International Strategy Management

Case Study: Revitalizing Dell

Case Analysis
Group 6

Group Members

Roll
Numbers Names Contributions
19IB305 Anjali Kushwah SWOT and EQIC analysis
Rahul Laljibhai
19IB337 Pancholi Financial Analyis and Problem recognition
19IB349 Shubham Agarwal Financial Analyis and Defining objective
19IB355 Sweety Dixit Porter's Diamond and Recommendation
19IB357 Urvashi EQIC analysis and SWOT
19IB358 Utkarsh Porter's Diamond and Recommendations
 Group 6
Case Study: Revitalizing Dell
Case Analysis
 INTRODUCTION

Dell, an American technology company, has developed a set of unique strategies and methods
that are constantly used in marketing and management to obtain and maintain its brand image
and excellent quality of service. The competitors were not able to match up with the Dell’s
performance through the mid-2000s.
They owed their success to its “Direct model”, providing excellent customer service by costumer
segmentation. Dell carried four days of inventory and worked closely with suppliers to arrange
just-in-time delivery of parts and reduce suppliers’ own inventory levels. Dell offer more
powerful product at the same price as a rival’s less powerful product.
However, in the following years, the growth of the company stalled and its net margins dropped
sharply. By December 2009, Dell’s stock value was down an additional 60%.
Major Competitors:

Desktop PCs

 Acer
 Apple
 Dell
 Hp
 IBM/Lenovo
Laptop Pcs

 Acer
 Apple
 Dell
 Hp
 IBM/Lonovo

PROBLEM

 Stagnant growth even after achieving success through traditional direct selling model.
 Market share was being grabbed by major competitors like HP and IBM.
 Users often cannot purchase Dell as easily as other company’s products, because each
model is tailor-built to their needs and this may require days to complete.
  They prefer educated and experienced customers.
 Individual consumer services took a toll.
 Product quality was hampered (4 million laptops were affected due to Sony made
batteries)
 Late entry disadvantage in case of retailing and establishing an efficient distribution
channel.
OBJECTIVES

 To figure out the reasons for the fall in Dell’s market share over a period of time.
 To strengthen customization role of Dell.
 To boost the exposure of Dell and to revitalize outreach of the product to other industries.
 To improve Dell's status as a low-cost manufacturer and provider of personal computers
on the market.
PORTERS 5 FORCES MODEL

 Bargaining power of buyers (HIGH): Consumers bargaining power is also strong, as PCs
are now sold as commodities. Almost all PCs have the same type of components.
Nonetheless, the influence of buyer’s remains restricted because customers may be
willing to pay more money to computer companies which can provide technical
solutions.
 Bargaining power of suppliers (HIGH): The bargaining power of manufacturers in this
sector is strong because of the limited number of vendors for key components. For e.g.
90% of the microprocessors are supplied by INTEL and around 85-90% of operating
systems are created by Microsoft used in PC’s. Furthermore, in Taiwan, 80 percent of the
world's laptops are assembled.
 Threat of Substitute products (MODERATE): There are several Computer vendors
selling the same details and features that Dell has to deliver. There is also a widespread
increase in low-priced salespeople. Also, the companies provide the option of
customization which customers decide on the basis of the parts they want creating a
unique combination.
 Competitive Rivalry (HIGH): Finally, competition intensity is high since the market has
relatively few companies. Although they all sell the same product the competition arises
at the price they are offering the product.
 Threat of New Entrants (LOW): The danger to new entrants is very low. The early 1990s
saw a substantial level of growth but there were indications of decline within the business
in the early 2000s. The threat of replacements is also low, since an Apple Macintosh is
the only appropriate alternative for a Windows based PC.

FINANCIAL ANALYSIS

 Return on sales ratio of Dell is 4.1 which is higher than other players except for HP and
Apple. HP has a ratio of 7.0 which shows the Dell has a lower profit margin and which
says that selling, distribution and administration expenses are higher than HP. The
advertisement expenditure also seems to be very high in the case of Dell.
  Sales to assets ratio of dell are 2.3 which higher than many of his competitor which refer
that Dell has been efficiently utilizing his assets to generate sales and also Dell is now
outsourcing its work on contract basis Therefore Reducing Assets costs.
 R&D to sales ratio is very low compared to its competitor like HP of Dell which makes
Dell less innovative.
 Holding Period of inventory is average around 6 Days for Dell, lower than other players
which shows that Dell can sell quickly its inventories and increase working capital
financing.
 Return on equity of Dell is 58.0 which is very much higher than others which shows that
Dell is more attractive for investors and Dell can manage their shareholder's equity
effectively.
 The average price of a desktop pc of Dell is higher than HP, which shows the higher
Overhead cost of Dell 
 Lower margin of Dell refers to the cost of indirect selling which cut down Dell’s profit
margin.

SWOT Analysis:

Strength Weakness

 Customization to cater individual  Slow to grab opportunities

needs
 Higher customer satisfaction
 Selling directly to end customers
 Competitive pricing
 Just in time inventory efficiency
 Loaded proprietary software
 No finished goods inventory
 Strong support and quality issues
handling
 Diversification in product offering
 Slow to recognize the need of indirect
selling.
 Individual customer support was
criticized.
 Product recalls due to defect in
batteries.
 Less focus on transaction consumers.
 Weak supplier base

Opportunity Threats

 Increase in demand of personal  Increasing competitors

computers and laptop  Fluctuations in demand
 Increasing online shopping trend  Better price offering by competitors
 Increasing ecommerce penetration  Increasing bargaining power of
 Increase in supply chain network suppliers
EQIC Analysis:

Efficiency:

 Dell owed much of its success of being efficient to its “Direct Model” starting right from
receiving order till shipping. Keith Maxwell, Dell’s vice president defined their
efficiency as “There is no way to let things pile up, because you have no piles” reason
being company made customized PCs on receiving real-time orders and therefore did not
maintain any finished goods inventory for its standardised machines.
 Its close supply chain management helped it in Just-in-time delivery of components. This
also helped suppliers to reduce their own inventory levels. It has total command in supply
chain.
 Quick electronic links further allowed Dell to direct shipments through suppliers directly
to customers.
 While its production process is quite time consuming.

Quality:

 Dell strives for product customization and product differentiation. They have got some
unique specialized features for each user.
 Its strategy of assembling after receiving the order further increases the quality it offers.
 It has wide range of technicians and five control centers to provide support and handle
quality issues.
Innovation:

 Customization and unique features give way to innovation.

 Its strategy to grab market share was also innovative in the sense that it used competitive
pricing, it used Just-in-time strategy of handling orders and above all used direct model,
single source relationship with chip-maker.
 While its R&D to Sales ratio is quite low vis-à-vis its competitors which infers that it still
needs to work more in this criterion.
Consumer Responsiveness:

 Dell has remained ahead of its competitors in response time, sales to asset ratio and
holding period of inventory.
  It has ensured high consumer satisfaction by providing quick and easy ordering, direct
deal with end-customers, premier pages, providing quick product information,
customizing options, price check, placing and tracking order.

RECOMMENDATION
(Financial View)
 Dell needs to improve its operational performance as its overhead expenses are much
higher.
 Dell should invest more in R&D, so to provide a product with new feature and
technology.
 Dell should focus on another market like Asia.
 To make a long withstanding relationship with retailers to adopt Dell’s product.
 
(Descriptive View)

 To improve Dell's personalization area, the company must offer improved configuration
choices by establishing additional relationships with suppliers. However, there is one
significant problem. Dell has to pursue relationships with only those suppliers capable of
seamlessly integrating with Dell's supply chain. This will in the end help the company to
provide more choices to their consumers and maintain their production efficiency.
 Dell views customer support as a key differentiator. Not unexpectedly, this division
provides a significant and increasing revenue stream for the company. In recent years,
though, Dell's lead in customer service and support has declined (hence movement of
Individual support centers were done to India and business support centers in USA).
 Decline in training and outsourcing their KPI which is customer service has damaged
their legacy. (they preferred selling to educated and experienced transaction buyers)
 To correct this problem, Dell needs to improve the selection process of its customer
service representatives, meaning that they need to be provided standardized training and
well educated. This gives them an edge over their competitors which are HP & IBM.
 Dell's extremely successful model of direct sales has enabled customers to customize its
products. However, they have a single source partnership with Intel chip maker that
limits choices for the consumers. Currently those who prefer to have chip powered PCs
are unable to do so.
 Company should focus on improvising direct sales and entering in indirect model.