Ques t ion 1 : What i s your eva lua t ion o f Michae l De l l ’ s per formance in

h i s ro l e s a s Dell’s CEO and Chairman?

In the PC industry, according to the textbook, Michael Dell had become one of the most

respected executives; even journalist had described him as “the quintessential American

entrepreneurs” and “the most innovative guy for marketing computers.” In particular, Michael

Dell appears to be a very efficient. From the very first day of operating the company, Michael

Dell had applied low-cost strategy by direct-selling to end user which is save for every product

cost 40%. As a continuous effort, by late 1997, Dell had become a low cost leader among PC

vendors by wring greater and greater efficiency out of its direct sale and build- to-order business

model. Not being stand-out for efficiency alone, Michael also an effective leader. First, what

needs to take in to account to assess his potent management is the technical knowledge. He is not

a technological wizard but knowledgeable enough to understand his customer need and meet

those needs effectively. As well, Michael possesses the ability to work well with other people

both individual and group – the human skills. He knows how to communicate, motivate, lead and

inspire enthusiasms to get the work done effectively. Finally, Dell can see the organization as a

whole; understand how the company fits into its broader environment. Another noting for Dell’s

effective and lucid management is his continuous emphasize for customer benefit which bring

back a lot of positive response form the society.

How well has he performed the five tasks of crafting and executing strategy that were

discussed in Chapter 2?

Crafting and executing a company’s strategy has five phases:

Phase 1: Developing a strategy vision. In 1984, Michael dell founded Dell Computer with a

simple vision and business concept that personal computers could be built to order and sold

directly to customers. As the time goes by, Dell Company’s strategy vision now became: "Its the

way we do business. It's the way we interact with the community. It's the way we interpret the

world around us-- our customers needs, the future of technology, and the global business climate.

Whatever changes the future may bring our vision -- Dell Vision -- will be our guiding force."

They are committed to direct relationships, providing best products with standard based

technology outperforming the competition with value and a superior customer experience.

Phase 2: Setting objective. The strategic objective of Dell Company is: By the most efficient

procurement, manufacturing, and distribution capabilities to get a substantial cost and profit

margin advantage over rival, then became the global market leader.

Phase 3: Crafting a strategy. As holding firmly the key to delivering superior customer value,

Dell’s strategy has been contained making built-to-order manufacturing more cost efficient;

partnering closely with suppliers to squeeze cost saving out of the supply chain; using direct

sales technique to gain customers; expanding into additional products and services to capture a

bigger share of customers’ IT spending; providing good customer service and technical support,

keeping R&D and engineering activities focused squarely on better meeting the need of

customers; using standardized technologies in all product offering

Phase 4: Implementing and executing the strategy and Phase 5: Evaluating performance and

initiating corrective adjustments was done perfectly through it past period. Dell grew their

business from a simple company with $1000 capital to one of the global market leading. They

please customer all around the world with their dedicated commitment. They had been out

competing rival keenly. The change of the world is adapted quite well under the clever strategy

of Dell.

Question 2: What are the elements of Dell’s strategy?

Elements: 1.making build-to-order manufacturing progressively more cost-efficient,

2.partnerring closely with supplies to squeeze cost savings out of the supply chain, 3.using direct

sales techniques to gain customers, 4.expanding into additional products and services to capture

a bigger share of customers’ IT spending, 5.providing good customers service and technical

support, 6.keeping R&D and engineering activities focused squarely on better meeting the needs

of customers, 7. using standardized technologies in all product offerings.

Which one of the five generic competitive strategies is Dell employing?

Dell is relentlessly pursuit the “A low cost provider strategy” which is striving to achieve lower

overall cost than rival and appealing to broad spectrum of customer usually by underpricing

rivals. They has been employing this strategy from the forming period till now

How well do the different pieces of Dell’s strategy fit together?

The business model is prove to be very effective and efficiently. The company’s latest initiative

was to reduce costs by $3 billion in 2008. As for the main hightlight of Dell strategy, “cost

efficient built to order manufacturing” had reduce significant cost comparing to other rival and

“built to order” bring to Dell not only tiny stock in house but also the superior customer value. In

good agreement with the ultimate goal – cost and customer value- Dell use other element to

accomplish like partnering with supplier, more cost-efficient technology form R&D department,

direct sale, tier quality control, and technical support … other than that, Dell expand his business

into many other product like switches, storage… with the believe that he can save cost for

customer. And the result can be seen is that, these 7 elements work perfectly well together in

order to complete the objective of being low cost and serving superior customer value.

In what ways is Dell’s strategy evolving?

Dell uses the company’s strong capabilities in supply chain management, low-cost

manufacturing, direct sale to grow sale and market share in both the PC and serve segment and

expands into product categories where Dell could provide added value to its customers in the

form of lower prices. The standard pattern for entering new product categories was to identify an

IT product with good margins; figure out how to build it or else have it build by other cheaply

enough to be able to significantly underprice competitive products; market the new products to

Dell’s steadily growing customer base; watch the market share points, incremental revenues and

incremental profit pile up.

Does Dell’s expansion into other IT products and services make good strategic sense? Why

or why not?

Yes, it does make sense. Because the expansion in other products which include data storage

hardware, switches, handheld PCs, printers and printer cartridges and software products in an

effort to diversify its revenues stream and use its competitive capabilities in PCs and server to

pursue growth opportunities. Furthermore, the technology industry is going though the process of

standardization commoditization. Moreover, the last reason is that Dell realizes the importance

of customer relationship, so they believe it’s their responsibility to save cost for customer. As for

switches, Dell had explain the reasons that Dell believe that their customers is charged unfair

prices and, it must has been lower than the current price. And an important factor is that Dell

think they can drive down the entire cost of owning and using those products.

Question 3:Conduct a financial analysis using the template provided on Beachboard. Is

Dell’s strategy working? What is your assessment of the financial performance that Dell’s

strategy has delivered during fiscal years 2001-2010? Use the financial ratios presented in

Table 4.1 of Chapter 4 (pages 104-105) as a basis for doing your calculations and drawing

conclusions about Dell’s performance.

Year (Numbers in $Mil) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Revenue $31,888 $31,168 $35,404 $41,327 $49,121 $55,788 $57,420 $61,133 $61,101 $52,902

COGS $25,445 $25,611 $29,055 $33,764 $40,103 $45,897 $47,904 $49,462 $50,144 $43,641

Operating Expense $3,674 $3,718 $3,505 $4,038 $4,821 $5,509 $6,446 $8,231 $7,767 $7,089

Operating Income $2,769 $1,789 $2,844 $3,525 $4,206 $4,382 $3,070 $3,440 $3,190 $2,172

Net Income $2,310 $1,246 $2,122 $2,625 $3,081 $3,602 $2,538 $2,947 $2,487 $1,433

Total Assets $13,435 $13,535 $15,470 $19,311 $23,215 $23,252 $25,635 $27,561 $26,500 $33,652

Total Liabilities $7,813 $8,841 $10,597 $13,031 $16,730 $19,205 $21,307 $23,826 $22,229 $28,011

Total Equity $5,622 $4,694 $4,873 $6,280 $6,485 $4,047 $4,328 $3,735 $4,271 $5,641

COGS as % of Revenue 79.8% 82.2% 82.1% 81.7% 81.6% 82.3% 83.4% 80.9% 82.1% 82.5%

Operating expense as % of Revenue 11.5% 11.9% 9.9% 9.8% 9.8% 9.9% 11.2% 13.5% 12.7% 13.4%

Operating Income as a % of Revenue 8.7% 5.7% 8.0% 8.5% 8.6% 7.9% 5.3% 5.6% 5.2% 4.1%

Net Income as a % of Revenue 7.2% 4.0% 6.0% 6.4% 6.3% 6.5% 4.4% 4.8% 4.1% 2.7%

Return on Assets 17.2% 9.2% 13.7% 13.6% 13.3% 15.5% 9.9% 10.7% 9.4% 4.3%

Return on Equity 41.1% 26.5% 43.5% 41.8% 47.5% 89.0% 58.6% 78.9% 58.2% 25.4%

Financial Leverage (Assets/Equity) 2.39 2.88 3.17 3.08 3.58 5.75 5.92 7.38 6.20 5.97

Table 1: Some financial indicators of Dell period from 2001-2010

The overall concern for Dell as emphasized in the Strategy is to be lower the company cost, and

enhance the end profit. As the table presenting above, Dell revenue from 2001 to 2010 in general

increase, which is from $31,888 to $52,902. As a raise of 165,89% in revenue, cost of good sold

also increase but even with bigger rate 171,7% from 25,445 to 43,641. Noting that, in 2010 the

cost of good sold is actually decreased comparing to 2009. Constantly enlarged from 2001 to

2008, operating expenses and operating income relatively increase by 224% and 124,2%. In

2009 and 2010, both of them is decrease, but still speed of change in income is not matched with

the change in expense. This may be the reason why Dell net income is fluctuated but overall

decreased as comparing 2001 to 2010. The net income as % of revenue is declined from 7,2% to

2,7% which is showed the erosion in profit as Dell operating from 2001 to 2010. About the

financial indicators like ROE, it lessens from 41,1% to 25,4% mainly due to the decrease of net

income

.

As for ROA, it declines as well from 17,2% to 4.3%, 2010 is about 4 times lessen than 2001.

This result is foreseen, because of the decrease in net income and 250,4% increase in total asset.

And it may attribute to the expansion in business by acquisition of additional assets for operating

purpose. The falling tendency can be understand for the unequal speed of change between return

and assets. Also The use of financial leverage has increased form more 2% to the peak of almost

8% which may reflect the riskier the business happen to be.

Question 4: What does a SWOT analysis reveal about the attractiveness of Dell’s situation?

Strength:

Mentioning to Dell’s distinctive competence is mention to its Direct Business Model which

enables Dell to contact with customer, quickly detect the change in sale trends, design problems

and quality glitches, give Dell a significant advantage and become a customer-driven method.

Cost-efficient built-to-order manufacturing is accomplished through Flexible customization

capability, building its assembly plants close to customer, just-in-the-nick-of-time delivery …

Also, Dell possesses valuable human assets, intellectual capital. Worthy to be mentioned is the

participation of Michael Dell as an influential and critical asset to the company. Otherwise, there

are also superior corporate staffs … About the valuable organizational asset, we can observe the

excellent quality control from dell manufacturing processes. Furthermore, the company holds a

world’s highest volume internet commerce sites. Well cooperation with other resource strengths,

achievements and skills attribute effectively to it overall competitiveness in the marketplace as

well. Another considerable thing is high quality of customer services and technical support.

Besides all that, Dell is able to make use of its huge reputation, strong terms with the suppliers

and competitive pricing.

Opportunities

Opportunities for Dell is raising from mass customer base; expansion in PC industry diversifying

its products categories such as in outer devices, non-computing items such as LCD TVs, and also

in sections such as security devices, security software are few of the fastest growing need of the

customers in the industry; potential growth in overseas emerging market like European and

Asian market. As well, there is business related laptop, internet-base and custom-built computer.

So looking at the SWOT analysis, because Dell's business strategy is successful in cost

leadership strategy based upon its unique customization, delivery, and cost proposition, it still

holds a distinctive competence and remain a strong position comparing to HP. Besides that, Dell

constantly possesses a good and stable relationship with both customer and their suppliers.

Which company is competitively stronger—Dell or Hewlett-Packard

Score

Key Success Factor Importance Weight Dell Hewlett-Packard

Quality/product performance 0.10 9/0.90 9/0.90

Reputation/image 0.10 10/1.00 10/1.00

Manufacturing capability 0.10 10/1.00 10/1.00

Technological skills 0.05 8/0.40 10/0.50

Dealer network/distribution capability 0.05 8/0.40 10/0.50

New product innovation capability 0.05 8/0.40 10/0.50

Financial resources 0.10 10/1.00 10/1.00

Relative cost position 0.30 10/3.00 7/2.10

Customer service capabilities 0.15 10/1.50 8/1.20

Sum of importance weights 1.00

Weighted overall strength rating 83/9.60 84/8.70

As the table suggestion, in overall without taking into account the weight, HP is ahead Dell.

However, when the weighted factor is considered, the largest weighted is on relative cost

position, this make Dell have more advantage than HP on cost position. So even though HP is

currently a market leader in PC vendor, but Dell also has it distinctive competence that make it

also shine.

In what respects, if any, is Hewlett-Packard’s strategy in PCs more appealing or better

than Dell’s strategy?

Taking into account the strategy in doing business, a focus of technology research and

development is what make HP different from Dell. Hewlett-Packard spends a lot of money on

R&D department. As a result, HP own a lot of distinctive competences on core technology. In

contrast, focused on modeling the supply chain is Dell’s strategy because it thinks there is no

lack of technology in the world, and it values distribution model and channel more. Being the

biggest competitor of each other, they do have their own competitive advantage. However, since

HP own much innovations in technology, having long-term development, and the power to set up

strategic alliances, HP is likely to be a market leader in long-term than Dell

Question 5:

What issues and problems does Michael Dell need to address?

Weaknesses

The company’s depend on component suppliers and manufactures of subassemblies and other

devices since Dell believed that it made much sense for the company to partner with suppliers

than to integrate backward and get into parts and components manufacturing on its own. Well,

another pitfall is its lack of multi channel distribution which make it behind other rival in sale

promotion. Also important, Dell has no proprietary technology, the currently used technology by

Dell is shared by the other major competitors. Additionally, bad customer support and product

quality can really hurt Dell’s image and reputation. Consequently, Dell will lose it current and

even potential customers for other company like HP, Acer, Toshiba and Apple… Not only that,

Dell’s lack of innovation will cause them to be in a lower position in the future if it just relies on

cutting cost strategy. Fierce competition will forces Dell to continue cut cost and results in

hurting itself profit.

Threats

There will be a fierce competition for price and market shares since now one of the biggest

external threats to Dell is that price difference among brands is getting smaller. Not only subject

to old and big rival, has Dell had to face with emerging of new competitive forces also. That is

not mention big risk come from global market like tariff, tax and trade barriers, Currency

fluctuation and political & economic instability in some countries. The last and also the biggest

fear for Dell is that its two distinctive competences are loosing it competitive advantages since

HP and Apple can and is closing the gap of product’s price.

What actions and strategy changes would you recommend to Michael Dell to boost the

company’s performance and its prospects for overtaking HP in global sales of PCs?

As the heat of competitive is rising, what Dell needs to take into consider in order enhancing the

company’s performance is:

About the research and development, there is a critical need for Dell to put more resources and

effort in create innovations which will reduce Dell’s disadvantage over other competition.

Moreover, integrating its low-cost-provider skills with differentiated product features to create

value for its customers is appear to be a good move, since efficiency and effectiveness uniting in

strong relationship. As for the manufacturing, Dell should remain its core factor in business

model as being cost-conscious. However, expanding the value of its resources and capabilities by

sharing activities will exploit economies of scope between its businesses more. Next concern is

about information management. Improvement in information flow is critical in order to improve

services for its corporate customers further and deeper, enable more effective work stream and

communication which will bring to Dell more flexibility. Furthermore, developing on marketing

strategy is a great way to come directly into customer attention. Since there is still room for

growth in foreign market especially in Asia like China, Singapore, India …

+Enhancing energy efficiency of products +Using green energy alternative at the corporate headquarters

+Improving the recycle ability of Dell product for customer +Using packaging made of renewable material

From the videos we watched, what are some of the recent developments and new initiatives

Dell is employing?

Moreover, the video, watched in class, show that Dell is pour its money on that attractive

emerging markets, beside that, focusing on IT services and customer services that bring more

value to their customers is a new way Dell adopted from IBM’s example.