his leadership
and vision were critical to its success (Litterick, 2007). The previous CEO, Kevin
Rollins, was seen to be reluctant to modify Dell‟s traditional direct-sales model but Mr
Dell was quick to drive change. He initiated the move into the consumer market
through retail partnerships and more consumer-oriented design, implemented cost
cutting and acquired companies that would take them into the IT services market.

In 2007, Mr Dell emphasised that the Dell model was “not a religion”; recognising the
extent to which the Dell culture had permeated the organisation, he wanted to
encourage transformation in the company‟s ways of doing business (Guglielmo,
2007). Mr Dell‟s reinstatement as CEO was symbolic in bringing about change in a
culture that had dominated for many years and it is likely that he had to take an
autocratic approach to do this.

Mr Dell has made some necessary changes to the organisation and some of these
may require more time to prosper. However, Dell‟s recent performance indicates
there is a long way to go in turning the organisation around and the strategies of the
last few years have perhaps not proved as successful as the company hoped.
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6. Conclusion

Michael Dell‟s attempts to implement radical change have so far failed to address
weaknesses in customer service and innovation, leading to poor product design and
usability in the consumer market. Having moved away from its original low cost,
direct-sales model, some analysts now describe Dell as suffering from an identity
crisis (Stone, 2009) as it experiments in new markets such as IT solutions and seeks
to move its products upmarket while implementing a massive cost-cutting initiative.
For Dell to recover, it must develop unique competences which differentiate it from
its competitors and be clear in its focus if it is to achieve lasting competitive
advantage.
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7. References

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Austin Business Journal (2008) „Bidders already lining up for Dell Financial Services‟
[Online]. Available at:
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April 2009).

Back, A. (2009) „Dell Eyes Acquisitions as Rivals Grow‟, The Wall Street Journal, 27
March [Online]. Available at:
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2009).

Banks, M. (2008) „Computer Industry Gives Guarded Welcome To EU Telecoms

Package‟, The Parliament, 22 September [Online]. Available at:
http://www.theparliament.com/latestnews/news-article/newsarticle/computer-
industry-gives-guarded-welcome-to-eu-telecoms-package/ (Accessed: 20 April
2009).

Bijlsma-Frankema, K. (2001) „On Managing Cultural Integration and Cultural Change

Processes in Mergers and Acquisitions‟, Journal of European Industrial Training, 25
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BusinessWeek (2009) „Best Global Brands 2008‟ [Online]. Available at:

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April 2009).

Campbell, B., Stonehouse, G. & Houston, G. (2002) Business Strategy: An

Introduction. 2nd edn. Oxford: Butterworth-Heinemann.

Campbell, S. (2009) „Dell's Distribution Deals: Ingram Micro, Tech Data To Carry
Desktops, Notebooks‟, Channel Web, 24 March [Online]. Available at:
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(Accessed: 2 May 2009).
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Castle, S. & Jolly, D. (2008) „Europe Fines Microsoft $1.3 Billion‟, The New York
Times, 28 February [Online]. Available at:
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April 2009).

CCIA (2009) CCIA Reaction to Potential IBM, Sun Microsystems Merger. Available
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Dell Inc., (2008) Dell Completes MessageOne Acquisition. Available at:

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Dell Inc. (2009a) Statement of Income and Related Financial Highlights. Available at:
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21 April 2009).

Economist (2009) „Here We Go Again‟, The Economist, 7 May [Online]. Available at:
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Einhorn, B. (2009) Acer Boss Lanci Takes Aim at Dell and HP. Available at:
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Gelles, D. & Waters, R. (2009) „Dell Profits Drop as Business Takes Battering‟, The
Financial Times, 27 February [Online]. Available at:
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(Acessed: 20 April 2009).

Gergely, A. & Jones, G. (2009) „Tale of Two Cities in Battle for Jobs‟, Reuters, 16
February [Online]. Available at:
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24 April 2009).

Global Markets Direct (2009) „Dell Inc.‟, Nexis [Online]. Available at:
http://www.lexisnexis.com (Accessed: 21 April 2009).

Greenpeace (2009) Greener Electronics. Available at:

http://www.greenpeace.org/electronics (Accessed: 24 April 2009).

Guglielmo, C. (2007) „Dell Chief Says Company May Move Beyond Direct Model‟,
Bloomberg, 27 April [Online]. Available at:
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(Accessed: 25 April 2009).
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Hickman, L. (2009) „Fight The Power‟, The Guardian, 15 January [Online]. Available
at: http://www.guardian.co.uk/environment/2009/jan/15/energyefficiency-
carbonemissions (Accessed: 20 April 2009).

Hille, K. & Kwong, R. (2009) „Acer and Lenovo Send Out Mixed Signals‟, The
Financial Times, 3 April [Online]. Available at: http://www.ft.com/cms/s/0/d40c2066-
2070-11de-b930-00144feabdc0.html (Accessed: 24 April 2009).

Hope Hailey, V. & Balogun, J. (2002) „Devising Context Sensitive Approaches To

Change: TheExample of Glaxo Wellcome‟, Long Range Planning, 35 (2), pp.153-
178. Nexis [Online]. Available at: www.lexisnexis.com (Accessed: 2 May 2009).

Hoover‟s Inc., (2009) „Computer Hardware‟, Nexis [Online]. Available at:

http://www.lexisnexis.com (Accessed: 20 April 2009).

IDC (2009) HP Takes the Lead in U.S. PC Market as Consumer Shipments Beat
Expectations, According to IDC [Press Release]. 14 April. Available at:
http://www.idc.com/getdoc.jsp?containerId=prUS21797609 (Accessed: 20 April
2009).

Johnson, B. (2009) „Worldwide PC Sales Set To Slump To 2007 Levels In Biggest

Reverse Ever, Says Gartner‟, 3 March [Online]. Available at:
http://www.guardian.co.uk/technology/2009/mar/03/dell-computing (Accessed: 2 May
2009).

Johnson, G., Scholes, K. & Whittington, R. (2008) Exploring Corporate Strategy. 8th
edn. Harlow: Financial Times Prentice Hall.

Kay, J. (1993) „The Structure of Strategy‟, Business Strategy Review, 4 (2), pp.17-
37. EBSCO [Online]. Available at: www.ebscohost.com (Accessed: 8 May 2009).

Litterick, D. (2007) „Chief Forced Out After Dell's Year From Hell‟, The Daily
Telegraph, 2 February [Online]. Available at:
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hell.html (Accessed: 23 April 2009).

Lloyd, A. (2007) Tesco to sell Dell PCs from next month. Available at:
http://www.pcadvisor.co.uk/news/index.cfm?newsid=11675 (Accessed: 25 April
2009).

Lohr, S. (2007) „Can Michael Dell Refocus His Namesake?‟, The New York Times, 9
September [Online]. Available at:
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(Accessed: 26 April 2009).

Musil, S. (2005) „Lenovo Completes Buy of IBM's PC Business‟ CNET News, 1 May
[Online]. Available at: http://news.cnet.com/Lenovo-completes-buy-of-IBMs-PC-
business/2100-1042_3-5691487.html (Accessed: 23 April 2009).
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Paul, F. & Finkle, J. (2008) „Dell Outsourcing Plan May Be Tough To Execute‟,
Reuters, 5 September [Online]. Available at:
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mber=1&virtualBrandChannel=0 (Accessed: 25 April 2009).

Rappeport, A. (2008) „Two Executives Depart in Dell Restructuring‟, The Financial

Times, [Online]. Available at: http://www.lexisnexis.com (Accessed: 24 April 2009).

Ray, T. (2009) „CES: Green Computers and Cell Phone Sales Dominate Peppy,
Optimistic Opening Talk‟, Barron’s, 6 January [Online]. Available at:
http://blogs.barrons.com/techtraderdaily/2009/01/06/ces-green-computers-and-cell-
phone-sales-dominate-opening-talk/ (Accessed: 2 May 2009).

Roberts, E. & Berry, C. (1985) „Entering New Business: Selecting Strategies for
Success‟, Sloan Management Review, pp.3-17 [Online]. Available at:
http://www.archive.org/details/enteringnewbusin00robe (Accessed: 25 April 2009).

Schifferes, S. (2009) ‘Deeper’ Recession Ahead Says IMF. Available at:

http://news.bbc.co.uk/1/hi/business/8011907.stm (Accessed: 20 April 2009).

Schofield, J. (2008) „Dell buys Dell - well, $100 million worth of shares‟, The
Guardian, 16 April [Online]. Available at:
http://www.guardian.co.uk/technology/blog/2008/jul/03/dellbuysdellwell100millio
(Accessed 20 April 2009).

Schofield, J. (2009a) „PC sales down 7%, Dell toppled in the US‟, The Guardian, 3
July [Online]. Available at:
http://www.guardian.co.uk/technology/blog/2009/apr/16/computing (Accessed: 22
April 2009).

Schofield, J. (2009b) „Dell Wants "Brand Lust" For Adamo, The World's Thinnest
Laptop‟, The Guardian, 17 March [Online]. Available at:
http://www.guardian.co.uk/technology/blog/2009/mar/17/dell-adamo-thinnest-laptop

Stone, B. (2009) „Apple Tops PC Customer Service Rankings‟, The New York Times,
17 April [Online]. Available at: http://bits.blogs.nytimes.com/2009/04/17/apple-tops-
pc-customer-service-rankings/ (Accessed: 24 April 2009).

Stross, R. (2009) „The PC Doesn‟t Have To Be An Anchor‟, The New York Times, 18
April [Online]. Available at:
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May 2009).

The Financial Times (2009a) „Companies Research‟ [Online]. Available at:

http://markets.ft.com/ft/markets/companyResearch.asp (Accessed: 21 April 2009).

The Financial Times (2009b) „Cheap as Dell‟, 22 February, Nexis [Online]. Available
at: http://www.lexisnexis.com (Accessed: 24 April 2009).
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The Wall Street Journal (2009) „PC Market Faces Bumpy Ride in '09‟, 6 March
[Online]. Available at: http://online.wsj.com/article/SB123626944956541123.html
(Accessed: 21 April 2009).

Turner, N. & Guglielmo, C. (2009) „Hewlett-Packard Takes Lead From Dell in U.S.
Market‟, Bloomberg, 15 April [Online]. Available at:
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Weiss Ratings Inc.. (2009) „Computers and Peripherals Industry Analysis‟, Nexis
[Online]. Available at: http://www.lexisnexis.com (Accessed: 21 April 2009).
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8. Appendices

A. PESTLE Analysis

Political

The computer industry is quite strongly influenced by politics, for example the
European parliament is currently presiding over regulations that will affect the
software industry and the functioning of the internet considerably (Banks, 2008). The
Business Software Alliance represents the computer industry in the political arena,
with some of the most pressing issues being trade barriers and piracy, particularly in
developing nations like China which has seen huge growth in sales of computer
software and hardware (BSA, 2009).

Economic

The most substantial macro-environmental factor for the computer industry is the
global economic downturn. Gartner Inc. predicts a fall in PC sales of 12% in 2009
(The Wall Street Journal, 2009) and it is predicted that those companies who deal
mainly with consumers will fare better than those dealing with businesses, which are
likely to scale back IT spending in the recession (Schofield, 2009a).

Socio-Cultural

Propelled by the rapid expansion of the internet, PCs have become integral to our
everyday lives. Price competition has increased the affordability of PCs, particularly
in developing countries, but this has been at the expense of profit margins due to
commoditisation. As more and more people use PCs to store increasing amounts of
data, storage is likely to be a growth area for the industry (Weiss Ratings Inc., 2009).

Another key trend is the growth in popularity of mobile PCs, sales of which are
expected to grow 9% this year while the PC market as a whole contracts by almost
12% (Johnson, 2009).

Technological

Technological advancements are at the heart of the computer industry and continue
at a rapid rate, with companies investing huge amounts of money in research and
development (R&D). Microsoft invested the most in R&D in the computer industry in
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2008 at just over $8 billion (Asay, 2008). It has been suggested however that
innovation in the industry is being hampered by consolidation and that this will
impact future technological developments (CCIA, 2009).

Legal

Consolidation in the computer industry has resulted in increasing involvement of anti-

competition regulators to control the growth of multinational companies (Economist,
2009). The European Union antitrust regulator has fined Microsoft around $2.5 billion
since 2004 for its anti-competitive behaviour (Castle & Jolly, 2008) and it has
recently emerged that IBM and Sun Microsystems are in talks over a merger, raising
further concerns over monopolisation in the computer industry (CCIA, 2009).

Environmental

It is predicted that by 2014 there will be two billion computers in use around the
World (Hickman, 2009). As processors become faster they require more energy for
cooling and there is now huge pressure on the computer industry to reduce energy
consumption in PCs and servers, improve recycling and reduce packaging
(Hickman, 2009). With 64% of people now saying that recyclability is a consideration
when choosing their PC (Ray, 2009), environmental issues have clearly grown in
importance and it is even possible to judge the world‟s top electronics companies on
their environmental credentials in rankings published by Greenpeace (2009).

Summary

Political Environmental
Trade Barriers Global economic downturn
Piracy (recession)

Socio-Cultural Technological
Increasing use of PCs Mobile technology
Growth in developing countries Commoditisation as technology
Trend for mobile devices has gone beyond needs of
(notebooks/netbooks) average consumer

Legal Environmental
Anti-competition regulations Recycling & packaging
Energy consumption
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B. Five Forces Analysis

Threat of
Entry
Medium/High

Power of Competitive Power of

Suppliers Rivalry Buyers
Low/Medium High Medium

Threat of
Substitution
Low

C. SWOT Analysis

Strengths
Information system & JIT
manufacture
Product customisation
In World‟s top 100 brands
World‟s 2nd largest PC producer
Weaknesses
Lack of product innovation
Reliance on third party suppliers
Lower retail presence than
competitors
Poor customer services

Opportunities Threats

Growth in developing countries Economic crisis (recession)

Technological innovation
Growth in mobile consumer
devices
Trade barriers and piracy,
especially in developing countries
Pressure over environmental
issues
Commoditisation of PCs
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D. Value Chain Analysis

Online
Sales &
Build-to-
Order
Retail
Direct- Inspectio Despatch After
sales n & Install Packing Direct to Sales
Software Customer Service

Receiving
PC Inspection Assembly
Components

Information
System

Despatch After
Inspectio
to Sales
n & Install Packing
Retail Service
Retail Software
Outlet
Non-
customised
retail stock