Dell in 2009

By Group N2
Neel Jadhav - 10317
Nidhish Agarwal - 10319
Nishad Farheen - 10321
Piyush Bajaj - 10324
Akshay Khurana - 10302
 Dell Inc. - Introduction
Mission Statement

“ To be the most successful computer company

in the world at delivering the best customer
experience in the markets we serve”

Michael Dell
Founder and CEO
Vision Statement

“ To lead in all regions we serve. The foundation of our success is the same in the United
Kingdom and France, China and Japan, Canada and other countries. Customers want
technology products that are relevant to them, offer great value and can be easily
purchased and used. That’s what our team around the globe consistently delivers”
 Timeline
Timeline of events and their impact on stock prices of the company
Year Events Stock Price
1983 Company founded by Michael Dell. NA

1985 Dell Computers achieves sales of $34 Million in a matter of NA

2 years
1987 Dell completes a private placement through Goldman Sachs NA
1992 Sales of $2 Billion, an increase of 150% over previous year’ NA
sales. Dell experiences liquidity crunch due to
overexpansion and flaws in notebooks.
1994 Ends attempts to sell through retail outlets, launches NA
Dell.com reducing costs from 15% to 9% in 1996
2000 Dell acquires its first firm. Achieves number 1 position in US $38
in computer industry.
2001 Dell continues to grow despite recession and internet $21
bubble burst
 Dell Inc.

Year Events Stock Price

2002 Sets internal goal to achieve sales of $60 Billion by 2007 $28
2003 Renamed as Dell Inc. in tune with its product differentiation $26
strategy
2004 Kevin Rollins replaces M.Dell as the new CEO $32

2005 Well ahead of its plan to reach $60 Billion sales, sets new $38
target of $80 billion sales by 2007 end
2006 Dell starts losing market share. $24
Opens manufacturing plants in 10 countries.
Investigation into irregularities of financial documents
2007 Dell is replaced by HP as the number one PC maker $26
Michael Dell returns as CEO
Dell announces plan to sell most of its manufacturing
facilities within 18 months

Note: Dell achieved its all time high of $140 share price in Feb 1998
 Dell’s stock performance
160

140

120

100

80

60

40

20

0
 Dell’s Core Comptencies
A core competence should be "competitively unique": In many
industries, most skills can be considered a prerequisite for participation
and do not provide any significant competitor differentiation. To qualify
as "core", a competence should be something that other competitors
wish they had within their own business.
Dells core competencies that are difficult for the competition to imitate:
Complete customization of each “built-on-order” computer
Minimization of working capital and industries lowest inventory levels (4days)
Customer order to dispatch in a matter of 36 hours
Ranked number one in Customer service and satisfaction with start to finish support
to end users
Patented processes
Anti-hierarchical, cost-focused corporate culture
Cost savings through best of class supply chain management transferred to buyers
 Dell’s SWOT Analysis
Strengths

Customer oriented marketing strategies

Well-Known for online selling of Computers
Listed in the fortune 500 companies as the 25th largest company
Provide quality PCs, Laptops and computer peripherals at low price.
Low manufacturing cost
Dell has multiple manufacturing plants globally in low cost countries
24X 7 Customer support
Offer wide range of PC, Server, Laptops, Monitors and LCDs, Data storage devices, network
switches and software
Dell built computer on customer provided specifications
The company website at least receives 25 million visits showing brand awareness
Efficient Inventory management
Dell became the first company in the information technology industry to establish a product-
recycling goal.
 Dell’s SWOT Analysis
Weaknesses

Elimination of bonuses in 2006 to increase the company financial performance.

Closure of Dell’s biggest call center in April, 2003 terminating 1100 employees.
On January 8, 2009 Dell announced the closing of its manufacturing plant in
Limerick, Ireland with the loss of 1,900 jobs and the shift of production to its
plant in Poland.
Dell not able to attract the students of schools and colleges,   this segment earn
only 5% of total revenues.
Lot of criticism against the Dell’s claim of world’s most secured notebooks.
Dell willingly discontinued the “world’s most secure laptops” advertisement after
the declaration of the NAD investigation.
Dell have no proprietary technology, the currently used technology by dell are
shared by the other major competitors.
Dell is dependent on its suppliers
 Dell’s SWOT Analysis
Opportunities
India, Pakistan and Bangladesh are the untapped markets
Market penetration in education and Government markets
Cost reduction in latest technology
Partnership or acquiring of suppliers
Dell has opportunity to sell computer directly to retailers

Threats
Fluctuation in currency outside US
Major competitors in the market
Most of the countries are hit by recession which may result in the reduction of revenues.
Government Policies.
Bargaining of Suppliers
Rapid change in technology obsoletes the product in small span of time.
Aggressive marketing by competitors.
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 Order Processing
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Sales
Sales
Forecasting
Forecasting
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The
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Customer
Weekly
ordering from
suppliers
Production
Production based on
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DELL VALUE CHAIN
 Dell’s Core Comptencies
A core competence should be "competitively unique": In many
industries, most skills can be considered a prerequisite for participation
and do not provide any significant competitor differentiation. To qualify
as "core", a competence should be something that other competitors
wish they had within their own business.
Dells core competencies that are difficult for the competition to imitate:
Complete customization of each “built-on-order” computer
Minimization of working capital and industries lowest inventory levels (4days)
Customer order to dispatch in a matter of 36 hours
Ranked number one in Customer service and satisfaction with start to finish support
to end users
Patented processes
Anti-hierarchical, cost-focused corporate culture
Cost savings through best of class supply chain management transferred to buyers
Dell’s Competitive Advantage & Growth Strategy
Dell drove costs enable price reduction for increasing customer base by
Bypassing intermediaries and going direct to the fragmented end-users by booking
orders on phone, fax or through direct sales
Focusing on high-margin customers like government and large corporations instead
of initiating price wars
Policy of build-to-order, excellent co-ordination with suppliers, and exceptional
operation efficiency through patented processes
Plain and simple offices, cutting of unnecessary privileges of executives, reduction
of employee perks, selective recruitment etc.
Outsourcing of manufacturing plants to countries like India, China, El Salvador,
Philippines etc to save on labor and manufacturing costs
Customer relationship based strictly on data and profitability of
the customer relationship. Dell even dropped customers
which were not profitable.
Dell’s Competitive Advantage & Growth Strategy
Dell pursued a strategy of rapid innovation for product differentiation and
raising attractiveness for customers by

Launching first of its kind direct selling policy

Prices considerably lower than those offered by other competitors
Offering fully customized systems according to customer needs instead of stock
products offered by its competitors
Complete start to finish assistance to users ranging from tagging, assigning address
to machines, loading software and after sales service
Website for showing configuration of every pc brought, price paid, time line of launch
of next version of computers by Dell etc
Dell’s Competitive Advantage & Growth Strategy
Dell worked on its distribution systems by…

Dell gave special attention to its top suppliers and

created a valuechain.dell.com website for providing
them information and assistance
Focused on geographical proximity with suppliers,
direct delivery of components to end users from
suppliers, reducing stages in assembly to reduce time and costs
Launching direct store stand-alone kiosks, staffed by Dell employees
In later years, it launched more than retail 3500 outlets at Wal-Mart and planned to
increase it to 6500 outlets and 1-2 retail partnerships in 20 countries.

Dell expanded globally to increase market presence by moving to

countries in South America, Europe, Middle East, Africa, Asia Pacific and
Japan.
Dell’s Competitive Advantage & Growth Strategy
Dell expanded its product line by launching

High-end, preconfigured systems for $1 Million and above client accounts

Notebooks, desktops, servers
Low cost storage systems and services
Inkjet printers, digital music players, LCD televisions, monitors, PDAs and digital
projectors

As a result of these combined strategies, Dell achieved…

Between 1994 and 1998, Dell’s sales increased by five times

Profits increased by ten times, its stock shot up by 5,600%
Revenue growth was twice as fast as that of its rivals
Operating earnings were greater than the combined operating earnings of all of its major
rivals
 Porters 5 Forces and Analysis
Bargaining Bargaining power
power of Buyers of Suppliers
(High) (High)

Threat of
Rivalry
Substitutes
(Low)
(Very High)

Threat of
New Entrants
(Moderate)
 Porters 5 Forces and Analysis
Rivalry: HIGH
High concentration
Price War: Low Margin
Decreasing profitability
Low differentiation
Threat of New Entrants: MODERATE
Low capital investment for independent stores
Low product differentiation. Brand name may be a barrier to entry
Low economies of scale
No legal or governmental barriers
Threat of Substitutes: LOW
Strong presence of PC’s throughout society. One computer for every three people in
the U.S.
Substitute products also manufactured largely by same companies baring
Smartphone
 Porters 5 Forces and Analysis
Bargaining Power of Buyers
Highly price sensitive
Reliability and customer service become important factors
Wide range of choices due to low differentiation

Bargaining Power of Suppliers

Large number of suppliers for components like hardware, keyboards, etc
But two major inputs are monopolized
Microsoft standard for all PC’s, Linux gaining ground though
Intel standard for most PC’s , AMD struggling
High switching costs
 Evolution of the Computer Industry
The introduction of the PC in the early 1980s marks the advent of the
modern computer industry (Altair 8800)
It introduced two concepts - mass production chips at an attractive price
and open-systems architecture
In the early stages, establishment, manufacturing, inventory, distribution
costs were very high, which caused the price for end users to be higher
Less product differentiation caused competitors to compete on lower
prices.
To reduce these costs, Dell used the direct sales model and avoided price
wars
Systems were bulk made with no customization and different processes
in making the machine ready to use were handled by different vendors
Dell handled the complete setup process, allowing higher cost savings
and convenience for the end users
 Evolution of the Computer Industry
Major players included Acer, Apple, HP, Lenovo, IBM etc
Apple and IBM created whole products will Apple even designing its own
OS allowing better integration, ease of use and serviceability
Most of the major players had long term expertise in electronic
technology, hence allowing them to expand their product lines to many
products other than computer
Dell responded by moving into categories of printers, digital music
players, projectors, LCDs, monitors, PDAs etc
Compared to the industry, Dell had
Almost double inventory turns of industry standards
Patented process that were highly automated(60 “touches” vs 130 “touches”)
Growth rate double than the industry rate and the best performing stock
Lowest cost structure in the industry
Products shipments 3 times average of competitors
 Evolution of the Computer Industry
With the competition becoming intense, the larger players acquired or
merged with the smaller
Dellor less profitable
Acer Inc. ones HP

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 Evolution of the Computer Industry
After the internet bubble burst and economic slowdown of early 2000,
all competitors started to move towards to efficient distribution systems
and implementing direct sales models along with their established
channels
Dell responded by moving manufacturing to cheaper economies, tighter
inventory control, integration with suppliers and focus on better service
Change in the computer industry resulted in the form of
Growth of units sold through retail
Competitive pressure from different competitors in different categories
Rapid improvement in technology
Decreasing costs
Lack of need of customization
These factors caused loss of number one position to HP, forcing Dell to
enter into partnerships for retail outlets and re-sellers going against its
until recently successful business model
 Evolution of the Computer Industry
To get back on track and ensure growth of stock price, Dell decided to...
Add retail as a new channel and expands service offerings
Modify manufacturing model to support retail effort
Targeted $3 Billion in annual cost savings by 2011 through
Reducing COGS
Optimize global manufacturing network, redesign supply chain, cut development
time, customize, reduce complexity
Decreasing Operating Expenses
Reduce compensation, benefits, layoffs, improve productivity, tighten spending
Full system manufacturing outsourcing to partners in low cost countries
These partners would build computers to retailers forecast and ship them
directly
Launch new models, and sell in planned 12000 retail outlets
Strategic Grouping of Competitors

Focused differentiation Broad Differentiation

Apple
Apple

HP
HP
Dell
Dell
Price
Best Cost
Provider

Lenovo
Lenovo
Acer
Acer

Focused low cost Overall low cost

Product Range
 Competitor Strength Assessment
Acer Inc.
Strengths
Global and wide range product offerings at lower costs. Products in all price segments.
Lower costs achieved through manufacturing efficiency, location in low cost economies,
use of open source software(Linux)
Strong presence in USA through acquisition of Gateway Inc and Packard Bell
Weaknesses
Lack of enterprise level products, limited to only SME and personal users, brand image
Advantage Dell
Dell uses Microsoft platform which is used by majority of computer users
Better brand image, outright advantage in higher end systems, business machines
State of art manufacturing facilities
Cost saving by taking advantage of extremely fast technology life cycle
Tie up with AMD and alternate suppliers, outsourcing to low cost countries and using
supply chain management advantages further reduce prices to compete and introduce
wider range of products, especially in the lower priced segments.
 Competitor Strength Assessment
Apple Inc.
Strengths
Excellent product design, innovation and channels like Apple stores, online sites etc
Financial and organizational stability as of 2009
Leader in selected vertical sectors in which high end media creation tools are necessary
Only firm to design a “complete” product
Switching to Intel platform, windows support, attracted a much wider audience
Weaknesses
Lack of global presence and support
Lack of enterprise focused product offerings, niche player, ignoring majority segments
Advantage Dell
Dell has a much broader product range and presence, leader in enterprise solutions
Dell uses Microsoft platform which is used by majority of computer users
Dell needs to launch high end systems, with competitive designs and features and
compete on cost with Apple
 Competitor Strength Assessment
Hewlett-Packard
Strengths
Broad product offerings with variety of form factors (user-friendliness)
Good understanding of market, changing customer preferences, and strategy execution
Excellent account management for largest global enterprise customers
Weaknesses
Rising internal costs, dependency on discounts for sales growth
Lack of complete exploitation of direct sales model
Dependency on outsiders for product innovation and R&D
Advantage Dell
State of art manufacturing facilities
Cost saving by taking advantage of extremely fast technology life cycle
Better supply chain management and direct sales expertise
Could exploit dependency of HP on outsiders
Dell should compete on product range and prices with HP
 Competitor Strength Assessment
Lenovo Group Limited
Strengths
Strong product design with continued investment in development capabilities
Established and well known brand – Thinkpad
Continuous improvements in sales strategy, channels and supply chain
Operations in low cost economies allowing substantial cost savings
Weaknesses
Lack of coherency between business strategies inside and outside China
Heavy dependency on IdeaPad line more than ThinkPad line
Advantage Dell
Leader in enterprise solutions and a much broader product range and presence
Better brand image and global brand awareness
Tie up with AMD and alternate suppliers, outsourcing to low cost countries and using
supply chain management advantages further reduce prices, introduce wider range of
products, especially in the lower priced segments. to compete with Lenovo.
 Strategic Alternatives
Alternative Actions
Follow current strategy of expanding to retail channels and compete
with other players on margins and discounts. Aim to build stock
computers which would be cheaper when mass produced and economies
of scale are achieved
Concentrate on high margin products only and divest the products which
do not provide sufficient margins
Concentrate only on the time tested Direct sales model and try to
perfect the already efficient processes
Venture into consulting for added revenues taking advantage of its
extensive expertise of its excellent distribution management systems.
HP has been in the consulting business and is providing solutions
for many well known companies.
 Recommendations
We would suggest choosing a hybrid strategy of combining direct selling
and also retail selling
Fast selling standard models (Dell Inspiron series) with known rates of sales can be
sold through retail outlets
High-end customizable systems can be still sold through direct sales
Dell should at the same time work on perfecting its processes. Dell has
recently been accused of product flaws, bad customer service and loss of
reputations
Irregularities and delays in delivery of its newly launched “custom colored” laptops.
All laptops other that its “tuxedo black” did not meet quality standards and had to be
recalled
Dell failed to ship several hundred million dollars worth of notebooks in the second
quarter, due to painting and supply chain issues
This occurred as number of units required increased drastically
on demand inventory system could not meet its requirements
 Justifications
It is obvious, expanding into retail would be contradictory to Dell business model where it
keep costs low by cutting out intermediaries
Retailing would mean raising inventory level, resulting in increased costs
But a study says that for a system sold at $1000, inventory costs were
Year Dell HP
1997 $20 $160
2005 $10 $70

Dell’s only real competitive advantage was getting less and less over time with
competitors imitating it and innovating themselves
With reduction in industry costs, Dell was finding it difficult to compete with HP’s retail
prowess, Apple’ design and innovation and Acer’s low prices
Best strategy would be for Dell to identify each competitor on the strategy grid and
launch counter offensive strategies to compete with it
Customers in emerging economies still view tangibility important before making a
purchase
 Justifications…
Dell attributed most of its success to its extremely efficient operations.
While infact dell was experiencing growth only by huge sales figures, while infact its
Operating Profit Margin was constantly decreasing showing loss of profitability of
operations
OPM
0.120
0.112
0.107
0.100
0.092
0.090
0.086 0.086
0.084
0.080 0.080
0.078
0.071
OPM
0.060
0.057 0.056
0.053

0.040

0.020

0.000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
 Make Individual Strategies
Made-to-order systems experiences heavy unpredictability resulting in down time of
manufacturing plants
Dell can use this down time to product stock products for retailers and smooth out its
production process
Diversify and offer lower range products making using of the short industry cycle and
Moore's law where prices of technology reduce drastically with marginal change in
computing power
Provide more products for the lower end customers(sub $1000 purchasers) who form
more than 80% of the customer segment for personal computers
Concentrate on premium charged services like infrastructure services in the form of
migration, deployment and managed services, manage the entire life cycle of the client
environment for enterprises including installation, training, asset management and
maintenance
Offer state of art machines to cater to sophisticated users and take on
Apple. “XPS One” was a step in the right direction
Collaborate with more suppliers, especially with AMD to enforce lower
costs from Intel, as HP successfully accomplished
 Long Term Strategy
To sustain in such an intense competitive environment Dell needs to innovate constantly
and explore emerging technologies. Worth mentioning are

1. Cloud Computing and Virtualization

Touted as the technology of the future, it can be used to run a variety of
infrastructure products and reduces the need for capital investments
Plans in place for development of Hyper-V clouds, Dell Virtual Infrastructure
systems
2. Green Technology
IT industries realizes the cost of carbon footprints and budget spending on power
bills. Green technology would enable businesses to cut costs and increase long term
sustainability
3. Mergers, Acquisitions and Strategic Partnerships
JV’s with companies excelling in their own fields of Research
and Development would allow Dell to remain ahead in
technology implementation and cost cuts