Dell Inc

Presented byGroup H

Analyze Dell’s success story from the viewpoint of ‘Built to Last: Successful Habits of Visionary Companies’.

Clock building, not time telling

Michael Dell (Clock builder) – The visionary leader who right from beginning focused on assembling computers for end users who valued the ability to customize their machines

Anti hierarchical, cost focused corporate culture is also reflected in their high value for money products

Tyranny of the “OR” vs.

Power of the “AND”

Focusing on ‘Low Cost AND High Quality’ instead of ‘Low Cost OR High Quality’

Giving the customer what they want!

Distinguish “What Changes” from “What Doesn’t Change”

Dell stopped offering detailed financial guidance to focus on long term strategy

Michael Dell called earnings promises a trap that “caused us to, every turn of the crank, think a little bit more short term until ultimately we sort of drove ourselves off the cliff”!

The core ideology is to provide customized products at competitive prices

Offered retail consumers computers at break even

Having Big Hairy Audacious Goals

In 2002, during a slumping market Dell set an internal goal to double their sales to $ 60 billion by 2007

Targeting $ 3 billion in annual cost savings by 2011

Nurture a Cult like Culture‐

Having an anti-hierarchical, cost focused corporate culture

Plain buildings with little or no décor‘No free lunches’ If a division grows big, it is immediately broken down to smaller divisions

Try a lot of stuff and keep what works

Dell started off selling computers through retailers

In 1994 Dell ended its 4 year retail strategy and started the Direct Selling model through the internet

Dell went back into retailing in 2007, to target the growing consumer segment

How did Dell build up a strong set of competitive advantages

Opportunity

Trends during 1980s– Corporate customers were becoming increasingly

sophisticated– Individuals had become savvy and experienced– Components of PC became standard permitting

mass customization

Strategic decisions

Company’s model– Direct selling– Mass customization

Direct model features– Outsource all components and company performs

only assembly– Eliminate retailers– Orders via phone or internet which provides

convenience– Integrated supply chain

Strategic decisions

Direct model allowed– reduce cost – To build every system to order, offering customers

powerful, richly configured systems at competitive prices

– Lower inventory

Mass customization allowed – Provide best possible customer experience Fast

delivery and customized products

Other decisions

Concentrate on high margin customersUse of facts and data in daily decision making Very good communicationReduce the number of workers’ touches along the line Excellent use of ITAnti hierarchical, cost focused corporate culture

CA Strategies

Industry structure – Oligopoly CR4 = 52.7%

Cost LeadershipProduct Differentiation

Cost Leadership

Not much of R&D reduces costLow inventory (Built-to-order)They waited for cost of technology to fallDecrease headcountReduce compensation & benefits costImprove productivityTighten discretionary spendExcellent logistics

Product Differentiation

Product attributes– Preloaded software– Tagged and addressed machine– Introduced direct selling at the right time

Firm-customer relationship– Improved user convenience– Customized products

Firm linkages– Very good relationships with suppliers

What factors made Dell slip from its position as a leader

Porter’s Five Forces

Threat of New Entrants ModerateUniformity and availability of technologyLow capital investment for independent storesLow product differentiationLow economies of scaleNo legal or governmental barriers

Threat of Rivalry HighHigh concentrationPrice War: Low MarginDecreasing profitabilityLow switching cost

Porter’s Five Forces

Threat of Buyers HighHighly price sensitiveReliability and customer service become important factors

Threat of Suppliers HighLarge number of suppliers for components like hardware, keyboards, etc.But two major inputs are monopolized

Microsoft standard for all PC’sIntel standard for most PC’s

High switching costs

Porter’s Five Forces

Threat of Substitutes HighWindows MobilesTablet PCs (iPad)PDA/Palmtop computers

First Mover Advantage

Source: Suarez F. and Lanzolla G, “The Half Truth of First Mover Advantage”,HBR

DELL

Competitive Advantages

Direct SellingSupply Chain Management

Relationship with SuppliersExcellent use of IT

Cost Leadership StrategyProduct Differentiation Strategy

Mass customization

VRIO Framework

All the Competitive Advantages, though added value toDell in the starting but were

Not RareAlmost all the vendors provide same kind of products

ImitableHP and Apple also started selling their products online Other vendors learned from Dell and implemented their supply chain also in the same manner

What must Dell do to regain its top position

ERRC Framework

Eliminate– Too much dependence on Direct selling model

Raise– Customer satisfaction– Product/service offerings

Reduce– Cost– Its dependence on high margin customers

Create– Value to a broad set of customers– Good relations with retailers

Adding PC and server product line based on AMD microprocessorsDeveloping a showroom style storefront in developing marketsExpanding consulting services to include business servicesIncrease effort and investment in R&D

Recommendations

Recommendations

Treat corporate and individual customers separately

For medium sized companies, Dell should concentrate more on enterprise solutions For large companies it should focus more on storage and server businessFor individual customers, Dell can target them through a combination of direct and retail models

Recommendations

Try to enlarge corporate e-commerce clientele with more services and product combinations specifically targeted at enterprise levels

Dell should focus more on volumes than margins – Computer market is getting commoditized

• Increasing number of substitutes

– More players are entering into the market

Thank You