Georgian – American University

Dell: no operating model lasts forever!

BBAQ 22-1
Group Members:
Natali Varshanidze
Gvanca Kirvalidze
Mariam Maisuradze
Nika Lasareishvili
Lecturer:
Tsotne Iashvili

26/10/2020
 Georgian – American University

Introduction
Today we are going to talk about Michael Dell and his company. Dell started his career at an
early age by buying unused PC-s from local dealers, enhancing their features and then re-selling
them. Soon after, this start-up became so successful that he quit university and founded his
own company in 1984. To minimize costs, he was avoiding working with retailers and decided
to sell Dell’s computers directly to its customers. It allowed Dell to better understand
consumers needs created strong bonds between them.
Two decades later Dells growth started to rapidly slow down because of the market changes.
Ironically, the company’s main advantages were started to seen as disadvantages. Analysts
started to question their operating model as it has not changed at all. Moreover, rivals had also
learnt how to sufficiently run their supply chains. As the borders of the global market started to
increase, number of individual customers began to grow, new demands were established. For
instance, up-to-date computers with high design value and the need to test the product
physically, which was really hard for Dell to keep up with these challenges, as their operations
were mainly internet-based.

However, changes don’t occur overnight. Michael Dell finally came to

conclusion to switch its operating system, reject the idea that design
was not important to his company and decided to become more
consumer focused. One of the biggest steps forward was opening
10 000 stores, which helped him to reach more individuals and
concentrate less on supplying businesses. Also, this activity led to the
increase in revenues, to increase attention to the details like fashion,
colors, textures and materials.
Early years and growth
First of all, in 80’s Dell’s company was original and innovative. The success of the company was
primarily due to the strategy of exchanging inventory for information, which means that instead
of keeping inventory in hand in a warehouse or on-hand at a selling outlet, Dell keeps
information about client orders, needs and forecasts at one place. It also allowed them to freely
run their supply chain of the products to the end-user in a fast and efficient manner. Shortly, all
of above mentioned, gave Dell significant cost advantage.

Changes in original operating model

 Georgian – American University

The problem with Dell’s OM is that though its superior compared to most big companies,
smaller companies have emerged that have other advantages such as being local and more
efficient when it comes to processing and distribution to the local markets
Decades later demand on the market greatly changed and Dell corporation realized that its
products denigrate in time by keeping them in store rooms causing them great losses.
Increased worldwide competition to less differentiation among competitors forced Dell to lose
its competitive advantage. There was need for the company to specifically improve its customer
service, customization and increased global market environment. In order to avoid further
failures and drops in sale something had to be changed.

Dangers of outsourcing
Dell management has always believed in long-term partnerships with
trustworthy suppliers because it yields several benefits. First, by
employing name-brand processors, disk drives, modems, speakers, and
multimedia components, this is key in enhancing the quality and
performance of Dell's and Sony’s.
On the other hand, outsourcing can be connected with couple of dangers like quality failures,
increased costs, reputation/ brand name risks as well as supplier risks for the international
brands.
Implication of a quality failure could be much more severe for the company as serious
disruptions can occur and it can take several months for the company to identify and then
resolve the problem. As a result, it will damage the reputation of the company and even lose
loyal consumers. Also, producing notebooks is slightly cheaper than outsourcing its separate
parts.

Subcontracting companies and how they can compete in the future

Subcontracting is similar to the term of outsourcing materials, services,
operations and etc.
Subcontracting is very useful in situations if the range of required
capabilities for the project is too diverse to be carried out by a single
general contractor. This may also assist in keeping costs under control
and reduce overall project risk. It may even grant some defense in vis
 Georgian – American University

major situation. For example, natural disasters like tornados, floods and
earthquakes.

Summary
To sum up, it is necessary for the companies to always keep up with the rapid changes and
needs of the market, especially in the world that usually moves too fast.