PRODUCT DEVELOPMENT

AT DELL COMPUTER
CORPORATION

PRESENTED TO: PRESENTED BY:

PROF. SUBIR GUHA MOHD.ARISH
EXECUTIVE SUMMARY

This case is all about dell computer which in spite of

taking a good start got stuck into cash crunch in 1993.

The company is also facing problems with their existing

design of portable computer as they had some technical
problem relating to battery life.

For solving the problem a meeting was held in hopes the

group could reach a consensus on recommendation for
developing a new line of laptop computers.
 THE PERSONAL COMPUTER INDUSTRY

 The first digital computer were designed by Charles Babbage in the 1830’s.
 Micro computer revolution started in 1970’s, with machine catering to
hobbyists and hackers.
 In July 1974 an electronic magazine promoted a printed circuit board that
came with instruction book for simulation.
 In late 1970’s and 1980’s apple computer California based firm successfully
commercialized an intuitively “easy to use” interface.
 Initially Texas Instruments and Zenith entered in the business segment of
microcomputer.
 To play catch-up, IBM rapidly leveraged-off its traditional corporate base
and strong direct sales and services organization.
 It outsourced hardware & software components to launch its IBM personal
computer in 1981.
 THE HISTORY OF DELL
 In 1983 Michael Dell a freshman at the University of Texas, Austin
started upgrading IBM compatible personal computers door to door for
local business.

 He soon started buying and assembling components himself in order to

sell computer his name directly to customers.

 High growth and attractive margins allowed him to fund growth

internally and he began to get number of orders from large oil
companies and government agencies.

 In order to promote dell product , dell started 24 hour complaint hotline

& offer a supply of back up replacement equipment.

 Dell’s company grew to $6 million by 1985, firm introduced its own

 DELL BUSINESS MODEL

 Dell computer used the same principal to sell computers. The

company focused on selling customized products directly via
mail to shabby customer.
 Dell assured product quality by extensively pretesting all the
configuration options it offered.
 A 24-hour telephone support system comprising well-trained
technical representative provided the first post-shipment level
of support.
 Dell serviced its customers with combination of home based
telephone representative and field based representative.
 Dell maintained a month’s worth of component inventory but
it suppliers generally carried supplemental buffer stock that
could be immediately shipped.
 PROBLEM FACED BY DELL

 Dell had to callback 17000 units due to technical

problem.
 Company got stuck into Cash Crunch.

 Dell stock plunged to $7 a share.

 Profit slashed to $10 million.

 Retail Selling proved contrary to dell.

 Senior management unable to guide the firm to

maturity.
 Improper structure of Product Development Process
THE NEXT GENERATION: WHICH BATTERY

Holliday & his team entertained only a few realistic development option:

 Computer with a proven battery technology (NiHi):

McCarty & Taylor, the mechanical engineer, favored this option such as
communication control or memory management accessories.

 Go with the new battery technology (LiOn):

Dell could incorporate new Lithium ion batteries into the notebook. This
option mean incorporating an unproven & more expensive technology,
which would also take up more space than traditional batteries.

 Defer commitment to either battery technology:

Dell could continue to pursue the laptop development without
committing to either battery technology at the current phase review.
DELL HAS THREE OPTION FOR PDP
 Option 1: continue with a proven battery technology (NiHi)
 Confidence = 100% (likelihood that it works as expected)
 Net margin = 825,000 units * $600/units- $10m =$485m

 Option 2: Go with the new battery technology (LiOn)

 Confidence = 60% (likelihood that it works as expected): nsky
 Net margin (if LiOn works) = 990,000 units*$600/unit-$10m =$584m
 Net margin (if LiOn fails) = (825,000 units*0.5) * $600/units-
($10+0.3*$10) =$234.5m
 If LiOn fails at launch, a switch to NiHi would require substantial rework
(70% of original schedule and 30% of cost). Because competitors would
have an established product on the market before them. Dell would lose
about 50% of projected units sold.
 If LiOn causes a failure, there could be spillover effects into the desktop
business. Dell regulation for qualify could be tarnished.
 Option 3: Defer commitment until qualification phase review
(dual development or design)
*If dual Estimated =$2.5m
development additional fixed
paths cost
*If product is Estimated =0.5% of revenue
overdesigned additional variable (2% of margin)
cost
Gross margin (if 999,000*$600/uni $594m (before
LiOn works) t additional cost)
Gross margin (if 825,000*$600/uni $495m (before
LiOn fails) t additional cost)
The analysis assumes that Sony will give us enough
information at the end of the qualification phase to determine
with full certainly if LiOn will work or fail. If it fails Dell can
*these are the actual project cost incurred. They include
additional designers and engineers, material & tools cost,
etc. if we follow a dual path until the qualification phase
review. Te costs do not include the product opportunity
forego if we had to pull people away from other projects.

* Because of the LiOn battery different dimension and

properties we would have to “overdesign” the computer
case, the charging circuitry and battery management
software to a accommodate either battery technology which
would add about $12 cost/unit.
 Time(Months)

Profile

Planning

Impementatiion

Qualification

Launch

Acceptance
DELL’S LATITUDE DEVELOPMENT PROJECT
 In 1991, Dell came out with its first line of portable computers .

 In 1992, with portables accounting for 17 percent of Dell’s sales, rumors

circulated about quality problems.

 Early in 1993, Dell canceled a new line of laptops under development, since
these were deemed too slow and expensive.

 By May 1993, notebook sales had slipped to just 6 percent of Dell sales
previously account for 20-25 percent of sales.

 Bill Gated stated:

“Dell is a super-solid company . They’ll get on top of the situation”

 In October 1993, Dell recalled 17,000 notebooks. Announced plans for

launching a new line of notebooks, named the latitude series.
 NEW PRODUCT DEVELOPMENT
Profile
 Phase:
Product and market definition, resulting in a two to three page “ product
features guide”.

Planning
 Phase:
Detailed business case for the product.

Implemental
 Phase:
Designed, built and tested functional prototypes of the proposed product.

Launch
 Phase:
The entire customer buying experience, from opening the packaged finished
product to running various software applications, was exhaustively tested.

Acceptance
 Phase:
The team collected customer feedback about the product for up to three
months after launch.
 PORTABLE COMPUTER INDUSTRY
 Osborne marketed the first portable computer in 1981.
 By the end of the decade, the quality of the portability itself gave
these machines gross margins that were typically 3 to 5 percent
above desktops.
 In 1993 portable were classified as laptops if they weighed
between 4.5 & 8 pounds & sub notebooks if they weighed under 4
pounds.

Portable computer Market Size (millions of

units) World United States
1992 4.3 2.2
1993 6.2 2.9
1994 7.4 3.2
1995 8.9 3.7
 DELL FINANCIAL DATA
Particular 1991 1992 1993
Net sale($M) $890 $2.024 $2.873
Products
Desktops 90% 88% 94%
Laptops 10% 12% 2%
Servers -- -- 4%

Market segment
sales
Relationship 59% 61% 64%
Transaction 41% 39% 36%

Markets
US 72.8% 72.5% 70.9%
Europe 27.2% 27.5% 27.2%
Asia -- -- 1.9%