Professional Documents
Culture Documents
Dell
Dell
By Group N2
Neel Jadhav - 10317
Nidhish Agarwal - 10319
Nishad Farheen - 10321
Piyush Bajaj - 10324
Akshay Khurana - 10302
Dell Inc. - Introduction
Mission Statement
Michael Dell
Founder and CEO
Vision Statement
“ To lead in all regions we serve. The foundation of our success is the same in the United
Kingdom and France, China and Japan, Canada and other countries. Customers want
technology products that are relevant to them, offer great value and can be easily
purchased and used. That’s what our team around the globe consistently delivers”
Timeline
Timeline of events and their impact on stock prices of the company
Year Events Stock Price
1983 Company founded by Michael Dell. NA
2005 Well ahead of its plan to reach $60 Billion sales, sets new $38
target of $80 billion sales by 2007 end
2006 Dell starts losing market share. $24
Opens manufacturing plants in 10 countries.
Investigation into irregularities of financial documents
2007 Dell is replaced by HP as the number one PC maker $26
Michael Dell returns as CEO
Dell announces plan to sell most of its manufacturing
facilities within 18 months
Note: Dell achieved its all time high of $140 share price in Feb 1998
Dell’s stock performance
160
140
120
100
80
60
40
20
0
Dell’s Core Comptencies
A core competence should be "competitively unique": In many
industries, most skills can be considered a prerequisite for participation
and do not provide any significant competitor differentiation. To qualify
as "core", a competence should be something that other competitors
wish they had within their own business.
Dells core competencies that are difficult for the competition to imitate:
Complete customization of each “built-on-order” computer
Minimization of working capital and industries lowest inventory levels (4days)
Customer order to dispatch in a matter of 36 hours
Ranked number one in Customer service and satisfaction with start to finish support
to end users
Patented processes
Anti-hierarchical, cost-focused corporate culture
Cost savings through best of class supply chain management transferred to buyers
Dell’s SWOT Analysis
Strengths
Threats
Fluctuation in currency outside US
Major competitors in the market
Most of the countries are hit by recession which may result in the reduction of revenues.
Government Policies.
Bargaining of Suppliers
Rapid change in technology obsoletes the product in small span of time.
Aggressive marketing by competitors.
Single
Single
point
point of
of Build
Build to
to
accounta
accounta order
order
Most
Most bility
bility Low
Low
efficient
efficient cost
cost
path
path to
to leader
leader
the
the
customer
customer
nship
Stds
Stds
o
Relati
based
based
tech
tech
DELL
t
DELL
Direc
DIRECT
DIRECT Ending
Best MODEL
MODEL with
value
Beginning customernce
r ie
with the x pe
e
customer er
Highest m
sto
quality & Cu
relevant
tech Easy to
DELL VALUE CHAIN Customized Superior service buy and
systems and support use
Order Processing
(One Hour )
Sales
Sales
Forecasting
Forecasting
The
The
Customer
Customer
Weekly
ordering from
suppliers
Production
Production based on
Control
Control forecast
Distribution
Distribution Supplier
Supplier
(Five
(Five days)
days) Checking
on parts
availability
Dispatch
Two
Two Weeks’
Weeks’
(36 hours)
worth
worth of
of
Assembly
Assembly component
component
stock
stock
DELL VALUE CHAIN
Dell’s Core Comptencies
A core competence should be "competitively unique": In many
industries, most skills can be considered a prerequisite for participation
and do not provide any significant competitor differentiation. To qualify
as "core", a competence should be something that other competitors
wish they had within their own business.
Dells core competencies that are difficult for the competition to imitate:
Complete customization of each “built-on-order” computer
Minimization of working capital and industries lowest inventory levels (4days)
Customer order to dispatch in a matter of 36 hours
Ranked number one in Customer service and satisfaction with start to finish support
to end users
Patented processes
Anti-hierarchical, cost-focused corporate culture
Cost savings through best of class supply chain management transferred to buyers
Dell’s Competitive Advantage & Growth Strategy
Dell drove costs enable price reduction for increasing customer base by
Bypassing intermediaries and going direct to the fragmented end-users by booking
orders on phone, fax or through direct sales
Focusing on high-margin customers like government and large corporations instead
of initiating price wars
Policy of build-to-order, excellent co-ordination with suppliers, and exceptional
operation efficiency through patented processes
Plain and simple offices, cutting of unnecessary privileges of executives, reduction
of employee perks, selective recruitment etc.
Outsourcing of manufacturing plants to countries like India, China, El Salvador,
Philippines etc to save on labor and manufacturing costs
Customer relationship based strictly on data and profitability of
the customer relationship. Dell even dropped customers
which were not profitable.
Dell’s Competitive Advantage & Growth Strategy
Dell pursued a strategy of rapid innovation for product differentiation and
raising attractiveness for customers by
Threat of
Rivalry
Substitutes
(Low)
(Very High)
Threat of
New Entrants
(Moderate)
Porters 5 Forces and Analysis
Rivalry: HIGH
High concentration
Price War: Low Margin
Decreasing profitability
Low differentiation
Threat of New Entrants: MODERATE
Low capital investment for independent stores
Low product differentiation. Brand name may be a barrier to entry
Low economies of scale
No legal or governmental barriers
Threat of Substitutes: LOW
Strong presence of PC’s throughout society. One computer for every three people in
the U.S.
Substitute products also manufactured largely by same companies baring
Smartphone
Porters 5 Forces and Analysis
Bargaining Power of Buyers
Highly price sensitive
Reliability and customer service become important factors
Wide range of choices due to low differentiation
Alienwar Texas
ASAP
e Instrume
nt
Everdrea
ACS Compaq
m
Comput
Gateway IBM PC
ers
Silverbac EqualLog
k Tech ic
Packardb
Message
Zing ell
One
Evolution of the Computer Industry
After the internet bubble burst and economic slowdown of early 2000,
all competitors started to move towards to efficient distribution systems
and implementing direct sales models along with their established
channels
Dell responded by moving manufacturing to cheaper economies, tighter
inventory control, integration with suppliers and focus on better service
Change in the computer industry resulted in the form of
Growth of units sold through retail
Competitive pressure from different competitors in different categories
Rapid improvement in technology
Decreasing costs
Lack of need of customization
These factors caused loss of number one position to HP, forcing Dell to
enter into partnerships for retail outlets and re-sellers going against its
until recently successful business model
Evolution of the Computer Industry
To get back on track and ensure growth of stock price, Dell decided to...
Add retail as a new channel and expands service offerings
Modify manufacturing model to support retail effort
Targeted $3 Billion in annual cost savings by 2011 through
Reducing COGS
Optimize global manufacturing network, redesign supply chain, cut development
time, customize, reduce complexity
Decreasing Operating Expenses
Reduce compensation, benefits, layoffs, improve productivity, tighten spending
Full system manufacturing outsourcing to partners in low cost countries
These partners would build computers to retailers forecast and ship them
directly
Launch new models, and sell in planned 12000 retail outlets
Strategic Grouping of Competitors
Apple
Apple
HP
HP
Dell
Dell
Price
Best Cost
Provider
Lenovo
Lenovo
Acer
Acer
Product Range
Competitor Strength Assessment
Acer Inc.
Strengths
Global and wide range product offerings at lower costs. Products in all price segments.
Lower costs achieved through manufacturing efficiency, location in low cost economies,
use of open source software(Linux)
Strong presence in USA through acquisition of Gateway Inc and Packard Bell
Weaknesses
Lack of enterprise level products, limited to only SME and personal users, brand image
Advantage Dell
Dell uses Microsoft platform which is used by majority of computer users
Better brand image, outright advantage in higher end systems, business machines
State of art manufacturing facilities
Cost saving by taking advantage of extremely fast technology life cycle
Tie up with AMD and alternate suppliers, outsourcing to low cost countries and using
supply chain management advantages further reduce prices to compete and introduce
wider range of products, especially in the lower priced segments.
Competitor Strength Assessment
Apple Inc.
Strengths
Excellent product design, innovation and channels like Apple stores, online sites etc
Financial and organizational stability as of 2009
Leader in selected vertical sectors in which high end media creation tools are necessary
Only firm to design a “complete” product
Switching to Intel platform, windows support, attracted a much wider audience
Weaknesses
Lack of global presence and support
Lack of enterprise focused product offerings, niche player, ignoring majority segments
Advantage Dell
Dell has a much broader product range and presence, leader in enterprise solutions
Dell uses Microsoft platform which is used by majority of computer users
Dell needs to launch high end systems, with competitive designs and features and
compete on cost with Apple
Competitor Strength Assessment
Hewlett-Packard
Strengths
Broad product offerings with variety of form factors (user-friendliness)
Good understanding of market, changing customer preferences, and strategy execution
Excellent account management for largest global enterprise customers
Weaknesses
Rising internal costs, dependency on discounts for sales growth
Lack of complete exploitation of direct sales model
Dependency on outsiders for product innovation and R&D
Advantage Dell
State of art manufacturing facilities
Cost saving by taking advantage of extremely fast technology life cycle
Better supply chain management and direct sales expertise
Could exploit dependency of HP on outsiders
Dell should compete on product range and prices with HP
Competitor Strength Assessment
Lenovo Group Limited
Strengths
Strong product design with continued investment in development capabilities
Established and well known brand – Thinkpad
Continuous improvements in sales strategy, channels and supply chain
Operations in low cost economies allowing substantial cost savings
Weaknesses
Lack of coherency between business strategies inside and outside China
Heavy dependency on IdeaPad line more than ThinkPad line
Advantage Dell
Leader in enterprise solutions and a much broader product range and presence
Better brand image and global brand awareness
Tie up with AMD and alternate suppliers, outsourcing to low cost countries and using
supply chain management advantages further reduce prices, introduce wider range of
products, especially in the lower priced segments. to compete with Lenovo.
Strategic Alternatives
Alternative Actions
Follow current strategy of expanding to retail channels and compete
with other players on margins and discounts. Aim to build stock
computers which would be cheaper when mass produced and economies
of scale are achieved
Concentrate on high margin products only and divest the products which
do not provide sufficient margins
Concentrate only on the time tested Direct sales model and try to
perfect the already efficient processes
Venture into consulting for added revenues taking advantage of its
extensive expertise of its excellent distribution management systems.
HP has been in the consulting business and is providing solutions
for many well known companies.
Recommendations
We would suggest choosing a hybrid strategy of combining direct selling
and also retail selling
Fast selling standard models (Dell Inspiron series) with known rates of sales can be
sold through retail outlets
High-end customizable systems can be still sold through direct sales
Dell should at the same time work on perfecting its processes. Dell has
recently been accused of product flaws, bad customer service and loss of
reputations
Irregularities and delays in delivery of its newly launched “custom colored” laptops.
All laptops other that its “tuxedo black” did not meet quality standards and had to be
recalled
Dell failed to ship several hundred million dollars worth of notebooks in the second
quarter, due to painting and supply chain issues
This occurred as number of units required increased drastically
on demand inventory system could not meet its requirements
Justifications
It is obvious, expanding into retail would be contradictory to Dell business model where it
keep costs low by cutting out intermediaries
Retailing would mean raising inventory level, resulting in increased costs
But a study says that for a system sold at $1000, inventory costs were
Year Dell HP
1997 $20 $160
2005 $10 $70
Dell’s only real competitive advantage was getting less and less over time with
competitors imitating it and innovating themselves
With reduction in industry costs, Dell was finding it difficult to compete with HP’s retail
prowess, Apple’ design and innovation and Acer’s low prices
Best strategy would be for Dell to identify each competitor on the strategy grid and
launch counter offensive strategies to compete with it
Customers in emerging economies still view tangibility important before making a
purchase
Justifications…
Dell attributed most of its success to its extremely efficient operations.
While infact dell was experiencing growth only by huge sales figures, while infact its
Operating Profit Margin was constantly decreasing showing loss of profitability of
operations
OPM
0.120
0.112
0.107
0.100
0.092
0.090
0.086 0.086
0.084
0.080 0.080
0.078
0.071
OPM
0.060
0.057 0.056
0.053
0.040
0.020
0.000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Make Individual Strategies
Made-to-order systems experiences heavy unpredictability resulting in down time of
manufacturing plants
Dell can use this down time to product stock products for retailers and smooth out its
production process
Diversify and offer lower range products making using of the short industry cycle and
Moore's law where prices of technology reduce drastically with marginal change in
computing power
Provide more products for the lower end customers(sub $1000 purchasers) who form
more than 80% of the customer segment for personal computers
Concentrate on premium charged services like infrastructure services in the form of
migration, deployment and managed services, manage the entire life cycle of the client
environment for enterprises including installation, training, asset management and
maintenance
Offer state of art machines to cater to sophisticated users and take on
Apple. “XPS One” was a step in the right direction
Collaborate with more suppliers, especially with AMD to enforce lower
costs from Intel, as HP successfully accomplished
Long Term Strategy
To sustain in such an intense competitive environment Dell needs to innovate constantly
and explore emerging technologies. Worth mentioning are