Dell Inc.

Case study
 Table of Contents
1. Company background: Dell Inc...........................................................................................................2
2. Porter’s Five forces model...................................................................................................................2
2.1 Bargaining power of Suppliers:...................................................................................................2
2.2 Bargaining power of Customers:.................................................................................................2
2.3 Threat of new entrant:..................................................................................................................2
2.4 Threat of substitutes:....................................................................................................................2
2.5 Intensity of competition:..............................................................................................................2
3. SWOT analysis....................................................................................................................................3
3.1 Strength:......................................................................................................................................3
3.2 Weakness:....................................................................................................................................4
3.3 Opportunities:..............................................................................................................................4
3.4 Threats:........................................................................................................................................5
4. PEST Analysis.....................................................................................................................................5
4.1 Political:.......................................................................................................................................5
4.2 Economic:....................................................................................................................................5
4.3 Social:..........................................................................................................................................5
4.4 Technological:.............................................................................................................................6
5. Business Model...................................................................................................................................6
6. Business/IS/IT Strategic Initiatives......................................................................................................8
7. Value chain management in India........................................................................................................8
8. The customer journey of experience/ Customer Activity Cycle...........................................................9
8.1 Utilities of the concept...............................................................................................................10
8.2 Future opportunities:..................................................................................................................12
9. Strategic issues faced by Dell............................................................................................................12
10. Recommendations.............................................................................................................................13
11. Conclusion.........................................................................................................................................13
References.................................................................................................................................................15

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 1. Company background: Dell Inc
Dell computer, one of the major computer companies were founded by Michael dell in 1984.
During this time he was studying in at the University of Texas, Austin. Initially dell sold only
IBM compatible PC but later on in 1988 they started utilizing their own brand name “Dell
Computer Corporation” and sold computers using the brand Dell. Dell began selling its
computers through website in 1996 (Brown & Eryn, 1999). Later in 2000, Dell diversified its
business into televisions, printers etc. In 2003 name of company was changed from “Dell
Computer Corporation” to “Dell Inc”

2. Porter’s five Forces model

Applying Porter’s five forces model to assess the competition level in this industry

2.1 Bargaining power of Suppliers: It is high due to the limited number of supplier of
major components used in the computers and similar products (Dedrick, Jason &
Kraemer, 1998). As an example, Intel alone sells 80% of microprocessors to the
computer companies.
2.2 Bargaining power of Customers: As PCs are now treated as commodity, customers
have high bargaining power. Nearly all the computers, specifications and components
are same irrespective of their brand.
2.3 Threat of new entrant: It is very low in this industry because of presence of
established players.
2.4 Threat of substitutes: Major substitute of computers are Mobile phones or PDA.
They are hand held computers. Because of the innovation of smart phones, people
prefer it over computers. So to tap this market Dell has come up with its own
Smartphone which has all features as in computers.
2.5 Intensity of competition: As there are very big players in this industry as IBM,
Compaq, HP, Lenovo etc thus the intensity of competition is very high. Product
differentiation is done on the basis of extra added features provided by the company.

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 3. SWOT analysis
Dell is one of the best organizations in this world but every organization has its strengths and
weaknesses which are influenced by its internal culture and competencies. Opportunities and
threat are characterized by the external environment.

3.1 Strength:
Some of the key strengths of Dell which makes it market leader among the
competitors are

1. In 2010 dell is ranked at 38 by Fortune in the list of Fortune 500 companies. This
increases the brand equity of Dell to several folds. It is also ranked at 5 in the list
of most admired corporation in this industry by Fortune only.
2. Dell has achieved competitive advantage over its competitors by acquiring Perot
systems in 2009 and Alienware in 2006 (Gottesman, 1999).
3. Leadership is also very important for the success of any company as the leader
leads the way for its followers and marks a new way to progress. Similarly,
Michael dell is a great experienced leader having longest tenure as CEO in this
industry.
4. Dell has very efficient supply chain management and E-commerce model which
is considered to be the best model in the industry.
5. Dell is recognized as the largest company in Austin, 2 nd biggest company in Texas
(Non-oil Company) and in terms of revenue dell is 5th largest company in Texas.
6. Dell is very efficient in understanding customer needs because of its direct selling
and direct interaction with customers.
7. To minimize the cost, Dell always has its manufacturing facility near its suppliers.
This also helps to achieve success in its Just-in-Time (JIT) approach It has most
efficient procurement process, operation and distribution network in this industry.
As the cost is very low, thus Dell boasts of achieving competitive pricing.
8. Customer base of Dell is super strong and extremely influential. Two-third of the
revenue of Dell comes from Government institutions, educational institutions and
large companies (Helman, 2007).

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 9. Dell computers are favorites of customers because of its customization. Dell
achieves highest customer satisfaction by providing customer whatever they need.

3.2 Weakness:
1. As Dell uses JIT approach for its manufacturing operations, it makes them highly
dependent upon the supplier group. It also makes dell prone to quality issues of
the parts supplied by its partners.
2. Dell is very less competent in attracting college going students. This segment
constitutes only 5% of the total revenue of dell. There is a very huge potential
which is not served by Dell (Edwards, 2009).
3. Dell changes its technology very fast which does not allows Dell to own any
technology or have proprietorship over it
4. It is very beneficial for the company that Michael Dell is CEO for many years but
it has also produced problems because of same mindset in the company.
5. Earlier the company was focusing in PC business only so Dell needs to diversify
itself into new products and technology which will give an advantage to Dell over
competitors.

3.3 Opportunities:
The opportunities which can be explored by Dell are as follows:

1. Because of its leadership in technology innovation, Dell can come up with

products which can tap the new market segment.
2. As the production will increase, it will give rise to economies of scale thus
reducing overall cost of production (Kaplan & Martin, 2000).
3. Forward integration like owning distribution network and backward integration
such as owning Supplier Company can greatly reduce the cost and increase
control.
4. Dell should increase its focus towards household customers and provide
availability of their products near to this segment which demands convenience
over customization.

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 3.4 Threats:
1. Technology becomes obsolete in some time which makes the forecast of demand
very difficult for the strategist.
2. Presently PC is low involvement products thus companies are indulged in price
war to increase their market share.
3. Dell is trying to increase its presence in developing markets which makes it prone
to problems like political instability, regulations, Currency fluctuation etc.
4. Customization is boon for the company as well as bane. As the price of PC is
decreasing, Dell has to optimize its cost simultaneously providing customized
products

4. PEST Analysis
4.1 Political:
Political analysis is very crucial for the success of companies. Dell also has impact
because of political issues. In some countries because of government regulations or laws,
it becomes difficult for Dell to operate effectively. In some countries FDI norms are very
strict so direct investment in manufacturing facilities in those countries is extremely
difficult. Example- a lot of red tape activities are involved in securing big contracts in
China. Also Chinese government favors local firms over international firms. So it was
very difficult for Dell to enter China.

4.2 Economic:
Economic environment analyses the economic situation in which firm is doing its
operation. PC industry is highly dependent upon the economic condition of country or
region. Demand fluctuates highly if the economic condition is not stable. During
recession, economy went down and thus customer propensity to buy also reduced. At that
time Dell suffered losses and was not able to satisfy demand of price cautious customers.

4.3 Social:
The impact of socio-cultural factors on Dell is also very high. Major sales of Dell occur
through internet or phone calls. But still in some countries people want to touch and feel
the product before they purchase it. So dell suffers because of this type of customer

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 behavior. Also in countries like China and India where Internet penetration is expanding,
Dell has high potential to cater the needs of the customers through internet but initially
they have to gain the trust and faith of customers.

4.4 Technological:
It includes the institution and innovation involved which benefits the company. Dell is
majorly dependent upon its suppliers to drive the innovation. Dell doesn’t have
proprietary technology of its own (Hamm, 2004). But in PC industry, technology
becomes old very soon. Product life cycle of technological products is very short. Thus in
this short span of time dell has to deliver new technology to its customers else
competitors will take away the market share

5. Business Model

The business model and supply chain of dell was very competitive and efficient. Every
manufacturer wanted to imitate its business model to reach the same success. Direct sales model
and best supply chain management gave competitive edge to dell. Dell received lots of accolades
from business moguls and established players. Loyal customer base of Dell was increasing
because of the customization of products and customer satisfaction

In 2006, it was observed that dell was facing severe problems. Some of the problems are
discussed as:

a. Customer complaints of long delays in supplies.

b. Negative media hype because of the recall of Sony batteries in laptops.
c. Increasing cost because of the mass customization.
d. Complexity of business was increasing rampantly.

As dell was facing such problems, it lost its market share to Hewlett-Packard (HP) in 2006.
Michael Dell felt the urgency to increase the capacity to cater the demand To do all this, Dell had
to innovate the business model for the differentiated design, manufacturing and distribution
models.

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Dell did not eliminate direct sales model instead they complemented this model with the retail
channel. From June 2007, dell computers were found placed in the shelves of Wal-Mart and
Sam’s Club stores. This was the scenario in U.S. but in Britain and Ireland, the sales of dell was
started through Tesco stores. Tesco stores were also used for distribution in high-growth eastern
European markets like Slovakia (Edwards, 2009).

Thus retail stores in different countries can be classified as:

COUNTRY RETAILER
U.S. , Asia and Europe Best Buy, Wal-Mart, Staples, Tesco
China Gome store
Japan Bic Camera
France Carrefour
British Phone retailer Carphone warehouse

Dell also created an agency which increased the time and budget of $4.5 Billion spent on
marketing and branding of Dell products. This new agency was created by WPP – second largest
marketing, media and communication giant

Earlier the supply chain and procurement of dell was working in silos. Supply chain of Dell was
a part of global operations and procurement function of all the dell factories worked as a separate
division.

To achieve the best supply chain as Michael dell dreamed about, it was very necessary to
coordinate all the activities. Dell integrated its supply chain and achieved quality through Global
Operation Organization (Breen, 2004). This integration activity by Global Operation
Organization (GOO) included integration of procurement, supply chain activities and worldwide
manufacturing process Each and every redundant activity was eliminated from the business
process and the business process redesign was done keeping customers in mind.

6. Business/IS/IT Strategic Initiatives

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To survive in this red ocean, Dell has to come up with blue ocean strategy to give itself a
sustainable competitive advantage. Out of the box strategies will definitely help dell in achieving
long term success. Some of the strategic initiatives which have transformed the business of Dell
are as follows (Kharif, 2005):

a. Initiating distribution through retail giants like Tesco and Wal-Mart.

b. Strategic alliance with EMC Corporation for design and development of products.
c. Acquisition of Perot systems in 2009 and Alienware in 2006 has provided great control
over the working of Dell process.
d. Expanding the retail outlets all over world.
e. E-business and long term relationship with supplier, vendors, and logistics companies etc.
f. Commendable customer service support which helps the company to retain its customers
and transform them into loyal customer base which is the most profitable group of
customers

7. Value chain management in India

In the late 2006, Dell started losing its market share to Hewlett- Packard and last year in 2009 it
lost its number 2 rank to Acer globally. But in India, surprisingly dell continued to be a
profitable venture and posted profit in consequent quarters. Soon it became biggest seller of
desktop and laptop in India leaving behind HP. IN fact India is at the top of Dell’s strategic
geography. Out of the total employee strength of 96000, India has 23000 employees.

The major reason for the successful value chain management in India is establishment of
manufacturing facility at Chennai. Cost and cycle time has been brought down significantly by
producing around million units per year (Byrnes, 2003)

Second important reason for the success of Dell in India is that they are targeting Indian
consumer instead of their global phenomenon of targeting big organizations and institutions.

Third and the backbone reason for the successful value chain management is the availability of
dell computers at retail stores. Dell has started using intermediaries in distribution network. This
direct model allows customer to walk in the store and then customize their computers there only.

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Thus the relationship maintained by dell with its channel members is very appreciative. This
relationship is helping Dell to achieve sustainable competitive advantage (Hackett, 2005).

8. The customer journey of experience/ Customer Activity Cycle

Source: (Kenneth Yamashiro, 2007)

There are 8 stages for customer journey to

achieve experience. These stages lead to
business purchase. This is cycle which is followed by customer from need to repurchase. For
success of any product, this whole cycle has to be completed because this will lead to loyal
customer base and increase in profitability of business. Customer journey of experience acts as a
bull eye for companies because if this bull’s eye is hit then the target segment of the company
will always be satisfied These stages can be classified as:

a. Need: In the case of dell computers, customers are getting information about the product
on their website. Thus product information, awareness and specification lead to
generation of need of the dell product.
b. Enquire: In the case of dell computers, Customers enquire about the availability of the
product and also the contact of the retailer or distributor or decide the channel member
which will be accessed (Hudgins, 2003).
c. Approach: Dell potential customers approach the retail shop like Wal-Mart store or
website for further queries.

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d. Recommendation: Dell provides catalog service to its big clients whereas it provides
detailed information about the products on its websites.
e. Purchase: Depending upon the convenience of the customers, they buy it either from the
retail store or from website. The convenience factor is of prime importance whenever a
customer makes a purchase of product from Dell computers
f. Experience: Experience of the product is gathered while the customer uses the product.
They will be satisfied if the product quality exceeds customer expectation and vice versa.
g. Problem: If customer of dell suffers any problem then the Dell computer provides
customer care support to the customers for any problem. They also provide repair support
to the customers.
h. Reconsider: If customer of Dell Computer is satisfied from the product quality and
operation then definitely he will repurchase from Dell only but if competitor of dell is
providing better service and product then the previous customer of Dell may transform
into customer of Competitor (Ladendorf, 2009).

8.1 Utilities of the concept

Using the Customer journey of experience model, company can enhance its operation and
it can perform functions in more effective and efficient manner. If Dell computers
successfully satisfy customers during each stage of customer journey of experience then
the repeat purchase will increase which in turn will lead to increase in profitability of
business

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a. Stage 1 – Success of any company depends upon how well that company understands
its customers and how well it identifies the needs of customers. Dell Company has to
monitor the needs of the customers so that it can fulfill the expectation of its clients.
b. Stage 2 – After identification of the customer needs, the company has to deliver
whatever it has promised to its customers. Dell is very reputed brand and thus
expectation of its customers from dell is very high. Thus to perform well in long term,
Dell has to match the needs of customers
c. Stage 3 – There are many products in the market which are similar to competitor’s
product. There should be some point of differentiation which has to be incorporated
in the product. These are extra added features. To dazzle the customer with existing
product, Dell provides many extra services which no one can provide.
d. Stage 4 – This is the last stage where a company establishes a long lasting
relationship with customer. The same case is with Dell Inc. because of the best
services offered and identification of customer needs has helped dell to develop
empathy with customers (Kraemer, Kenneth, Dedrick & Yamashiro, 2000).

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 8.2 Future opportunities:
As dell is very efficient in understanding and matching customer needs, thus the satisfied
customers lead to the profitability of company as well as emergence of enormous future
opportunities like

1. Feedback forum should be maintained and customers should be invited to join forum
and share their experience to create word of mouth advertising.
2. Building Dell communities where members will clear the doubts and provide
information to prospective customers (Pletz & John, 2000).
3. User friendly customer service to influence the prospects in the first stage only.
4. Provide extra services with products to bring the Dell products from consideration set
to choice set.

9. Strategic issues faced by Dell

Dell follows the market leader strategy since its inception. This can be observed by its direct
selling model and customization. This made Dell as market leader in its industry among its peers
because of its competencies like Best supply chain, brand recognition, customization, innovation
etc. but some the strategic issues being faced by dell are:

1. Saturated market of primary product i.e. PC in US. Majority of PC in government

organization and educational institution will be replacement units needing upgradation.
2. As the time is passing, the brand value of Dell is declining because of the declining
customer service. But recently dell executives have understood that quality service is key
element so they are working on it (Kraemer, Kenneth & Dedrick, 2000).
3. Dell is not able to serve complete market needs because of lack of suppliers. As it is
committed to Intel, it provides value to customer but it can’t serve individual needs.
4. Dell has strong foothold in developed markets but it has to expand its expertise in
countries like India and China. They should offer customized PC in these countries at
relatively cheaper price which will be a mammoth task for dell.

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 10.Recommendations

a. Presently dell sells its products through direct sales, internet or Retail channels. But these
channels do not have much access to the customers in developing countries So Dell
should extend its distribution in these developing countries through company owned hops
or franchise based shops. This strategy will increase the penetration of the product several
folds as well as it will mitigate the risk while entering new country (Scheck, 2005).
b. Dell should maintain database of all customers with all the personal information as well
as past purchases. It will help the company to keep the clients updated with the new
related information and products which is sought by customers in the past.
c. Dell should spend more on marketing and advertising because now computers and
laptops are relatively very cheap. They are now becoming commodity. So to differentiate
commodity from the competitor’s product, Dell need to advertise more about their
products and offerings. These advertisements should be modified according to the
behavior pattern of individuals of particular society with identical needs.
d. Dell should introduce new products in unrelated sectors like it introduced smart phones.
This initiative of dell will reduce its market risk because of the diversified portfolio. New
products will be successful in market because of the established brand name of Dell in
market. New products which can be launched by Dell are software, Networking
hardware, printers and other accessories, IT services, Enterprise solutions like ERP.

11.Conclusion

Dell is one of the biggest and most successful PC Seller Company leverages its core
competencies like (Mahoney, Jerry & Pletz 2000):

1. Customer centricity
2. Brand Equity
3. Best supply chain
4. Technical skills
5. Work culture

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 6. Cost effectiveness
7. Relationship
8. Integrity
9. After Sales support

All these core competencies are unique in them and are very difficult to be imitated by the
competitors. Thus these core competencies of dell provide sustainable competitive advantage.
Thus grabbing the opportunities and strengthening the competencies will help Dell in retaining
its leadership and deliver superior value in the form of best products to its customers.

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References

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24. 2007

Dedrick, Jason and Kenneth L. Kraemer (1998). Asia’s Computer Challenge. New York:
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Gottesman, Ben Z. (1999). “Computer Hardware and Software,” PC Magazine, Issue: 1744, pp.
75 - 79.

Kaplan, David Martin (2000). Evolution of business models: the case of Dell and Compaq in
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Kraemer, Kenneth L., Jason Dedrick, and Sandra Yamashiro (2000). Dell Computer: refining
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