Dell_Final1

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Dell Inc.Case study



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Table of Contents

1. Company background: Dell Inc ........................................................................................................ 2

2. Porter¶s Five forces model................................................................................................................ 2

2.1 Bargaining power of Suppliers: ................................................................................................ 2

2.2 Bargaining power of Customers:............................................................................................... 2

2.3 Threat of new entrant:............................................................................................................... 2

2.4 Threat of substitutes: ................................................................................................................ 2

2.5 Intensity of competition:........................................................................................................... 2

3. SWOT analysis ................................................................................................................................ 3

3.1 Strength:................................................................................................................................... 3

3.2 Weakness: ................................................................................................................................ 4

3.3 Opportunities: .......................................................................................................................... 4

3.4 Threats: .................................................................................................................................... 5

4. PEST Analysis ................................................................................................................................. 5

4.1 Political:................................................................................................................................... 5

4.2 Economic: ................................................................................................................................ 5

4.3 Social: ...................................................................................................................................... 5

4.4 Technological:.......................................................................................................................... 6

5. Business Model................................................................................................................................ 6

6. Business/IS/IT Strategic Initiatives................................................................................................... 8

7. Value chain management in India..................................................................................................... 8

8. The customer journey of experience/ Customer Activity Cycle............................ ...................... ....... 9

8.1 Utilities of the concept............................................................................................................ 10

8.2 Future opportunities: .............................................................................................................. 12

9. Strategic issues faced by Dell ......................................................................................................... 12

10. Recommendations.......................................................................................................................... 13

11. Conclusion..................................................................................................................................... 13

References............................................................................................................................................. 15



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1. Company background: Dell Inc

Dell computer, one of the major computer companies were founded by Michael dell in 1984.

During this time he was studying in at the University of Texas, Austin. Initially dell sold only

IBM compatible PC but later on in 1988 they started utilizing their own brand name ³Dell

Computer Corporation´ and sold computers using the brand Dell. Dell began selling its

computers through website in 1996 (Brown & Eryn, 1999). Later in 2000, Dell diversified its

business into televisions, printers etc. In 2003 name of company was changed from ³Dell

Computer Corporation´ to ³Dell Inc´

2. Porter¶s five Forces model

Applying Porter¶s five forces model to assess the competition level in this industry

2.1 Bargaining power of Suppliers: It is high due to the limited number of supplier

of major components used in the computers and similar products (Dedrick, Jason &

Kraemer, 1998). As an example, Intel alone sells 80% of microprocessors to the

computer companies.

2.2 Bargaining power of Customers: As PCs are now treated as commodity,

customers have high bargaining power. Nearly all the computers, specifications and

components are same irrespective of their brand.2.3 Threat of new entrant: It is very low in this industry because of presence of

established players.

2.4 Threat of substitutes: Major substitute of computers are Mobile phones or PDA.

They are hand held computers. Because of the innovation of smart phones, people

prefer it over computers. So to tap this market Dell has come up with its own

Smartphone which has all features as in computers.

2.5 Intensity of competition: As there are very big players in this industry as IBM,

Compaq, HP, Lenovo etc thus the intensity of competition is very high. Product

differentiation is done on the basis of extra added features provided by the company.



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3. SWOT analysis

Dell is one of the best organizations in this world but every organization has its strengths and

weaknesses which are influenced by its internal culture and competencies. Opportunities and

threat are characterized by the external environment.

3.1 Strength:

Some of the key strengths of Dell which makes it market leader among the

competitors are

1. In 2010 dell is ranked at 38 by Fortune in the list of Fortune 500 companies. This

increases the brand equity of Dell to several folds. It is also ranked at 5 in the list

of most admired corporation in this industry by Fortune only.

2. Dell has achieved competitive advantage over its competitors by acquiring Perot

systems in 2009 and Alienware in 2006 (Gottesman, 1999).

3. Leadership is also very important for the success of any company as the leader

leads the way for its followers and marks a new way to progress. Similarly,

Michael dell is a great experienced leader having longest tenure as CEO in this

industry.

4. Dell has very efficient supply chain management and E-commerce model which

is considered to be the best model in the industry.5. Dell is recognized as the largest company in Austin, 2nd biggest company in Texas

(Non-oil Company) and in terms of revenue dell is 5th largest company in Texas.

6. Dell is very efficient in understanding customer needs because of its direct selling

and direct interaction with customers.

7. To minimize the cost, Dell always has its manufacturing facility near its suppliers.

This also helps to achieve success in its Just-in-Time (JIT) approach It has most

efficient procurement process, operation and distribution network in this industry.

As the cost is very low, thus Dell boasts of achieving competitive pricing.

8. Customer base of Dell is super strong and extremely influential. Two-third of the

revenue of Dell comes from Government institutions, educational institutions and

large companies (Helman, 2007).



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9. Dell computers are favorites of customers because of its customization. Dell

achieves highest customer satisfaction by providing customer whatever they need.

3.2 Weakness:

1. As Dell uses JIT approach for its manufacturing operations, it makes them highly

dependent upon the supplier group. It also makes dell prone to quality issues of

the parts supplied by its partners.

2. Dell is very less competent in attracting college going students. This segment

constitutes only 5% of the total revenue of dell. There is a very huge potential

which is not served by Dell (Edwards, 2009).

3. Dell changes its technology very fast which does not allows Dell to own any

technology or have proprietorship over it

4. It is very beneficial for the company that Michael Dell is CEO for many years but

it has also produced problems because of same mindset in the company.

5. Earlier the company was focusing in PC business only so Dell needs to diversify

itself into new products and technology which will give an advantage to Dell over

competitors.

3.3 Opportunities:

The opportunities which can be explored by Dell are as follows:

1. Because of its leadership in technology innovation, Dell can come up with

products which can tap the new market segment.

2. As the production will increase, it will give rise to economies of scale thus

reducing overall cost of production (Kaplan & Martin, 2000).

3. Forward integration like owning distribution network and backward integration

such as owning Supplier Company can greatly reduce the cost and increase

control.4. Dell should increase its focus towards household customers and provide

availability of their products near to this segment which demands convenience

over customization.



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3.4 Threats:

1. Technology becomes obsolete in some time which makes the forecast of demand

very difficult for the strategist.

2. Presently PC is low involvement products thus companies are indulged in price

war to increase their market share.

3. Dell is trying to increase its presence in developing markets which makes it prone

to problems like political instability, regulations, Currency fluctuation etc.

4. Customization is boon for the company as well as bane. As the price of PC is

decreasing, Dell has to optimize its cost simultaneously providing customized

products

4. PEST Analysis

4.1 Political:

Political analysis is very crucial for the success of companies. Dell also has impact

because of political issues. In some countries because of government regulations or laws,

it becomes difficult for Dell to operate effectively. In some countries FDI norms are very

strict so direct investment in manufacturing facilities in those countries is extremely

difficult. Example- a lot of red tape activities are involved in securing big contracts in

China. Also Chinese government favors local firms over international firms. So it was

very difficult for Dell to enter China.

4.2 Economic:

Economic environment analyses the economic situation in which firm is doing its

operation. PC industry is highly dependent upon the economic condition of country or

region. Demand fluctuates highly if the economic condition is not stable. During

recession, economy went down and thus customer propensity to buy also reduced. At that

time Dell suffered losses and was not able to satisfy demand of price cautious customers.

4.3 Social:

The impact of socio-cultural factors on Dell is also very high. Major sales of Dell occur

through internet or phone calls. But still in some countries people want to touch and feel

the product before they purchase it. So dell suffers because of this type of customer



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behavior. Also in countries like China and India where Internet penetration is expanding,

Dell has high potential to cater the needs of the customers through internet but initially

they have to gain the trust and faith of customers.

4.4 Technological:It includes the institution and innovation involved which benefits the company. Dell is

majorly dependent upon its suppliers to drive the innovation. Dell doesn¶t have

proprietary technology of its own (Hamm, 2004). But in PC industry, technology

becomes old very soon. Product life cycle of technological products is very short. Thus in

this short span of time dell has to deliver new technology to its customers else

competitors will take away the market share

5. Business Model

The business model and supply chain of dell was very competitive and efficient. Every

manufacturer wanted to imitate its business model to reach the same success. Direct sales model

and best supply chain management gave competitive edge to dell. Dell received lots of accolades

from business moguls and established players. Loyal customer base of Dell was increasing

because of the customization of products and customer satisfaction

In 2006, it was observed that dell was facing severe problems. Some of the problems are

discussed as:

a. Customer complaints of long delays in supplies.

b. Negative media hype because of the recall of Sony batteries in laptops.

c. Increasing cost because of the mass customization.

d. Complexity of business was increasing rampantly.

As dell was facing such problems, it lost its market share to Hewlett-Packard (HP) in 2006.

Michael Dell felt the urgency to increase the capacity to cater the demand To do all this, Dell had

to innovate the business model for the differentiated design, manufacturing and distribution

models.



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Dell did not eliminate direct sales model instead they complemented this model with the retail

channel. From June 2007, dell computers were found placed in the shelves of Wal-Mart and

Sam¶s Club stores. This was the scenario in U.S. but in Britain and Ireland, the sales of dell was

started through Tesco stores. Tesco stores were also used for distribution in high-growth eastern

European markets like Slovakia (Edwards, 2009).

Thus retail stores in different countries can be classified as:

COUNTRY RETAILER

U.S. , Asia and Europe Best Buy, Wal-Mart, Staples, Tesco

China Gome store

Japan Bic Camera

France Carrefour

British Phone retailer Carphone warehouse

Dell also created an agency which increased the time and budget of $4.5 Billion spent on

marketing and branding of Dell products. This new agency was created by WPP ± second largest

marketing, media and communication giant

Earlier the supply chain and procurement of dell was working in silos. Supply chain of Dell wasa part of global operations and procurement function of all the dell factories worked as a separate

division.

To achieve the best supply chain as Michael dell dreamed about, it was very necessary to

coordinate all the activities. Dell integrated its supply chain and achieved quality through Global

Operation Organization (Breen, 2004). This integration activity by Global Operation

Organization (GOO) included integration of procurement, supply chain activities and worldwide

manufacturing process Each and every redundant activity was eliminated from the businessprocess and the business process redesign was done keeping customers in mind.



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6. Business/IS/IT Strategic Initiatives

To survive in this red ocean, Dell has to come up with blue ocean strategy to give itself a

sustainable competitive advantage. Out of the box strategies will definitely help dell in achieving

long term success. Some of the strategic initiatives which have transformed the business of Dell

are as follows (Kharif, 2005):

a. Initiating distribution through retail giants like Tesco and Wal-Mart.

b. Strategic alliance with EMC Corporation for design and development of products.

c. Acquisition of Perot systems in 2009 and Alienware in 2006 has provided great control

over the working of Dell process.

d. Expanding the retail outlets all over world.

e. E-business and long term relationship with supplier, vendors, and logistics companies etc.

f. Commendable customer service support which helps the company to retain its customers

and transform them into loyal customer base which is the most profitable group of

customers

7. Value chain management in India

In the late 2006, Dell started losing its market share to Hewlett- Packard and last year in 2009 it

lost its number 2 rank to Acer globally. But in India, surprisingly dell continued to be a

profitable venture and posted profit in consequent quarters. Soon it became biggest seller of

desktop and laptop in India leaving behind HP. IN fact India is at the top of Dell¶s strategic

geography. Out of the total employee strength of 96000, India has 23000 employees.

The major reason for the successful value chain management in India is establishment of

manufacturing facility at Chennai. Cost and cycle time has been brought down significantly byproducing around million units per year (Byrnes, 2003)

Second important reason for the success of Dell in India is that they are targeting Indian

consumer instead of their global phenomenon of targeting big organizations and institutions.



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Third and the backbone reason for the successful value chain management is the availability of

dell computers at retail stores. Dell has started using intermediaries in distribution network. This

direct model allows customer to walk in the store and then customize their computers there only.

Thus the relationship maintained by dell with its channel members is very appreciative. Thisrelationship is helping Dell to achieve sustainable competitive advantage (Hackett, 2005).

8. The customer journey of experience/ Customer Activity Cycle

Source: (Kenneth Yamashiro, 2007)

There are 8 stages for customer journey to achieve experience. These stages lead to business

purchase. This is cycle which is followed by customer from need to repurchase. For success of

any product, this whole cycle has to be completed because this will lead to loyal customer base

and increase in profitability of business. Customer journey of experience acts as a bull eye for

companies because if this bull¶s eye is hit then the target segment of the company will always be

satisfied These stages can be classified as:

a. Need: In the case of dell computers, customers are getting information about the product

on their website. Thus product information, awareness and specification lead to

generation of need of the dell product.



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b. Enquire: In the case of dell computers, Customers enquire about the availability of the

product and also the contact of the retailer or distributor or decide the channel member

which will be accessed (Hudgins, 2003).

c. Approach: Dell potential customers approach the retail shop like Wal-Mart store or

website for further queries.

d. Recommendation: Dell provides catalog service to its big clients whereas it provides

detailed information about the products on its websites.

e. Purchase: Depending upon the convenience of the customers, they buy it either from the

retail store or from website. The convenience factor is of prime importance whenever a

customer makes a purchase of product from Dell computers

f . Experience: Experience of the product is gathered while the customer uses the product.

They will be satisfied if the product quality exceeds customer expectation and vice versa.

g. Problem: If customer of dell suffers any problem then the Dell computer provides

customer care support to the customers for any problem. They also provide repair support

to the customers.

h. Reconsider: If customer of Dell Computer is satisfied from the product quality and

operation then definitely he will repurchase from Dell only but if competitor of dell is

providing better service and product then the previous customer of Dell may transform

into customer of Competitor (Ladendorf, 2009).

8.1 Utilities of the concept

Using the Customer journey of experience model, company can enhance its operation and

it can perform functions in more effective and efficient manner. If Dell computers

successfully satisfy customers during each stage of customer journey of experience then

the repeat purchase will increase which in turn will lead to increase in profitability of

business



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a. Stage 1 ± Success of any company depends upon how well that company understands

its customers and how well it identifies the needs of customers. Dell Company has to

monitor the needs of the customers so that it can fulfill the expectation of its clients.

b. Stage 2 ± After identification of the customer needs, the company has to deliver

whatever it has promised to its customers. Dell is very reputed brand and thus

expectation of its customers from dell is very high. Thus to perform well in long term,

Dell has to match the needs of customers

c. Stage 3 ± There are many products in the market which are similar to competitor¶s

product. There should be some point of differentiation which has to be incorporated

in the product. These are extra added features. To dazzle the customer with existing

product, Dell provides many extra services which no one can provide.

d. Stage 4 ± This is the last stage where a company establishes a long lasting

relationship with customer. The same case is with Dell Inc. because of the best

services offered and identification of customer needs has helped dell to develop

empathy with customers (Kraemer, Kenneth, Dedrick & Yamashiro, 2000).

Do it with

emotion

Add something

Extra

Match Customer needs

Understand customer needs



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8.2 Future opportunities:

As dell is very efficient in understanding and matching customer needs, thus the satisfied

customers lead to the profitability of company as well as emergence of enormous future

opportunities like

1. Feedback forum should be maintained and customers should be invited to join forum

and share their experience to create word of mouth advertising.

2. Building Dell communities where members will clear the doubts and provide

information to prospective customers (Pletz & John, 2000).

3. User friendly customer service to influence the prospects in the first stage only.

4. Provide extra services with products to bring the Dell products from consideration set

to choice set.

9. Strategic issues faced by Dell

Dell follows the market leader strategy since its inception. This can be observed by its direct

selling model and customization. This made Dell as market leader in its industry among its peers

because of its competencies like Best supply chain, brand recognition, customization, innovation

etc. but some the strategic issues being faced by dell are:

1.

Saturated market of primary product i.e. PC in US. Majority of PC in governmentorganization and educational institution will be replacement units needing upgradation.

2. As the time is passing, the brand value of Dell is declining because of the declining

customer service. But recently dell executives have understood that quality service is key

element so they are working on it (Kraemer, Kenneth & Dedrick, 2000).

3. Dell is not able to serve complete market needs because of lack of suppliers. As it is

committed to Intel, it provides value to customer but it can¶t serve individual needs.

4. Dell has strong foothold in developed markets but it has to expand its expertise in

countries like India and China. They should offer customized PC in these countries at

relatively cheaper price which will be a mammoth task for dell.



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10. Recommendations

a. Presently dell sells its products through direct sales, internet or Retail channels. But these

channels do not have much access to the customers in developing countries So Dell

should extend its distribution in these developing countries through company owned hops

or franchise based shops. This strategy will increase the penetration of the product several

folds as well as it will mitigate the risk while entering new country (Scheck, 2005).

b. Dell should maintain database of all customers with all the personal information as well

as past purchases. It will help the company to keep the clients updated with the new

related information and products which is sought by customers in the past.

c. Dell should spend more on marketing and advertising because now computers and

laptops are relatively very cheap. They are now becoming commodity. So to differentiate

commodity from the competitor¶s product, Dell need to advertise more about their

products and offerings. These advertisements should be modified according to the

behavior pattern of individuals of particular society with identical needs.

d. Dell should introduce new products in unrelated sectors like it introduced smart phones.

This initiative of dell will reduce its market risk because of the diversified portfolio. New

products will be successful in market because of the established brand name of Dell in

market. New products which can be launched by Dell are software, Networkinghardware, printers and other accessories, IT services, Enterprise solutions like ERP.

11. Conclusion

Dell is one of the biggest and most successful PC Seller Company leverages its core

competencies like (Mahoney, Jerry & Pletz 2000):

1. Customer centricity

2. Brand Equity

3. Best supply chain

4. Technical skills

5. Work culture



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6. Cost effectiveness

7. Relationship

8. Integrity

9. After Sales support

All these core competencies are unique in them and are very difficult to be imitated by the

competitors. Thus these core competencies of dell provide sustainable competitive advantage.

Thus grabbing the opportunities and strengthening the competencies will help Dell in retaining

its leadership and deliver superior value in the form of best products to its customers.



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References

Brown, Eryn (1999). Selling to businesses: Dell Computer, Fortune: Issue: 114, pp. 35 -37 , May

24. 2007

Dedrick, Jason and Kenneth L. Kraemer (1998). Asia¶s Computer Challenge. New York:

Oxford University Press, Issue: 124, pp. 153 -170.

Gottesman, Ben Z. (1999). ³Computer Hardware and Software,´ PC Magazine, Issue: 1744, pp.

75 - 79.

Kaplan, David Martin (2000). Evolution of business models: the case of Dell and Compaq in

Sweden, Working paper, Stockholm School of Economics, February. Issue: 21: pp. 35 - 53

Kraemer, Kenneth L., Jason Dedrick, and Sandra Yamashiro (2000). Dell Computer: refining

and extending the business model with IT, The Information Society, Issue: 16: pp. 5-21.

Kraemer, Kenneth L. and Jason Dedrick (2000). Impacts of e-commerce on firm and industry

organization: issues and research questions. CRITO working paper, University of California,Irvine: Issue: 25432 pp.121 - 127

Mahoney, Jerry and John Pletz (2000). ³Dell Continues Pursuit of Its Internet Strategy,´ Austin

American-Statesman: Issue: 2657 pp.113 - 115, October 17, 2009

Scheck, J (2005): "Dell Plans to Sell Factories in Effort to Cut Costs", Wall Street Journal : Issue:

4152 pp.37-40, September 5, 2008.

Kirk Ladendorf (October 8, 2009). "Dell closing its last large U.S. plans". Austin American-

Statesman: Issue: 41 pp. 123 - 125

Pletz, John (2000). "Dell moving executives closer to Austin" Austin American-Statesman:

Issue: 891 pp.71 ± 75, May 9, 2000.



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Hudgins, Matt (2003). "Dell space taken" Austin Business Journal : Issue: 113 pp.145 ± 147, May

9, 2003.

Byrnes, J. (June 2003). Dell Manages Profitability, Not Inventory. Harvard Business Review.

Business Source: Issue: IIV pp.112 - 134

Graham-Hackett, M. (2005). Computers: Current Environment. Standard & Poor¶s Industry

Kharif, O. (2005) Dell: Time for a new model. Business week: Issue: 143 pp. 45 - 47

Breen, B. (November 2004). The Wal-Mart of High Tech? Fast Company: Issue: 342 pp.23 - 35

Edwards, C. (Oct 2009). Dell's do-over, Business Week: Issue: 4152 pp.37-40

Helman C (Nov 2007). The second coming (Dell), Forbes: Volume: 180 Issue: 11 pp.79-83

Hamm S (Sep 2004). Tech's future (selling technology in emerging markets), Business Week:

pp.52-57

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