dell pursues growth in a challenging environment.docx
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Dell Pursues Growth in a Challenging Environment
I. Company Overview
Dell was founded in 1983 by Michael Dell, an 18 year old college freshman from
Texas who started out upgrading hard drives for IBM compatibles on nights and weekends.
Dell is leading technology provider that design, develops, manufacturer and support PC’s,
software and peripherals, storage and servers, and associated services. Within a year, his
service business had grown to an incredible $6 million from performing computer upgrades
for local area businesses and he dropped out of school to concentrate on the business. When
Dell changed his strategy and started offering custom built-to-order machines, the business
exploded, with $70 million in sales by the end of 1985.
Evolving into an assembler company, Dell was able to exploit certain events
occurring in the industry and swiftly adapted to meet market conditions. Five years later,
total sales had grown to an unbelievable $500 million and Dell became nationally known as a
supplier of state-of-the art desktop and portable computers. Dell continually achieved
phenomenal records in sales and profit growth, eventually making it the most successful
company ever in the PC industry, surpassing $25 billion in 2000. As one of the world's
premier providers of computer products and services, Dell was the US market leader in its
core products, the desktop and laptop markets by 2001.
II. Problems
Although Dell is seen to be a highly successful company, analysts worry that the recent
slumping economy in the 4th quarter of 2000 and the market saturation in the technology
arena could prevent Dell from achieving its prior growth rates and profits. Can it continue to
maintain its stellar track record in light of the sudden decrease in demand, especially with
lower and lower profit margins resulting from price wars in the industry? Should Dell
continue forward with its highly successful ‘direct model’ strategy to try and sustain its
profitability in light of the industry’s-10% growth rate and 50% reduction in profit margins in
late 2000, or should it change its expectations and react to the commodity nature of the
environment? Dell’s immediate challenge is to try and sustain its positive growth rate, spike
its stock prices, and conquer new markets. But how does Dell choose its next product or
service to offer the world? It must make the right choices as to what is the next value
proposition that really matters to its customers. Another challenge for Dell is how to cope in a
new world where technology devices and components cost less and less (resulting in
shrinking profit margins) that become obsolete practically overnight.
III. Analysis of Business Situation
Method that used to analyze external factor for business issue that happened to Dell Inc.
industry is Five Forces Porter’s analysis:
Task Environment based on Porter’s Five Forces
1. Threat of new entrants (Medium)
In The computer industry, it was difficult to find a new competition, because the competition
usually involves only a few vendors. In this case, the competitors are Apple, Lenovo, Acer,
HP, Toshiba, Fujitsu and others. They are also old players.
2. Rivalry among existing firms (High)
As they told in the case that competitors are more advanced in innovation, while innovation is
a critical field in the computer business. The need to facilitate the gadget features of everyday
life are growing higher, the lack of innovation will destroy the growth of a computer
company.
3. Threat of substitute product or services (High)
Computer market vulnerable to innovation. Technology companies are easily destroyed if
they do not innovate, in this era, the development and innovation of new technology are
rapidly increase. So companies must continue to innovate
Threat from Substitutes: HIGH
Rivalry among Existing Competitors: HIGH
Bargaining Power of Suppliers: HIGH
Bargaining Power of Customers: HIGH
Threat of New Entrants: MEDIUM
4. Bargaining power of buyers (High)
Internet growth worldwide is rapidly increases. Along with it, the demands of computing
device are also increase. Computer is becoming a mandatory item in every home, even
individually owned.
5. Bargaining power of suppliers (High)
The numbers of supplier components like LCD, Graphic Cards, Chips, RAM and Memory
are numerous. Like Sony, Samsung, ASUS, NVDIA, etc.
PEST Analysis
1. Political
Government regulation about go green will impact to the R&D cost, to research about go
green feature.
2. Economical
Rate of economic growth increased, it is not difficult only to buy a computer or
gadget. But national crisis in US will affect to buyers priority to buy computer.
Changes in U.S. monetary policy as well as economy policies around the world may
lead to volatile exchange rates, exposing Dell to currency risk despite its foreign
currency hedging program.
3. Social-culture
In today's modern era, the role of technology is enormous. Technology becomes part of many
people in the world live, to work, lifestyle, even education.
4. Technological
Similar companies continue to compete in develop and innovation, also competing to release
cheap products that suit the needs of users. To make it happen, the company put a large
investment in the R&D. In the recent year, patent protection war done to hinder technological
innovation from competitors.
5. Environmental
Dell’s reliance on renewable energy as well as being more energy efficient estimated
to save the company $ 3million a year.
Physical resources, environmental issues, and weather has little impact on the
computer industry given that all computer parts are artificially manufactured.
However, weather issues may affect the ability of a computer company’s supply chain
to operate efficiently. Adverse weather can negatively impact the competitive edge of
a company such as Dell which relies on “just in time” inventory methods as well as
direct sales to its customers.
Problems Analysis
Internal factor (7)
Balancing expansion to retail
Bargaining power of supplier
Leader change in policy and goal
Still focusing in US market
Inventory cost higher (dead stock higher)
R&D cost 1% revenue (lower than competitors)
Business model change from made to order to made to stock)
External factor (8)
Stagnant corporate market (large enterprise, government)
Costumer market growing but not significant (home, small business)
New entrants higher, rivalry higher (price war)
New opportunity market (tablet)
Stagnant PC market
Downturn economic because of US crisis (decrese in ability to pay)
Government regulation about go green (higher cost)
Segment changes from corporation to home user
According to the graphic, Dell Inc. must growth, and Dell has a chance to develop in two directions:
Market Development:
Selling products for the home user segment by retail.
Product Development:
Increase R & D budget to create a new product segment such as tablet, laptop or even mobile phones.
IV. Company Situation Analysis
The company situation was conducted by information from cases and other resources
according to company situation at that time (2003 – 2006)
a. SWOT Analysis
Strength Leader change in policy and
goal R&D cost 1% revenue (lower
than competitor) Dell had the lowest operating
cost in the industry, by offering superior telephone customer services
Offers a broad range of product categories
Dell has total command of the supply change
Latest technology Price for performance Reliability, services and support
Weakness Still focusing in U.S. market Dell was late getting into the Latin
American market and international market
Jumping into the laptop market too soon, entering the workstation market late and signing unsuccessful retail agreements
Business model change from made to order to made to stock
Inventory cost higher (dead stock higher)
Bargaining power of supplier
Opportunity Costumer market growing, even
not significant (home, small business)
Segmented changes (corporation to home user)
Stagnant PC market (provide the simplest and most complete IT solution customized for their needs)
Computer hardware manufacturers include
Threats Downturn economic because of
U.S. crisis (decrease in ability to pay)
New entrant higher, rivalry higher Price competition and arrangement Government regulation about go
green (higher cost) Other regulatory and legal
challenges Rapid technology innovation and
expansion into peripheral markets and ancillary products such as printers and non-computing goods
Demand for electronics devices is high
high level
7S
System:
The company is well known for its innovations in supply chain management and electronic
commerce, particularly its direct sales modes and its “configure to order” approach to
manufacturing-delivering individual PC’s configured to costumers. Dell focus in five area
operations: consumer business, mobile computers, emerging countries, enterprise, and
small/medium business.
Staff:
As of January 1996, 3.500 people still worked at the current Dell headquarters and grow up.
But, when Dell is in the process of moving manufacturing operations from Ireland to Poland,
it reduces the necessary labor force by 1.900 employees. As of 2013, the company employs
about 4000 people in central Texas only, and 103.300 peoples worldwide.
Style:
The corporation markets specific brand names to different market segment. Its
Business/Corporate class represent brands where the company advertising emphasizes long
life-cycles, reliability, and serviceability, Dell’s Home Office/Consumer class emphasizes
value, performance, and expandability, etc.
Strategy:
Dell offers solution for PC’s, mobility, software, peripherals, storage, and networking servers
as well as services. Dell also offers financial services for training and advising on consumer
and enterprise financing opportunities.
Skills:
To minimize the delay between purchase and delivery, Dell has a general policy of
manufacturing its products close to its costumer. This also allow for implementing a just-in-
time manufacturing approach, which minimizes inventory costs. So, the company has skillful
employee since they have to meet the orders.
Structure:
Dell follows the neoclassic organizational design. As any other multinational company
delegation of authority also exist in Dell. Dell hierarchy is shrinking as managers are
increasingly delegation in everyday decision making to employee. Project Managers at Dell
have no direct reports, they rely on their people skill to get things done.
Shared Value:
The shared value of Dell Inc. is satisfied their costumer by providing their superior customer
services.
As Dell continues to negotiate the challenges of the mature life cycle stage, the company will
need to continue to focus on process innovation and creating business and consumer
customer value in order to maintain its status as industry leader.
Product Market Matrix
Dell currently serves a global market through the sales of its products and services. Its core
business is computer related and is based in the U.S., where the company has the largest
percentage share of the computer market.
Present Products and Services
Dell's present product line can be segmented into 5 major categories: Desktop and Mobility
Computing, Software and Peripherals (Printers, Monitors, Plasma TV's, Cameras, etc.),
Servers and Networking, Infrastructure Services and Storage.
Present Market
Dell has expanded its business model worldwide. In each geographic market, Dell pursues
three independent market segments: consumers, government and businesses.
Related Product and Markets
Dell has commitment with Intel for the microprocessors. But AMD has developed fresh new
microprocessor with great performance. However, Dell's newest plant, WS1, is built in a lean
manufacturing mentality, where diverse product models can be built by the same
manufacturing line executing Single Minute Exchange of Die (SMED) methods. This should
reduce the impact of changing between chip vendors, as the plant already has flexibility built
into its operating procedure.
Dell’s direct sales model is not providing the returns expected in China. So, Dell should
invest in partnerships or storefronts similar to the 'Apple store' concept where the entire Dell
product line can be seen and touched, a method that will probably work better with Chinese
buying habits.
Unrelated Product and Markets
Dell will establish more ongoing relationships with customers and become a company
offering a solutions focus, an area currently dominated by rivals IBM and HP.
Porterʹs Generic Strategies
While Dell offers a broad range of product categories in different markets and industries , its
corporate differentiations strategy is best exemplified by its core businesses, PC sales and
services. The company has dedicated itself to making the customer the most important voice
in the value chain. It direct sales model keeping advertising and inventory costs low and
provided a high level of customer services when delivering the end product.
By utilizing just-in-time inventory through supply chain management and SMED
methodologies, helps Dell to eliminate stocks of finished products, reducing component
stocks and replacement costs. Dell focus is on increasing customer value, but is keeping the
value consistent with the product purchased.
Market Attractiveness and Strength
Using the Boston Consulting Group’s growth share matrix, and the McKinsey 9 cell matrix,
Dell's many businesses can be independently analyzed. Dell's PC division, comprising both
desktop and mobility segments can be categorized as a Cash Cow, due to the company's front
running position and ownership of over 18% of the world market (Williams, Cowley, 2006).
This market is expanding, especially in developing countries (Kharif, 2005), with an expected
increase in shipments of 10.5% worldwide in 2006 (Kanellos, 2006). Dell's strength in this
segment comes is evidenced by their control of the corporate and personal markets in the
U.S. where they are the top vendor. Outside the U.S., Dell is currently either the #2 or #3 PC
maker, where they are seeing greater than 20% Year over Year (YOY) growth, depending on
the market (Young, 2006) (Evans, 2005).The server business is one where Dell continues to
make show consistent growth in market share, making it a star in Dell's portfolio. Dell's
market share has increased substantially over the last several years to almost 11%, overtaking
Sun to rank as the #3 producer of servers (Shankland, 2005). To grow market share, the
company focused on lower end, higher volume servers, posting between 22-25% YOY
growth over the last several years. As the company matures in this market, Dell is expanding
its business by growing into higher end Windows markets such as clustered servers (Yager,
2005). These new product offerings put Dell in a strong position to capitalize on the expected
6-8% growth of the market in 2006 (Graham-Hackett, 2005).Unlike their PC and server
businesses, Dell does not have the current strength of market to categorize their service
business as more than a question mark.
This segment is the fastest growing business segment at Dell, with over 30% of growth for
each of the last several years. However, Dell estimates that it currently services less than 1%
of this over $670B industry. The company sees this segment as an opportunity to grow its
business through continued refinement of its depth of expertise and capability of its
consultant base (Marengi, Cotshott, 2006). The company has developed a focused strategy to
continue to expand this business through the development of suite services and packaging
services through product sales. In order to move this segment of business to a Star or Cash
Cow, Dell must develop this business into a more consistent and recognizable portion of its
product portfolio. The final market Dell competes in is the peripherals market, which
includes printers, digital cameras, monitors, storage, HDTV's and many other products. These
products together make up 16% percent of Dell's overall revenue and have shown more than
20% YOY revenue growth (Form 10Q, 2005). Within this segment, however, Dell's product
offerings cannot be categorized together, as the products range from cash cows to question
marks. The largest revenue producer and cash cow is the digital display business due to the
product linkages between monitors and computer purchases. Outside of digital displays,
where Dell does not have the same product ties to its PC line, Dell faces competition from
many entrenched market leaders. Despite this, Dell is experiencing significant sales growth
for its peripheral products. For example, its printer unit, while a distant#2 behind HP, has
grown to over a 13% market share in just over 2 years (Singer, 2005). Its storage division,
based on a partnership with EMC, is ranked a distant #4, holding just over 8%of the market
for external and disk storage (Nisbet, 2006). However, due to its ranking in PC sales, Dell is
the #1 reseller of storage, more than 16% ahead of its nearest rival (Zerekes, 2004).Within
each of these markets, Dell has experienced over 20% YOY growth (Form 10Q, 2005).
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VI. Solution
VII. How to Implement Solution