Dell Incorporation: Can Rivals Beat its Strategy?

Örnek Olay Çalışması

2010

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 Dell Incorporation: Can Rivals Beat its Strategy?

« We believe that all our

businesses should make money.
If a business doesn’t make
money, if you can’t figure out
how to make money in that
business, you shouldn’t be in it »

MichaeL DeLL

M
ichael Dell, born in February 1965, is the chairman
of the Board of Directors and chief executive officer
of Dell, the company was founded in 1984 with
$1,000 on a simple concept : by selling computer
systems directly to customers, they could best
understand their needs and efficiently provide the most effective
computing solutions to meet those needs. Their evolving business
strategy combines their revolutionary direct customer model with new
distribution channels to reach commercial customers and individual

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 Dell Incorporation: Can Rivals Beat its Strategy?

consumers around the world. In 1992, Mr. Dell became the youngest
CEO ever to earn a ranking on the Fortune 500.

In our report, we will try to analyze the crafting and executing

strategy of Dell Incorporated, by answering to the following questions :

• What is our assessment of the job M.Dell has done as the

company’s leader?
• What grade we’d we give him for his leadership of the
company?
• What are the elements of Dell’s strategy?
• What does a SWOT analysis reveal about the attractiveness of
Dell’s situation?

What is our assessment of the job Mr. Dell has

done as the company's leader?

As the leader of the Company, M. Dell has developed a new style of

management based on both technical knowledge and marketing know-
how.

He had lot of good marketing ideas that allow the company to be a

strong competitor on the I.T. especially in PCs, internet and e-commerce
practices.

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As he was the youngest CEO, he worked very hard to be able to

overpass his weaknesses.

So he became familiar with all parts of the business, he overcame

his shyness and learned to control his ego.

He was very clever when he choose to use a social strategy that

allow him to motivate people winning their loyalty and respect. He was
also considered as a very accessible CEO because he chooses to delegate
authority to subordinates.

I think that being a risk taker and meeting customers all over the
world was very helpful for the company to be a big competitor in PCs
industry.

What are the elements of Dell’s strategy?

Dell’s executives believe that five tenets were the key to delivering
superior customer value:

• A direct relationship is the most efficient path to the customer;

• Allowing customers to purchase custom built products and custom-
tailored services is the most effective way to meet customer needs;
• Non proprietary, standardized technologies deliver the best value
to customers

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• Searching a low-cost structure where cost savings can be passed

along to customers in the form of lower prices;
• Dell should endeavor to deliver added value to customers by:
researching all the technological options, trying to determine which
ones are "optimal", and being accountable to customers' for helping
them obtain the highest return on their investment in information
technology (IT) products and services.

In accordance with these tenets, Dell's strategy had seven core

elements: a cost-efficient approach to build-to-order manufacturing,
partnerships with suppliers aimed at squeezing cost savings out of the
supply chain, direct sales to customers, award-winning customer service
and technical support, customer-driven R&D, emphasis on using
standardized technologies, and product-line expansion aimed at
capturing a bigger share of the dollars, its customers spent for IT
products and services.

1. Cost-Efficient Build-To-Order Manufacturing

Dell built its computers, workstations, and servers to order; none

were produced for inventory. Dell customers could order custom-
equipped servers and workstations according to the needs of their
applications.

Dell was regarded as a world-class manufacturing innovator and a

pioneer in how to mass-produce a customized product. Dell's build-to-
order strategy meant that the company had no in-house stock of finished

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goods inventories and that, unlike competitors using the traditional value
chain model; it did not have to wait for resellers to clear out their own
inventories before it could push new models into the marketplace-
resellers typically operated with 30 to 60 days inventory of prebuilt
models. Equally important was the fact that customers who bought from
Dell got the satisfaction of having their computers customized to their
particular liking and pocketbook.

All assembly plants had the capability to run testing and quality
control process on components, parts, and subassemblies obtained from
suppliers, as well as on the finished products Dell assembled.

1. Maliyet-etkin Build-Sipariş Üretim için

Dell sipariş olan bilgisayarlar, iş istasyonları ve sunucular inşa;

hiçbiri envanter için üretildi. Dell müşterilerinin uygulamaları
ihtiyaçlarına göre özel donanımlı sunucular ve iş istasyonları için olabilir.

Dell dünya standartlarında üretim yenilikçi ve kitlesel

özelleştirilmiş bir ürün üretmek için nasıl bir öncü olarak kabul edildi.
Dell'in yap-şirket mamul mal stok no içi stok olduğunu ve bu, geleneksel
değer zinciri modeli kullanılarak rakiplerin aksine anlamına sipariş
stratejisi; bunun genellikle önceden modellerin 30 ila 60 günlük stok ile
çalışan çarşı-satıcılara içine yeni modeller itebilmesi önce kendi
ölçütlerini temizlemek için satıcılar için beklemek zorunda değildi. Aynı
derecede önemli Dell'den satın müşterilerin özel sevme ve cüzdan için
özelleştirilmiş kendi bilgisayar sahibi olma memnuniyeti var olmasıydı.

Tüm montaj tesisleri ve test ve parçaları, parçalar üzerinde kalite

kontrol işlemini çalıştırmayı yeteneği vardı yanı sıra Dell montajı bitmiş
ürünler üzerinde, tedarikçilerden elde edilen Alt Takımları.

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2. Partnerships with Suppliers

Michael Dell believed that it made much better sense for the
company to partner with reputable suppliers of PC parts and components
than to integrate backward and get into parts and components
manufacturing on its own.

Dell management evaluated the various makers of each

component; picked the best one or two as suppliers; and then stuck with
them as long as they maintained their leadership in technology,
performance, quality and cost.

Dell just-in-time inventory emphasis yielded major cost advantages

and shortened the time it took for Dell to get new generations of its
computer models into the marketplace. New advances were coming so
fast in certain computer parts and components (particularly
microprocessors, disk drives, and wireless devices) that any given item in
inventory was obsolete in a matter of months, sometimes quicker.

3. Dell's Direct Sales Strategy and Marketing Efforts

With thousands of phone, fax, and Internet orders daily and

ongoing field sales force contact with customers, the company kept its
finger on the market pulse, quickly detecting shifts in sales trends, design
problems, and quality glitches. Management believed Dell's ability to
respond quickly gave it a significant advantage over PC makers that
operated on the basis of large production runs of variously configured
and equipped PCs and sold them through retail channels. Dell saw its
direct sales approach as a totally customer-driven system, with the
flexibility to transition quickly to new generations of components and PC
models.

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Dell's Customer-Based Sales and Marketing Focus whereas many

technology companies organized their sales and marketing efforts around
product lines, Dell was organized around customer groups. Dell had
placed managers in charge of developing sales and service programs
appropriate to the needs and expectations of each customer group.

4. Customer Service and Technical Support

Service became a feature of Dell's strategy in 1986 when the

company began providing a year's free onsite service with most of its PCs
after users complained about having to ship their PCs back to Austin for
repairs. Dell contracted with local service providers to handle customer
requests for repairs: onsite service was provided on a four-hour basis to
large customers and on a next day basis to small customers. Dell was
aggressively pursuing initiatives to enhance its online technical support
tools and reduce the number and cost of telephone support calls. The
company was adding Web-based customer service and support tools to
make customers' online experiences pleasant and satisfying. 4. Müşteri
Hizmetleri ve Teknik Destek

Hizmet şirket kullanıcıları hakkında onarımlar için Austin geri

PC'lerini gemi zorunda şikayet ardına bilgisayarların çoğu ile bir yıl
ücretsiz yerinde hizmet vermeye başladı 1986 yılında Dell'in stratejisinin
bir özelliği haline geldi. Dell onarımlar için müşteri isteklerini işlemek
için yerel servis sağlayıcıları ile sözleşmeli: yerinde servis büyük
müşterilere dört saat esasına göre ve küçük müşterilerine bir sonraki gün
olarak verildi. Dell agresif çevrimiçi teknik destek araçları geliştirmek ve
sayı ve maliyet telefon destek aramaları azaltmak girişimleri takip edildi.

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 Dell Incorporation: Can Rivals Beat its Strategy?

Şirketin Web tabanlı müşteri hizmetleri ve destek araçları müşterilerin

online deneyimlerini keyifli ve tatmin edici kılmak için katıyordu.

5. Customer-Driven Research and Development and

Standardized Technology

Dell's R&D focus was to track and test new developments in

components and software, as certain which ones would prove most useful
and cost-effective for customers, and then design them into Dell
products. Management's philosophy was that it was Dell's job on behalf
of its customers to sort out all the new technology coming into the
marketplace and help steer customers to options and solutions most
relevant to their needs. The company talked to its customers frequently
about "relevant technology," listening carefully to customers' needs and
problems and endeavoring to identify the most cost-effective solutions.

Studies conducted by Dell indicated that, over time, products

incorporating standardized technology delivered about twice the
performance per dollar of cost as products based on proprietary
technology. The company's R&D unit also studied and implemented ways
to control quality and to streamline the assembly process.

6. Expansion into New Products

Dell's recent expansion into data storage hardware, switches,

handheld PCs, printers, and printer cartridges represented an effort to
diversify the company's product base and to use its competitive
capabilities in PCs and servers to pursue revenue growth opportunities.

Michael Dell tends to look at what is the next big opportunity all
the time. They can't take on too many of these at once, because it kind of

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overloads the system. But they believe fundamentally that if you think
about the whole market, it's about an $800 billion market, all areas of
technology over time go through a process of standardization or
commoditization. And they try to look at those, anticipate what's
happening, and develop strategies that will allow Dell to get into those
markets.

7. Other Elements of Dell’s Business Strategy

Dell's strategy had three other elements that assisted the company's
drive for industry leadership: the use of the Internet and e-commerce
technologies, entry into the white-box segment of the PC industry, and
advertising.

Pioneering Leadership in Use or the Internet and E-Commerce

Technology Dell was a leader in using the Internet and e-commerce
technologies to squeeze greater efficiency out of its supply chain
activities, to streamline the order-to-delivery process, to encourage
greater customer use of 1ts Web site, and to gather and use all types of
information.

Dell's Entry into the White-Box PC Segment Dell's thinking in

entering the white-box PC segment was that it was cheaper to reach
many small businesses through the white-box dealers that already served
them than by using its own sales force and support groups to sell and
service businesses with fewer than 100 employees. Dell believed its low-
cost supply chain and assembly capabilities would allow it to build
generic machines cheaper than white box resellers could buy components
and assemble a customized machine.

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Advertising Michael Dell was a strong believer in the power of

advertising and frequently espoused its importance in the company's
strategy.

What does a SWOT analysis reveal about the

attractiveness of Dell’s situation?

1. Presentation of the SWOT analysis:

“SWOT” analysis is a strategic planning tool used to evaluate the

Strengths, Weaknesses, Opportunities, and Threats involved in a project
or in a business venture. It involves specifying the objective of the
business venture or project and identifying the internal and external
factors that are favorable and unfavorable to achieving that objective.
The technique is credited to Albert Humphrey, who led a research project
at Stanford University in the 1960s and 1970s.

• Strengths: attributes of the organization which are

helpful to achieve the objective.

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• Weaknesses: attributes of the organization which are

harmful to achieve the objective.
• Opportunities: external conditions which are helpful to
achieve the objective.
• Threats: external conditions which are harmful to
achieve the objective.

Also, a SWOT analysis is a simple and a flexible framework for

generating strategic alternatives from a situation analysis. However, it
could be applicable to either the corporate level or the business unit level
and frequently appears in marketing plans. Because it concentrates on
the issues that potentially have the most impact, the SWOT analysis is
useful when a very limited amount of time is available to address a
complex strategic situation.

Indeed, it can serve as an interpretative filter to reduce the

information to a manageable quantity of key issues. The SWOT analysis
classifies the internal aspects of the company as strengths or weaknesses
and the external situational factors as opportunities or threats.
“Strengths” can serve as a foundation for building a competitive
advantage, and “weaknesses” may hinder it; while “opportunities” can
arise when changes occur in the external environment, and many of these
changes can be perceived as “threats”. By understanding these four
aspects of its situation, a firm can better leverage its strengths, correct its
weaknesses, capitalize on golden opportunities, and deter potentially
devastating threats.

The following diagram shows how a SWOT analysis can be profiled:

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2. The SWOT analysis of Dell’s situation:

Strengths Weaknesses
Direct business model: Just-in-time High dependency on component
manufacturing and Build to suppliers and manufacturers of
customer order subassemblies and other devices

Competitive pricing (drivers, printers, scanners,

modems, memory cards, data
Cost/ differentiation strategy
storage, etc…)
Highest quality and technology

Best-in class service and support

Flexible customization capability

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Superior corporate citizenship

Real time adaptation to

environmental changes

Effective leverage of skills,

technologies and core
competencies while competing
against rivals

Highly qualified and professional

employees

Overall operating and cost

efficiency

Opportunities Threats
Mass customization Fierce competition (prices and

Potential growth in overseas market shares)

markets Emerging of new competitive

Perpetual expansion of Pc’s forces

industry market Tariffs, taxes and trade barriers

Currency fluctuation

Political instability in some

countries

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3. Dell’s attractiveness analysis :

Looking at the SWOT analysis of the company’s business, it is evident

that Dell does still hold a very strong competitive position. The key factor
of the company’s success is its “Direct Business Model” concept, in
addition to the close relationship both with customers and supply
partners, but definitely a better understanding of its business and the
ways to keep it efficient everlasting.

Indeed, Dell’s business model proved its efficiency and its attractiveness
since the company entered to the “Fortune Global 500”, and especially
when its major competitors started copying it, but never succeed in
implementing Dell’s innovative concept correctly: they didn’t realize that
it’s a matter of a whole different way of operating.

Finally, Dell Incorporation should profit from all the different

opportunities of expansion and growth to make its business more
profitable, and should try to reduce as much as possible the negative
impacts of the weaknesses and the threats revealed by the SWOT analysis
.on its business

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