Why has Dell moved to different kinds of organizational structures over time?

Dell needs to move to different kinds of organizational structures over time in order to

change and adjust the business itself to fit with a change in environment. In 1984,

Dell did the business alone but the demand was coming a lot. To serve the huge

demand, Dell needed to hire more employees and assign tons of work to each person.

When the business is bigger and bigger, Dell alone cannot do every thing in the

company, so the functional structure can help Dell to work in different areas such as

marketing or manufacturing. Moreover, the market is more fragmented and the

company has a wide range of product, so Dell needs to create more many sub-

divisions in order to better respond and serve the specific customer need. It would be

seen that when the business moves to a direction to make competitive advantage, the

organizational structures needs to be changed to support for achieving the company’s

success.

Dell is best described as a flat organization. From the factory floor to senior

leadership very little hierarchy exists to slow down the decision process. Employees

are encouraged to pursue the most efficient ways to complete their jobs and are

permitted to implement these new efficiencies without prior approval by upper

management. This open-communication has made junior employees realize their ideas

are welcome and respected. Once proven to be successful, it is not uncommon for

these ideas to be implemented across the organization.

Dell’s organizational structure is a vital part of the company’s success. Little

hierarchy exists within the company. From the factory floor to the executive office,

communication is emphasized and all employees are empowered to make decisions to

improve job and business performance. Upper management approval is not required

for the implementation of new ideas.

Dell’s flat corporate structure is likely to enable the company to remain at the tope of

its industry. Employee empowerment facilitates process innovation—one of the main

competitive characteristics of maturing industries. Similarly, Dell’s fast, consistent,

reliable and responsive business model enables it to execute its direct sales model

more effectively than any other company in the industry. As Dell expands into

growing markets, however, the company will have to adapt its organizational

structure to growing global environments. Dell will need to maintain focus on its

place in the industry as a product differentiator, bringing superior value to customers.

Although strategic partnerships (such as with Intel) have been key to the company’s

success, it needs to continue to be selective about these relationships and to

continually evaluate whether they remain appropriate in the current environment.

The key macro force for the computer industry is technological change. The

extremely short product life cycle for computers, influenced by the upgrade cycle, has

both positive and negative effects on companies within the industry. It challenges

companies to maintain superior inventory management and supplier relationships:

areas where Dell excels. Technological change also drives waves of additional

computer purchases within a mature market.

Another trend impacting the computer industry is the rise of a single vendor as a

provider for all IT needs. This simplifies technology choices for customers and makes

one vendor accountable and Dell does not offer this capability currently.

In Dell’s primary market, the U.S., the company uses a direct sales strategy, meaning

that it sells its products directly to the customer either online or over the phone,

thereby eliminating the cost of the ‘middle man.’ This strategy proved immensely

profitable in Dell’s early years. In fact, it was so successful that it actually changed

the way its competitors did business. However, Dell’s reliance on its direct sales

model may not be as beneficial in emerging markets. This is primarily due to the fact

that consumers in these markets may be distrustful of buying items online or do not

have the proper means of payment (i.e. credit cards) to make online purchases.

Has Dell’s performance been improved?

Dell’s performance has been improved from a change in organizational structure.

Firstly, creating the functional structure and giving authority to manager can help Dell

to develop a lean organizational culture to squeeze the cost. Secondly, fragmenting

the sub-division for specific customers could allow Dell to better respond the

customer need; consequently, it could increase the customer satisfaction. Moreover,

grouping the division as the customer group can help employees to obtain more in-

depth knowledge and specialize in their tasks to serve the specific customers. Of

course, this kind of organization can increase the profitability of the company.

Besides, Dell’s performance is improved substantially from making use of the

corporate intranet to standardize activities across divisions and integrate its activities

to reduce cost.

The difficulty with businesses is that, as their strategies become more complex, their

bureaucratic costs rise due to information distortions that lead to communications and

measurement problems. Dell developed this problem in the early 1990s. As their

product range widened as it developed new competencies and entered new market

segments, they found it increasingly difficult to measure the contribution of product

or a group of products to its overall profitability. Consequently, Dell may have been

turning out unprofitable products without realizing it and may also have been making

poor decisions about resource allocation. The latter was actually true because, with

Dell’s explosive growth in the ‘90s, they lost control of their inventory management

systems. This meant that they could not accurately project supply and demand for the

components that went into its personal computers. These problems with their

organizational structure plagued Dell for years, reducing efficiency and quality. Over

time, however, Dell successful redesigned their organizational structure, giving them

a significant cost advantage over their closest competitors.

DELL Inc. - TIMELINE

Dell Growth

$0$5

$10$15$20$25$30$35$40$45$50$55

FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05

Rev

enue

$ B

n

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Un

its

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DELL Growth Highlights

                             

PROFITABILITY COMPARISON

From the above graphs, we can easily understand the historical trend in sale &

revenue in Dell computers. So it will not be difficult to say that, Dell’s performance

has improved over time.

Financial Ratio Analysis

The table below compares Dell’s financial ratios to the personal computer industry

and to publicly held companies operating in the same markets for the 2005 fiscal year.

Bold values indicate better performance. It is worth noting that Dell’s top

management, since the mid 90’s, focused on the return on invested capital (ROIC) as

a key performance indicator (KPI). This focus, managing profitability, made the

company's stock a very attractive investment; Dell’s ROIC and ROE are way above

the industry’s and competitors’ average. All other profitability ratios indicate good

performance and profitable operations. There is no major indicator of risk or weak

performance in Dell’s financials.

Comparative financial ratios data (Comparison Data, 2006)

Unlike many competitors, Dell does not rely on debt to finance its capital structure.

Thisis contributed to cost cuts in operations and efficiencies in manufacturing &

Inventorymanagement. Dell also outperformed the industry in terms of annual growth.

It is wise though to lower future expectations in light of recent reports of lower than

expected growth rates and net profits in the 3rd and 4th quarters of 2005 (Louise,

2005). Lastly, Dell does not pay dividends to stockholders. Instead, Dell uses net

income to fuel its growth. So the performance of dell has improved drastically over

time.

2012 Earnings: Second Quarter

Dell warned of a challenging second half of the year in August 2012 and cut its full-

year earnings outlook. The warning came as Dell reported an 18 percent drop in

earnings for its fiscal second quarter, and revenue that missed analysts’ expectations.

The company posted net income of $732 million, or 42 cents a share, in its second

financial quarter, which ended Aug. 3. Excluding one-time items, Dell earned 50

cents a share, beating an average forecast for 45 cents.

It also reported that revenue in the quarter dropped about 8 percent, to $14.5 billion,

below the $14.64 billion analysts had expected on average, according to a survey by

Thomson Reuters.

Reference:

Associated Press. (January 30, 2006). Dell Plans Expansion of Indian Work Force,

Computer Production. The Wall Street Journal. Retrieved from Business Source

Premier database. Breen, B. (November 2004). The Wal-Mart of High Tech? Fast

Company. Retrieved February

4, 2006 from http://www.fastcompany.com/magazine/88/dell-rollins.html.Burrows,

Peter. (September 1, 2005). HP Says Goodbye to Drama. Business Week Online.

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

Review.

Retrieved January 25, 2006 from Business Source Premier database.Company Info:

Dell, Inc. (2006). Retrieved February 5, 2006, from Mergent online database.

Comparison Data: Dell, Inc. (2006). Retrieved February 5, 2006, from Hoover's

online

database.Computers, Desktops, & Laptops. (2006). Consumer Reports Buying Guide

2006. Computers: NAICS Code Covered - 334111. Business and Company Resource

Center.

Retrieved February 1, 2006 from http://www.galegroup.comCulture: Dell, Inc.

(2006). Retrieved on February 10, 2006 from

http://www1.us.dell.com/content/topics/global.aspx/corp/investor/en/faqs?

c=us&cs=555&l=en&s=biz#faq7