after a sloppy 2 year period without michael dell, how could dell revitalize his struggling company...
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After a sloppy 2 year period without Michael Dell, How could Dell revitalize his struggling company that had long, defined success in its industry?
Structure of Presentation
• What are the components of the personal computer industry– Business Models– Customers– Manufacturing, R & D, Marketing
• What was Dells approach-through mid 2000’s– Customers– SWOT Analysis– Dell’s Value Chain– Products and Services
Structure of Presentation
• Competitors-IBM/Lenovo, Compaq/HP, Gateway– How does the PC Market look?
• Was it the best thing for Michael Dell to return to the company?
• Why Does Dell want to get away from their trademark Direct Sales program?
• Where does Dell Go from here?– Recommendation
What are the components of the personal computer industry?
Business Models
• Dell and Gateway-Direct• IBM and Compaq- Indirect through Retailers
Build mass amounts of generic computers Ship to retailers
Customer takes home computer and sets up
themselves
Customer Order Specifications
Builds computer to customer specifications
Ships Computer, Sony Ships monitor and other
hardware
Customer Receives all pieces on one date
Dell
Competitors
Dell’s Approach
• Dealt directly with end user• Served Primarily Corporate Customers with
High end computers at low costs• Assembly started after order was placed
Relationship Buyers• Large Organizations• Repeat Orders• Outside and Inside Sales
Reps for each account• Customized Web based
stores
Transaction Buyers• Small-to-Medium
Businesses• Home computer users• Online or called in specified
order• Encourage more advanced
PC’s to buyers• Avoided inexperienced
buyersTwo types of Buyers Dell wanted to work with up to 2000, they need to expand their horizons to maintain growth
Dell HP/ Lenovo/ IBM/ Compaq/ Gateway
Hardware Intel and competitive global market
Intel and competitive global market
Software Microsoft Windows Microsoft Windows
Final Product Varied due to customer specifications
Non Customized
Even though they sold the same product, Users felt they had control over how “good” of a computer they were getting for their money
2008 Dell IBM/Lenovo HP/Compaq Acer Apple
US Market Share
29.4% 4.1% 24.7% 9.3% 7.9%
World Market Share
14.7% 7.6% 18.9% 10.9% 3.5%
Strengths US Market Direct Sales Model
Strong US Indirect Retail Model
Market share consistently on rise
Sleek design of computers, own UI
Weakness World Market
Expensive, not direct sales route
No Direct Sales route, some customers won’t work with them
Not any good brand recognition
Consistent decrease in market share
Supply Chain
Direct, introduced to retailers
Indirect Retail
Indirect Retail
Direct Retail
Price Retail-700Direct-Varied
Moderate High Low High
CustomersCustomer 2008 Dollar Share in Market
Large Business and Government 20.2
Small and Midsize Business 22.9
Home Consumers 45.9
Education 11.0
Total market size(billions of dollars) 50.9
Education needs to be focused on, every other market has been capitalized on. The focus needs to be on education and customer retention for the business’ you have currently.
Consumer Ratings (100 point scale)Brand 2009
Apple 84
HP/Compaq 74
Dell 75
Gateway 74
All others 74
Dell needs to improve its brand image and surpass their highest rating on 80 in 2000
Marketing and Sales
• HP- 1billion,2008• Apple-500 million,2008
What was Dell’s Approach through the mid-2000’s?
SWOT Analysis
Strengths• Direct Model• US Market Share• “Reseller Certification”
Weakness• No solid distribution
route or reseller• Poor Consumer Rating• Slow Innovation
Opportunities• Overseas Market Share• Distribution in Retailers• Expand Market Segment
Threats• Apple• Market Share Overseas
Dell Has room to grow in the retail segment
Dell Value chain
Customer Specifications Build OS Burn-In
Monitor /
Other componen
ts
Shipping Mkt & Sales
Microsoft Windows
DellFedEx
Dell controls all parts of the Chain, saving time during shipping and keeps inventory low having monitors shipped directly to customer.
DellDell Sony, Global Market
Dell Testing
Production and Logistics
• Tailored to each customers needs• Holds no finished goods inventory• Only took hours rather than days• Carried 4 days inventory vs. 20-30 days of
competitors• Shipment went from Dell to pickup monitor to
customer, no need to have extra inventory
Dell’s Direct Model was superior to all other competitors
Competitor’s IBM/Lenovo, Compaq/HP, Gateway
IBM and Lenovo
• Relied on Channel partners- Distributers and Resellers
• Tried shipping heavily configured PC’s• AAP-Authorized Assembly Program– Lightly configured PC’s – Other companies finished the computer
• Poor logistics for building PC’s caused higher prices– Tear downs and rebuilds cost time and money
• Ventured into direct sales
Compaq and HP
• 1994-Worlds Largest maker of PC’s through full line of PC’s
Individual Consumers Business Customers
Standard PC’s sold through retailersFailed MagazineFailed Phone orders
Own ForecastingDelivery of 65-day old PC’s
Optimized Distribution Model
• PC’s were built only after an order was received
• Deliveries continued to go through distributers and resellers-SLOW
• Direct Plus Program-designed to sell directly to small and mid size businesses.
• Tried to keep everyone happy
By 1999 Compaq had shot itself in the foot and reported significant losses trying to please everyone
• High Quality and High Performance• 75% PC’s sold through distributers and
resellers• Aimed at the high end user• HP Sticks with resellers and distributers• Average computer sold was 35 days old
Gateway/Acer
• Very similar to Dell• Focused on home users and small businesses
rather than large corporations• Acer became 100% Indirect and “Un-Dell”• Very inexpensive PC’s sold through retailers to
consumers. • 2nd Largest Producer of PC units
Apple
• Sleek Design • High Cost• Ease of Use• Opened on retail stores in 2008• Increased market share by ~5% in one year
after release of iPod and iPhone
How does the PC market look?
Apple
Lenovo/HP
Compaq/IBM
Acer
Dell
Differentiation
Cost
Low High
Low
Hig
h
Was it the best idea for Michael Dell to return to the company?
• Rollins sticks to Dell’s Historical Strategy and kept missing expected earnings.
• Pricing Mistakes, Bad Sony Batteries, Poor customer service ratings, poor accounting practices, no volume increases.
As soon as Michael Stepped down, problems surfaced that had been going on before he left the company
Michael Dell’s Return
• Brings in outside talent– Ronald Garriques from Motorola– Mike Cannon, from Solectron– Brian Gladden , from GE– Ed Boyd, from Nike
• Direct Model was a revolution, not a religion.• Opened channels to retailers• Launched a new line of laptops• Purchased Perot Systems• Decreased Sales, Decreased Returns
Why Does Dell want to get away from their trademark Direct Sales program?
Market Share for Each DistributionUS Europe Asia Japan Rest of
World
Retail 35 37 48 35 29
Distributor 22 39 36 32 46
Direct
Inbound 10 5 3 7 7
Outbound 20 10 11 19 15
Internet 11 2 1 8 2
Dell needs to shift to Retailers in the US and Globally. People want to see and touch what they are buying
Dell’s New Value chain
Fixed Configuration Build OS
Monitor /Other
componentsShipping Mkt &
Sales
Microsoft Windows
Retailers
Dell gave up all parts of the Chain, saving over $3 billion dollars on costs.
ContractorsContractors Global Market
Where does Dell go from here?
Optimally
• Dell would continue growth with new/ hip generation while innovating products around their new team
• Dell would expand into the global market via retail sales• Dell would expand into the global market via better
customer service and scrapping their direct end user sales model
• While also breaking into the retailing world and creating Dell stations rather than Dell vs. HP vs. Acer
• Possibly look to buy Acer to take more of the market
Recommendation Issue Action
Boring Brand Become more innovative, Appeal to more groups, offer more models in stores
Channel Increase Distribution, sell more models in stores, take out Acer as a growing, cheap brand, Cut Direct Sales approach
World Market Share Increase sales and distribution in growing markets such as Europe, and Asia
Focus Should be to all age groups, multiple models in stores, educate vs. expect
Value Chain Create checks and balances to create great products
Price Do not compete on Price, compete on number of models
Customer Service Have in multiple areas of the world
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