Dell Computer Corporations Rise to Success

Theory in Practice
by AJ van de Ven

Strategic Management in Global Environments Dr. Ofer Meilich

7 May 2004

Table of Contents
Dell at a Glance................................................................................................................................3 Chapter 1..........................................................................................................................................3 Company Profile..........................................................................................................................3 Dells Mission..........................................................................................................................4 Chapter 2..........................................................................................................................................4 External Analysis.........................................................................................................................4 Player Identification.................................................................................................................4 Five Forces Analysis................................................................................................................5 Chapter 3..........................................................................................................................................7 Internal Analysis..........................................................................................................................7 Distinctive Competencies........................................................................................................7 Competitive Advantages..........................................................................................................7 Chapter 5..........................................................................................................................................8 Business Level Strategies............................................................................................................8 Generic Level Strategy............................................................................................................8 Competitive Positioning...........................................................................................................9 Chapter 6........................................................................................................................................10 Industry Environment................................................................................................................10 Strategies to Manage Rivalry.................................................................................................10 Chapter 7........................................................................................................................................11 Technical Standards...................................................................................................................11 Dominant Design...................................................................................................................11 Standards................................................................................................................................12 Paradigm Shifts......................................................................................................................12 Chapter 8........................................................................................................................................13 Global Strategies........................................................................................................................13 Global Expansion...................................................................................................................13 Chapter 9........................................................................................................................................14 Integration Strategies.................................................................................................................14 Vertical Integration................................................................................................................14 Strategic Outsourcing.............................................................................................................15 Chapter 10......................................................................................................................................15 New Ventures.............................................................................................................................15 Expanding Beyond a Single Industry....................................................................................15 Diversification........................................................................................................................16 Chapter 12......................................................................................................................................17 Organizational Structure............................................................................................................17 Output Control.......................................................................................................................17 Organizational Culture...........................................................................................................17 Functional Structure...............................................................................................................18 It Reminds Me of....................................................................................................................18 Findings..........................................................................................................................................19

References......................................................................................................................................20

Dell at a Glance
Headquartered in Round Rock, Texas, Dell Computer Corporation is a premier provider of products and services required for customers worldwide to build their information-technology and Internet infrastructures. Dell's climb to market leadership is the result of a persistent focus on delivering the best possible customer experience by directly selling standards-based computing products and services. Revenue for the last four quarters totaled $41.4 billion and the company employs about 46,000 team members around the globe. Dell was founded in 1984 by Michael Dell, the computer industry's longest-tenured chief executive officer, on a simple concept: that by selling computer systems directly to customers, Dell could best understand their needs and efficiently provide the most effective computing solutions to meet those needs. This direct business model eliminates retailers that add unnecessary time and cost, or who can diminish Dell's understanding of customer expectations. The direct model allows the company to build every system to order and offer customers powerful, richly-configured systems at competitive prices. Dell also introduces the latest relevant technology much more quickly than companies with slow-moving, indirect distribution channels, turning over inventory every three days on average.

Chapter 1
Company Profile
Dell Computer Corporation (NASDAQ: DELL) is one of the worlds largest computer systems organizations. They design, build and customize products and services to satisfy a range of customer requirements, from the server, storage and professional services needs of the largest global corporations, to those customers at home. They do business directly with customers, one at a time, and believe they do it better than anyone on the planet. Dell is considered an industry leader due to their large range of high quality products. Dell PowerEdge servers, PowerVault and Dell | EMC storage systems and PowerConnect switches are superior building blocks for enterprise computing. Dell Precision workstations, OptiPlex desktops and Latitude notebooks meet the wide-ranging needs of businesses and organizations. Individuals and small-businesses benefit from the high-performance and value of Dimension desktops and Inspiron notebooks. Dell also offers printers, projectors, Axim

handhelds and other complementary products. And they support them all with a broad range of services designed to help customers simplify complex computing. In short, Dell is focused on delivering maximum performance with standards-based solutions while ensuring the right mix of cost effective solutions with value at every level. Dell is not just interested in low prices, but also in high-performance and solid reliability.

Dells Mission
Dell is committed to building value not only for their customers and their business, but also for the communities that the company and its employees call home. They strive to participate responsibly in the global marketplace in which they operate. Dell relies on the diversity of its personnel, suppliers and customer communities to maximize innovation, growth, competitiveness, and customer satisfaction. Their diversity programs help them build a barrier free workplace and they apply the same barrier free philosophy to their supplier relationships through their supplier diversity programs. Dell is also committed to a culture of environmental sustainability and responsibility. They continually reduce Dell's impact on the environment through product design, manufacturing and operations, product ownership experience, and product end-of-life solutions. And Dell believes that their work on sustainable business practices is a journey without end. Finally, they understand that as a company with an extensive global supply chain, they have a responsibility to work with their suppliers to promote high standards of behavior, including sustainable environmental practices, the health and safety of people and fundamental human rights and dignity.

Chapter 2
External Analysis
Player Identification
The personal computer industry in which Dell exists is composed of a number of rivals, which can be categorized into various strategic groups. These strategic groups have to do with the way in which the manufacturers interact and provided products and services to their customers. These groups are defined as manufacturers who sell directly to their customers and manufacturers who sell only through retail outlets such as Frys Electronics, CompUSA and

Circuit City. Figure 1 shows these groups on a strategic group map and lists some of the potential mobility barriers that players in each group may have if tempted to move into another group. The way in which these manufacturers sell to their customers defines not only how many potential customers they have, but also who their target customers are, what types of products and services they can provide, and with what level of customization they can provide them.

Figure 1: Strategic Groups Map of the Personal Computer Industry

Five Forces Analysis

Michael Porters Five Forces Model is a framework which helps managers analyzed the competitive forces within an industry which can then be used to identify opportunities and threats to an organization within that industry. The Five Forces are risk of entry by potential competitors, rivalry among established firms, the bargaining power of buyers, the bargaining power of suppliers, and substitute products. There is also another force, which is sometimes referred to as the sixth force, which is complementors. The following will discuss three of the primary forces affecting the personal computer industry, and Dell in particular, proving that the personal computer industry in which Dell exists is actually a very unfavorable industry to be in. One of the most dominant forces within the personal computer industry is the intensity of rivalry among incumbents. Within Dells strategic group, the industry can be examined as a consolidated industry, due to the oligopoly that has been established by large manufacturers including Dell, Gateway, and Hewlett Packard. Within this consolidated industry, the intensity 5

of rivalry is extremely high due to a particular companys competitive actions or moves directly affecting their competitors. For instance, when HP first started offering sub-$500 home computers, Dell and other manufacturers were forced to quickly offer similar low-end systems, which undercut their profits by causing customers to flock to these new low-end systems, rather than the traditional mid-range $1,000 computers which were being sold prior to that time. Additionally, industry demand, particularly within the business segment, has been declining, as customers are satisfied with their current systems and have no real urge to upgrade their hardware or software. This has caused the intensity of rivalry to rise as companies fight to maintain their market share and customers. Due to these factors, as well as the fact that, for large manufacturers, the exit barriers are quite high, the intensity of rivalry within the personal computer industry is very high. The bargaining power of buyers is also quite high within this industry. While the everyday buyer may not have large bargaining power with computer manufacturers, larger buyers, such as large businesses, educational institutions, and governments have significant power because they purchase in large quantities, giving them the ability to leverage their power to gain price reductions. Switching costs are also quite low, with both individual and large customers having little difficultly to move from one manufacturer to another since most systems are based upon standard Wintel design specifications. Finally, it is relatively easy for customers to backwards integrate and build their own systems by purchasing the necessary components directly from the industrys suppliers or through retail outlets, threatening the industry as a whole. Finally, the power of the suppliers of the industry, that is the computer component industries, is quite high. One reason for this is due to the fact that there are few substitutes to many of the components, particularly microprocessors and operating systems, and are therefore vital to the personal computer industry. Furthermore, companies within the industry would incur significant switching costs if they were to move to a product from a different supplier due to hardware and software incompatibilities. For instance, were a company to move from Intel to AMD processors, they would have to go to another supplier for their motherboards, which could ultimately cause other incompatibilities, forcing them to find yet other suppliers for other components. Another example is if a company decided to move from Windows to a variant of Linux. While the operating system itself is less expensive, it is much more difficult to find

applications for Linux, there are many hardware components which do not have the drivers necessary to run upon Linux, and the learning curve is quite steep for customers, which would force a manufacturer to invest in a larger customer support staff.

Chapter 3
Internal Analysis
Distinctive Competencies
Distinctive competencies are firm-specific strengths that allow a company to differentiate its products and achieve substantially lower costs than its rivals, ultimately providing that company with a competitive advantage. One source distinctive competencies can arise from are resources. Dell has a number of firm-specific and difficult to imitate resources, giving them a strong distinctive competency. For instance, Dell operates one of the worlds leading Internet sites at www.dell.com, which makes them the ideal company to show customers how to take advantage of online tools. Additionally, Dells climb to market leadership is a product of their persistent focus on the customer. Dell works hard to meet the needs of each customer with carefully tailored standards-based computing solutions. They communicate directly with their customers in person, via the Internet or the phone so their understanding of their needs is instantaneous. It enables them to effectively and efficiently deliver world-class products and services that keep their customers coming back. Another source of distinctive competencies are capabilities, which refers to a companys skills at coordinating its resources and putting them to productive use. For Dell, these skills reside in the organizations rules, routines and procedures, particularly in terms of establishing customer relationships and delivering custom-tailored solutions in an extremely efficient fashion and within a short time-frame. The way in which Dell achieved these capabilities will be discussed more in-depth later, when discussion organizational structure.

Competitive Advantages
Competitive advantage is derived from three factors: the amount of value customers place on a companys products, the price that the company charges for said products, and the costs of creating that value. Value is something that customers assign to a product. It is a function of the attributes of the product, such as its performance, design, quality, and point-of-sale and after-sale

services. Many customers place a very high value on the personal computers manufactured and sold by Dell. One factor for this high value is Dells superior performance, ranking high in tests against competitors products on a monthly basis, as scored via various benchmarks within computing magazines and websites (The Built To Order Revolution, 1). They also have a very high quality, having very few instances of machines being dead-on-arrival, and few component failures within a systems lifetime. Finally, both their point-of-sale and after-sale service are topnotch. As part of the sales process, customers have the ability to completely tailor their system to their specific needs either via the companys website, or over the phone with a Dell sales representative. During this process, they can find more information about specific components, get Dell recommendations, etc., all of which make the overall sales experience little trouble. Once the system has been shipped and arrives, Dell offers outstanding service. If, for instance, a customer believes a component is defective, they are directed to various links on the Dell website by a support technician which takes them through various troubleshooting techniques. If it turns out that the component is, in fact, defective, Dell ships a replacement component as soon as possible, allowing the customer to either replace the part themselves or dispatching a support technician to their location to perform the install for them. This creates a very high value of Dells systems in the eyes of the customer. Additionally, the cost of Dells system is very competitive, offering a significant discount to the actual value of the computers, allowing Dell to achieve an even higher competitive advantage over its rivals.

Chapter 5
Business Level Strategies
Generic Level Strategy
Changes in technology have made the distinction between cost-leadership and differentiation strategies more difficult to determine. For instance, new technologies provide many ways for companies pursuing a cost-leadership strategy to differentiate their goods and services while increasingly maintaining a low cost structure, while differentiators can often significantly lower cost via technological development, allowing them to choose a lower pricing option and build demand. Dell is actually simultaneously pursuing both cost-leadership and differentiation strategy business models.

Dell differentiates on many different levels. Dell's key differentiator is their direct-tocustomer business model, building superior, direct customer relationships with an increasingly diverse marketplace. Because Dell deals directly with their customers, eliminating the middleman, they can deliver the best price for performance, build customized systems featuring the latest technology, and provide award-winning, tailored customer service. Dell follows the same barrier-free model in their relationships with employees and suppliers. Their direct culture fosters innovation, creativity and solutions, making Dell the computer technology supplier of choice for customers around the world. In order to achieve the status of low-cost leader, they have streamlined their manufacturing process, being able to build a custom computer for a customer in a few short hours, having it ready to ship just days after the original order has been placed. The process is made further efficient by a system which monitors component stock and notifies suppliers of shortages, all in real-time. Their ordering process is also extremely efficient, with the bulk of their orders being placed over the World Wide Web without any human intervention, allowing them to ensure compatibility among the system components and cut down on the number of sales representatives necessary to help customers place orders. They have also been able to realize significant economies of scale by standardizing many of their components used in their systems, such as utilizing only three different chassis for their wide range of desktop models. Although computers have become commodity-like products, differentiators such as Dell are not necessarily in trouble because, even as customers become price sensitive, many require specific hardware components and software packages for their individual needs. Gaming systems, for instance, are a huge market at the moment, with people young and old looking for the fastest and strongest systems to play todays hardware intensive games. In addition, Dells differentiation through customer service, an intangible, allows them to reap the benefits of this strategy for a long time, since it is difficult for rivals to imitate.

Competitive Positioning
The personal computer is currently in a shakeout stage, where demand is increasing slowly and the competition by price and product characteristics. Companies, such as Dell, which are in strong competitive positions need to invest in a share-increasing strategy to attract customers from weak companies exiting the market. For Dell, they have been able to do this by investing in cost control, reducing their costs to ensure that, despite price wars, they still hold a 9

strong position within the industry. They have also expanded their differentiation strategy, becoming broad differentiators. To do so, they focused primarily upon marketing, and their after-sales service network. They also widened their product range to include handheld computers, personal MP3 players and LCD televisions to match the range of customers needs.

Chapter 6
Industry Environment
Strategies to Manage Rivalry
Besides seeking to deter entry, companies within the personal computer industry have also developed competitive strategies to manage their competitive interdependence and decrease price rivalry. These tactics include price signaling, price leadership, and non-price competition such as through product development, all of which Dell has been involved with at some point or another in its history. Price signaling is the process by which companies increase or decrease their product prices to convey their intentions to other companies and therefore influence the way they price their products. Dell has been involved in such price strategies by using a tit-for-tat strategy where a company does exactly what its rivals do. Dell has been doing this for years, matching prices with HP and Compaq, who are now merged under the HP name, whenever they cut their prices. In doing so, they sent a signal to these companies that it will match any pricing strategies they undertake. Since they realize that Dell will match their every move, the companies know that by cutting their prices will only cut into their profits rather than actually gain a larger market share, so they are less likely to undertake such tactics. Price leadership is another tactic that has been used by Dell to reduce price rivalry and thus enhance the profitability of companies. Prices within the personal computer industry are typically set by imitation, that is, the price that is set by the weakest competitor, typically local white-box distributors, is used as the basis for competitors pricing. Therefore, when weak rivals set their prices to a specific median value, large competitors, such as Dell, Gateway and HP are happy to match the price because the size of their operations allows them to retain significantly lower costs than smaller competitors, allowing them to have higher profits than they would had they persisted in their own price wars. This pricing is done by market segment. For instance, the

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prices of different types of personal computers, whether they be desktop systems, servers, or notebooks, indicate the customer segments that the companies are aiming for and the price range they believe the market segment can tolerate. Each manufacturer prices their systems in the segment with reference to the prices changed by its competitors, not by reference to competitors costs. Dell has also used product development, a method of non-price competition to manage rivalry within the industry. Product development is the creation of new or improved products to replace the existing ones. Due to the constant evolution of technology, new and improved hardware components are released almost on a monthly basis. In order to keep up with upcoming technologies without isolating their existing customers, Dell typically cycles out its systems very twelve to eighteen months, often giving them a boost in their market share as they release new products which target specific customers or customer needs. They also encourage their large clients to recycle their old systems for new ones every three years or so, allowing them to remain relatively up-to-date in a world where technology is constantly changing. This product development is crucial for Dell to maintain product differentiation and continue to build market share in an industry that is experiencing shakeout.

Chapter 7
Technical Standards
Dominant Design
Within the personal computer industry, there is a clear set of standards that exists which Dell, and nearly all of its competitors, abide by. Most of their systems all share a common set of features: an Intel or Intel-compatible processor, memory (RAM), the Microsoft Windows operating system, an internal hard drive, a CD-ROM/CD-R/DVD-ROM/DVD-R drive, USB ports, monitor, a keyboard and mouse, a modem, a network interface card, etc. This set of features is known as the dominant design of personal computers. Within this design are several technical standards, such as the Wintel standard, which is based upon a computer with an Intel processor and running Microsoft Windows. By adhering to this standard, Dell ensures that software applications, third-party hardware components, and peripherals such as printers, digital cameras, and scanners are compatible with their systems, ensuring few problems with customers who wish to add such things to their systems.

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Standards
Standards help increase the availability of technology and reduce costs and time-tomarket. Dell delivers high-value industry-standards solutions that help maximize business flexibility and optimize ROI. Dell is committed to the promotion, adoption and interoperability of industry-based standards. This gives customers increased choices, helps decrease costs and improve ROI, and improves product and process interoperability. Their R&D model allows Dell to partner with industry-leading suppliers so that they can integrate "best-of-breed" technologies, services and industry-standard components to provide customers with some of the latest relevant technology at very aggressive price points. Industry standard technologies are developed jointly through the collaborative efforts of numerous participants in standards organizations all contributing expertise. Dell is a driver of industry-standard technology through its participation on the boards of standards organizations. Dell is even involved in various Standards Bodies, which will help continue to drive standards that benefit both the vendor and customer communities. Customers benefit through choice, value and interoperability. Through the use of standards, vendors are forced to compete on value.

Paradigm Shifts
Paradigm shifts occur when new technologies come along that revolutionize the structure of the industry, dramatically alter the nature of competition, and require companies to adopt new strategies in order to survive. About ten years ago, a paradigm shift occurred when Windows 95 was released, and mainstream computers went from traditional 16-bit computing to 32-bit computing. The same sort of shift is about to happen, if it has not started already. This is the evolution of 64-bit computing. First developed for personal computers by AMD, the first 64-bit processors hit the market third quarter of 2003. Although few true 64-bit applications existed, consumers flocked to stores to purchase systems utilizing the new processors due to the way that it could revolutionize computing, particularly in reference to computer games. Manufacturers were hesitant to embrace the new technology at first, but with the success of AMD, a number of large manufacturers have rolled out systems based on the new chipset to appease their customers and ensure that they do not lose market share. Dell, however, has still remained slow on the uptake. Historically, Dell has sold computers adhering to the Wintel standard, that is, an Intel processor and Microsoft Windows. With the advent of this new technology by AMD, however, Dell is at a position to lose market 12

share if they do not find a way to cater to their customers needs. Just recently, however, Intel announced that their next generation of microprocessors would utilize 64-bit computing technology. Although this technology will first be available in their Xeon server and workstation series of processors, they have assured that they would release Pentium 4 chips based on this same technology in the near future. With this announcement, Dell was quick to move in and announce that their new line of servers would be available with the new chipset, allowing longtime customers to take advantage of this new, revolutionary technology, without having to move to one of Dells rivals.

Chapter 8
Global Strategies
Global Expansion
Dells global strategy is to be the premiere provider of products and services, including those that customers require to build their information-technology and Internet infrastructures. They employ a global strategy, focusing on increased profitability by reaping the cost reduictions that come from experience curve effects and location economies. Unlike international strategies, which focus on differentiation, Dells global business model is based on pursuing a low-cost strategy on a global scale. They do not alter their business model from country to country, instead relying upon the same direct selling model and supply chain management process that have been the cornerstone of its domestic success. Their basic approach has been to serve foreign markets from a handful of regional manufacturing facilities, each established as a wholly owned subsidiary. With manufacturing facilities and sales offices throughout North America, Europe, Asia, and South America, they are close to their customers wherever they are. Each of these manufacturing plants is large enough to attain significant scale economies, helping to underpin their quest to be the low-cost player in the global industry. One tactic they use to do so is, when demand in a particular region increases, Dell considers opening up a second plant. For instance, it has already established dual plants in both Ireland and China, to accommodate rapid demand in both of those regions. Each of their plants utilize the same supply chain management processes that have made Dell so successful domestically By making use of their Internet-based SCM software, Dell schedules productions of every line in every factory around the world every two hours (Hill,

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286). By doing so, each factory is run with no more than six hours worth of inventory on hand, including work in progress. In fact, to further improve their just-in-time global strategy, many of Dells suppliers have established facilities close to Dells manufacturing plants worldwide. Additionally, Dell has set up customer service centers at each of these plants to handle both phone and online orders and to provide localized technical assistance. Each center serves an entire region, which Dell has found to be more efficient than locating a customer service center in each country where the company does business. Due to this, online orders outside of the United States are growing rapidly. Although they have been quite successful globally, Dells customer-base is significantly different in each country that it does business. For instance, according to a Business Week article entitled Penangs Secret, Dell is primarily seen as a supplier of business desktops and servers, rather than a supplier of consumer systems, as it is in the United States (Balfour, 50). They did, however, open a overseas product development center in Beijing as a wholly owned subsidiary which was charged with creating products geared toward the low-end of the Chinese market, which has been relatively successful within recent years, especially with the explosion of the Internet across the Asia-Pacific region.

Chapter 9
Integration Strategies
Vertical Integration
Although Dell has not specifically vertically integrated, they did take advantage of IBMs vertical integration in the 1990s. At the time, IBM traditionally just manufactured the main components of computers. Soon, however, they began to design and assemble the computers, produce software and an operating system, and sell the final product directly to the consumer. The rationale behind this was that many of the key components and software used in computers contained proprietary elements, which would offer a competitive advantage. They reasoned that by producing the proprietary technology in-house, they could limit rivals access to it, thereby creating barriers of entry. They soon learned, however, that this strategy was not effective within the personal computer industry. The shift to open standards in computer hardware and software essentially nullified the advantages for computer companies of being exclusively vertically integrated. Dell took advantage of this by reverse-engineering and duplicating a number of

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proprietary components within personal computers offered by businesses such as IBM, effectively circumventing this barrier to entry.

Strategic Outsourcing
Strategic outsourcing involves separating out some of a companys value creation activities within a business and letting them be performed by a specialist in that activity, reducing the boundaries of a company and focusing on fewer value creation functions. Dell has historically outsourced its entire customer technical support operation. In fact, Dell has set up a wholly owned subsidiary known as Dell International Services to handle support and services (). Over the past few years, as one of its major global expansion moves, Dell moved its major support divisions offshore to India and other countries. The company is now present in Bangalore, Hyderabad, Panama, Dalian, Morocco, and Bratislava. Dell customers who encounter a problem call the Dell support number. The call is then routed to one of the service centers where the technician helps the customer resolve the problem. If it turns out that there is a defective part in a computer that a customer is having a problem with, a maintenance person will be dispatched to replace the part within twenty-four hours. This service, in fact, is a differentiating factor. The excellence of this service helps guarantee repeat purchases. What most customers do not realize, however, is that all of these functions are outsourced to localized specialist organizations. Dell ensures that a great deal of attention is paid to ensure that these specialists which provide technical support and on-site maintenance collect and communicate all relevant data regarding product failures and other problems to Dell, allowing Dell to design better products.

Chapter 10
New Ventures
Expanding Beyond a Single Industry
Over the past few years, Dell has adopted a white space strategy where it released new products by creatively redeploying and recombining their existing competencies. The specific industries they entered was the consumer electronics industry, releasing products such as their Digital Jukebox MP3 player and their LCD televisions, and the computer peripheral industry, with their new line of inkjet and laser printers. In order to successfully expand beyond the

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personal computer industry, they had to construct their business model at two levels. First, they leveraged their core set of competencies, their direct sales and customer service strategies, from their personal computer business and transplanted them to their consumer electronics and peripheral divisions as a means of developing a business model for each of these new divisions. Then, they had to develop a multibusiness model that justified entry into the new industries in a way that would increase their profitability. Their multibusiness model was based on strategies that used strategic alliances and partnerships to release products developed by a different company under their own brand name. An example of this is their line of inkjet and laser printers. In 2002, Dell and Lexmark formed a partnership under which Dell would tout Lexmark as its preferred printing supplier, allowing them to sell combination PC and printing packages and retain most of the profits (Popovich, 1). This move not only helped them financially, but also increased their level of customer service. According to Tim Peters, vice president and general manager of imaging and printing at Dell, they are confident [their] printers and ink and toner cartridge replacement experience will be no exception to what customers expect from Dell" (Popovich, 2). This did, however, affect them in that, shortly before the announcement, Hewlett-Packard declared it was canceling a reseller agreement with Dell because of the computer maker's intention to market its own branded printers, creating a potentially potent new challenger to HP, who was and still is the world's top selling printing and imaging company.

Diversification
This leveraging of competencies to expand into other industries was an example of Dell diversifying into a related industry. Related diversification involves diversifying into a new business activity in a different industry that is directly related to a companys existing industry by commonalities between one or more components of each activitys value chain. This diversification involved linking both their manufacturing processes as well as their sales and marketing strategies. By developing complements to their personal computer industry, they were able to leverage their knowledge of computer components and their interactions, increasing their profitability by being able to sell their complementary products as bundles, allowing customers to purchase all of their computing needs from and single source.

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In fact, Dell formed a wholly owned strategic investment firm, Dell Ventures in March 1999 to invest in select private companies across broad areas of interest to Dell (About Dell Ventures, 1). Dell Ventures is a long-term investor, and the strategic objectives of Dell guide its strategy. Currently, Dell Ventures is targeting later-stage technology companies that can contribute to Dell's product leadership and customer focus, while providing a financial return to company shareholders. Current investment sectors for Dell Ventures are: Server, Storage and Related I/O Technologies; Networking Infrastructure and Management; and Enterprise Software, Security and Services. Dell Ventures' investment strategy minimizes financial risk while providing Dell with insight to emerging innovative product and service technologies. These investments enhance the company's ability to anticipate and meet customer needs with relevant products and services. Dell Ventures trades on Dell's skill in partnering with best-in-class companies, which has helped make Dell the world's most preferred computer systems company.

Chapter 12
Organizational Structure
Output Control
Output control is a system in which strategic managers estimate or forecast appropriate performance goals for each division, department, and employee and then measure actual performance relative to these goals. Dells reward system is linked to performance on these goals, so their output control also provides an incentive structure for motivating employees at all levels in the organization. To provide this incentive, Dell gives each division a clear performance goal to achieve, and the divisional managers are given considerable autonomy in formulating a strategy to meet this goal.

Organizational Culture
Organizational culture is created by the strategic leadership provided by an organizations founder and top managers. In fact, the way an organization designs its structure affects the cultural norms and values that develop within the organization. For instance, Michael Dell, who, up until recently was CEO of Dell, tried to keep his company as flat as possible, decentralizing authority to lower-level managers and employees who were charged with striving to get as close

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to the customer as they could. As a result, he created a cost-conscious customer service culture within Dell in which employees strived to provide high-quality customer service.

Functional Structure
The difficulty with businesses is that, as their strategies become more complex, their bureaucratic costs rise due to information distortions that lead to communications and measurement problems. Dell developed this problem in the early 1990s. As their product range widened as it developed new competencies and entered new market segments, they found it increasingly difficult to measure the contribution of product or a group of products to its overall profitability. Consequently, Dell may have been turning out unprofitable products without realizing it and may also have been making poor decisions about resource allocation. The latter was actually true because, with Dells explosive growth in the 90s, they lost control of their inventory management systems. This meant that they could not accurately project supply and demand for the components that went into its personal computers. These problems with their organizational structure plagued Dell for years, reducing efficiency and quality (Pope, B5). Over time, however, Dell successful redesigned their organizational structure, giving them a significant cost advantage over their closest competitors.

It Reminds Me of
The analysis of Dell Computer Corporation has many correlations with the cases which have been analyzed up to this point. For instance, like many of the other cases, Dell pursued a nontraditional means of distribution. Dells strategy involves selling directly to the customer via their website. Like Dell, Timex and BIC both found new methods of distribution to increase their potential client base. Both were able to set up new manufacturing processes to lower their costs, pursuing low-cost leadership strategies and selling their products through nontraditional retail outlets as compared to their close competitors. Differentiation is another direct correlation between Dell and the other cases. Dell differentiates by offering a level of individual-based customer service unique among its many rivals. Other cases which used similar differentiation were Marlboro, Coca Cola and Pepsi Cola, and Coors, of the cigarette, cola and brewing industries, respectfully. Each of these companies tried to find new ways to differentiate their products and discover new markets in an attempt to undercut their competition. Both of the Honda cases also related to Dells situation. Honda found a new niche market for their

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motorcycles which did not exist prior to their emergence into the United States motorcycle market. Dell similarly found a new market for personal computers at all levels, offering a number of mid-range and low-end models, markets which were traditionally occupied by terminals and. In doing so, like with Honda, they were able to bring products to the mainstream public which were, until that point, primarily for enthusiasts. Dell was also a first mover, who took significant first mover advantage, just as Wal-Mart did. Wal-Mart entered into rural areas, cutting out small, local retailers and sweeping under their large competitors until it was too late. Dell did the same, starting out as a small direct distributor and soon emerging as significant competitor against the likes of HP and Gateway. The final cases studied were Airborne and Southwest Airlines. Both of these industries, like the personal computer industry, were victims of very high competition, which led to price wars. Also, like Dell, both of these businesses were able to survive the price wars their industries were subject to, primarily due to their superior customer service, which allowed them to stand out among their competitors, even if they prices were not necessarily lower than the rest. Finally, there were no evident direct correlations between Harley Davidson and Dell Computers, though, according to the lectures, Harley did have a first mover advantage, which Dell also maintained, as discussed previously.

Findings
This analysis provided a great deal of insightful and intriguing information into Dells success, both within the personal computer industry, as well as their other ventures into the consumer electronics and computer peripheral industries. Although extremely successful in its own right, this analysis proves that without their competition, Dell would most likely not have been so successful. Much of their success came from the fact that their rivals, namely HP/Compaq and Gateway pushed Dell to improve their customer service to differentiate themselves from the competition. Furthermore, due to significant price wars within the industry, Dell had to improve their manufacturing process, quickly adopting a just-in-type system, in order to keep their manufacturing costs low, allowing them to pursue a low-cost leadership strategy alongside their differentiation strategy. Another interesting finding has to do with the way in which Dell harnesses the Internet. In its own business, Dell has enhanced and broadened the fundamental competitive advantages of the direct model by applying the efficiencies of the Internet. Dell led commercial migration to

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the Internet, launching www.dell.com in 1994 and adding e-commerce capability in 1996. The following year, Dell became the first company to record $1 million in daily online sales. Today, Dell operates one of the highest volume Internet commerce sites in the world based on Microsoft Corp.'s Windows operating systems. The company's Web site, which runs entirely on Dell PowerEdge servers, receives more than one billion page requests per quarter at 86 country sites in 28 languages/dialects and 29 currencies. The company realizes Internet-associated efficiencies throughout its business, including procurement, customer support and relationship management. At www.dell.com, customers may review, configure and price systems within Dell's entire product line; order systems online; and track orders from manufacturing through shipping. At valuechain.dell.com, Dell shares information with its suppliers on a range of topics, including product quality and inventory. Dell also uses the Internet to deliver industry-leading customer services. For instance, thousands of business and institutional customers worldwide use Dell's Premier Dell.com Web pages to do business with the company online.

References
About Dell Ventures. 2004. Dell Computer Corporation. 30 Apr 2004. http://www.dell.com. Balfour, Frederick. Penangs Secret. BusinessWeek. 6 Nov. 2000: 50-51 Hill, Charles W. L., and Jones, Gareth R. Strategic Management Theory: An Integrated Approach. USA: Houghton Mifflin Company, 2004. Pope, Kyle. Dell Refocuses on Groundwork to Cope with Rocketing Sales. Wall Street Journal. 18 June 1993: B5 Popovich, Ken. Dell, Lexmark Ink Printer Deal. eWeek. 24 Sept. 2002: 1-3. The Built To Order Revolution: Michael Dell. May 2001. PBS: CEO Exchange. 30 Apr 2004. http://www.pbs.org/wttw/ceoexchange/episode_204/ceo_1.html.

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