Dell Incorporation: Can Rivals Beat its Strategy?

Dell Case Study 2006


000 on a simple concept : by selling computer systems directly to customers. they could best understand their needs and efficiently provide the most effective computing solutions to meet those needs. Their evolving business strategy combines their revolutionary direct customer model with new distribution channels to reach commercial customers and individual . is the chairman of the Board of Directors and chief executive officer of Dell.Dell Incorporation: Can Rivals Beat its Strategy? « We If a believe that all our make that businesses should make money. you shouldn’t be in it » MichaeL DeLL M -3- ichael Dell. the company was founded in 1984 with $1. born in February 1965. if you can’t figure out how business. business to make doesn’t money in money.

Dell has developed a new style of management based on both technical knowledge and marketing knowhow. by answering to the following questions : • What is our assessment of the job M. Dell became the youngest CEO ever to earn a ranking on the Fortune 500. especially in PCs. In 1992. Mr.Dell Incorporation: Can Rivals Beat its Strategy? consumers around the world. we will try to analyze the crafting and executing strategy of Dell Incorporated.T. -4- . He had lot of good marketing ideas that allow the company to be a strong competitor on the I. Dell has done as the company's leader? As the leader of the Company. In our report. M. internet and e-commerce practices.Dell has done as the company’s leader? • What grade we’d we give him for his leadership of the company? • What are the elements of Dell’s strategy? • What does a SWOT analysis reveal about the attractiveness of Dell’s situation? What is our assessment of the job Mr.

he overcame his shyness and learned to control his ego. Non proprietary. He was very clever when he choose to use a social strategy that allow him to motivate people winning their loyalty and respect. What are the elements of Dell’s strategy? Dell’s executives believe that five tenets were the key to delivering superior customer value: • • A direct relationship is the most efficient path to the customer. I think that being a risk taker and meeting customers all over the world was very helpful for the company to be a big competitor in PCs industry.Dell Incorporation: Can Rivals Beat its Strategy? As he was the youngest CEO. So he became familiar with all parts of the business. he worked very hard to be able to overpass his weaknesses. standardized technologies deliver the best value to customers • -5- . He was also considered as a very accessible CEO because he chooses to delegate authority to subordinates. Allowing customers to purchase custom built products and customtailored services is the most effective way to meet customer needs.

Dell's build-toorder strategy meant that the company had no in-house stock of finished -6- . and product-line expansion aimed at capturing a bigger share of the dollars. In accordance with these tenets. 1. partnerships with suppliers aimed at squeezing cost savings out of the supply chain.Dell Incorporation: Can Rivals Beat its Strategy? • Searching a low-cost structure where cost savings can be passed along to customers in the form of lower prices. Dell's strategy had seven core • elements: a cost-efficient approach to build-to-order manufacturing. none were produced for inventory. and being accountable to customers' for helping them obtain the highest return on their investment in information technology (IT) products and services. award-winning customer service and technical support. trying to determine which ones are "optimal". customer-driven R&D. and servers to order. Cost-Efficient Build-To-Order Manufacturing Dell built its computers. Dell customers could order customequipped servers and workstations according to the needs of their applications. emphasis on using standardized technologies. direct sales to customers. its customers spent for IT products and services. workstations. Dell should endeavor to deliver added value to customers by: researching all the technological options. Dell was regarded as a world-class manufacturing innovator and a pioneer in how to mass-produce a customized product.

as well as on the finished products Dell assembled. All assembly plants had the capability to run testing and quality control process on components. and subassemblies obtained from suppliers.Dell Incorporation: Can Rivals Beat its Strategy? goods inventories and that. disk drives. sometimes quicker. Dell management evaluated the various makers of each component. performance. quality and cost. Dell just-in-time inventory emphasis yielded major cost advantages and shortened the time it took for Dell to get new generations of its computer models into the marketplace. Equally important was the fact that customers who bought from Dell got the satisfaction of having their computers customized to their particular liking and pocketbook. it did not have to wait for resellers to clear out their own inventories before it could push new models into the marketplaceresellers typically operated with 30 to 60 days inventory of prebuilt models. unlike competitors using the traditional value chain model. parts. 2. picked the best one or two as suppliers. and then stuck with them as long as they maintained their leadership in technology. -7- . and wireless devices) that any given item in inventory was obsolete in a matter of months. New advances were coming so fast in certain computer parts and components (particularly microprocessors. Partnerships with Suppliers Michael Dell believed that it made much better sense for the company to partner with reputable suppliers of PC parts and components than to integrate backward and get into parts and components manufacturing on its own.

design problems. Dell contracted with local service providers to handle customer requests for repairs: onsite service was provided on a four-hour basis to large customers and on a next day basis to small customers. quickly detecting shifts in sales trends. Dell had placed managers in charge of developing sales and service programs appropriate to the needs and expectations of each customer group. Dell's Direct Sales Strategy and Marketing Efforts With thousands of phone. Dell saw its direct sales approach as a totally customer-driven system. the company kept its finger on the market pulse. Dell's Customer-Based Sales and Marketing Focus whereas many technology companies organized their sales and marketing efforts around product lines. and Internet orders daily and ongoing field sales force contact with customers. and quality glitches. Management believed Dell's ability to respond quickly gave it a significant advantage over PC makers that operated on the basis of large production runs of variously configured and equipped PCs and sold them through retail channels. 4. fax. with the flexibility to transition quickly to new generations of components and PC models. The -8- .Dell Incorporation: Can Rivals Beat its Strategy? 3. Dell was organized around customer groups. Dell was aggressively pursuing initiatives to enhance its online technical support tools and reduce the number and cost of telephone support calls. Customer Service and Technical Support Service became a feature of Dell's strategy in 1986 when the company began providing a year's free onsite service with most of its PCs after users complained about having to ship their PCs back to Austin for repairs.

The company talked to its customers frequently about "relevant technology. over time. 5. products incorporating standardized technology delivered about twice the performance per dollar of cost as products based on proprietary technology. switches. The company's R&D unit also studied and implemented ways to control quality and to streamline the assembly process. and then design them into Dell products. Studies conducted by Dell indicated that. Customer-Driven Research and Development and Standardized Technology Dell's R&D focus was to track and test new developments in components and software. They can't take on too many of these at once. Expansion into New Products Dell's recent expansion into data storage hardware. because it kind of -9- . 6. and printer cartridges represented an effort to diversify the company's product base and to use its competitive capabilities in PCs and servers to pursue revenue growth opportunities." listening carefully to customers' needs and problems and endeavoring to identify the most cost-effective solutions. handheld PCs.Dell Incorporation: Can Rivals Beat its Strategy? company was adding Web-based customer service and support tools to make customers' online experiences pleasant and satisfying. as certain which ones would prove most useful and cost-effective for customers. Michael Dell tends to look at what is the next big opportunity all the time. printers. Management's philosophy was that it was Dell's job on behalf of its customers to sort out all the new technology coming into the marketplace and help steer customers to options and solutions most relevant to their needs.

Other Elements of Dell’s Business Strategy Dell's strategy had three other elements that assisted the company's drive for industry leadership: the use of the Internet and e-commerce technologies.Dell Incorporation: Can Rivals Beat its Strategy? overloads the system. and advertising. all areas of technology over time go through a process of standardization or commoditization. Dell believed its lowcost supply chain and assembly capabilities would allow it to build generic machines cheaper than white box resellers could buy components and assemble a customized machine. And they try to look at those. and develop strategies that will allow Dell to get into those markets. 7. But they believe fundamentally that if you think about the whole market. to streamline the order-to-delivery process. and to gather and use all types of information. Dell's Entry into the White-Box PC Segment Dell's thinking in entering the white-box PC segment was that it was cheaper to reach many small businesses through the white-box dealers that already served them than by using its own sales force and support groups to sell and service businesses with fewer than 100 employees. entry into the white-box segment of the PC industry. anticipate what's happening. Pioneering Leadership in Use or the Internet and E-Commerce Technology Dell was a leader in using the Internet and e-commerce technologies to squeeze greater efficiency out of its supply chain activities. it's about an $800 billion market. to encourage greater customer use of 1ts Web site.10 - . .

What does a SWOT analysis reveal about the attractiveness of Dell’s situation? 1.Dell Incorporation: Can Rivals Beat its Strategy? Advertising Michael Dell was a strong believer in the power of advertising and frequently espoused its importance in the company's strategy. • Strengths: attributes of the organization which are helpful to achieve the objective. Presentation of the SWOT analysis: “SWOT” analysis is a strategic planning tool used to evaluate the Strengths. Opportunities. and Threats involved in a project or in a business venture. Weaknesses.11 - . who led a research project at Stanford University in the 1960s and 1970s. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective. . The technique is credited to Albert Humphrey.

and deter potentially devastating threats. the SWOT analysis is useful when a very limited amount of time is available to address a complex strategic situation. it can serve as an interpretative filter to reduce the information to a manageable quantity of key issues.Dell Incorporation: Can Rivals Beat its Strategy? • • • Weaknesses: attributes of the organization which are harmful to achieve the objective. a firm can better leverage its strengths. However. and many of these changes can be perceived as “threats”.12 - . while “opportunities” can arise when changes occur in the external environment. Opportunities: external conditions which are helpful to achieve the objective. and “weaknesses” may hinder it. Also. The SWOT analysis classifies the internal aspects of the company as strengths or weaknesses and the external situational factors as opportunities or threats. Because it concentrates on the issues that potentially have the most impact. it could be applicable to either the corporate level or the business unit level and frequently appears in marketing plans. Indeed. capitalize on golden opportunities. correct its weaknesses. a SWOT analysis is a simple and a flexible framework for generating strategic alternatives from a situation analysis. By understanding these four aspects of its situation. Threats: external conditions which are harmful to achieve the objective. “Strengths” can serve as a foundation for building a competitive advantage. The following diagram shows how a SWOT analysis can be profiled: .

cards. memory scanners. printers. data Direct business model: Just-in-time High dependency on component storage.13 - . etc…) . modems. The SWOT analysis of Dell’s situation: Strengths manufacturing customer order Competitive pricing Cost/ differentiation strategy Highest quality and technology Best-in class service and support Flexible customization capability and Build Weaknesses to suppliers and manufacturers of subassemblies and other devices (drivers.Dell Incorporation: Can Rivals Beat its Strategy? 2.

core competing technologies competencies against rivals Highly qualified and professional employees Overall efficiency operating and cost Opportunities Mass customization Potential markets Perpetual expansion of growth in Threats Fierce competition (prices and overseas market shares) Emerging Pc’s forces Tariffs.Dell Incorporation: Can Rivals Beat its Strategy? Superior corporate citizenship Real time adaptation to environmental changes Effective leverage and while of skills. taxes and trade barriers Currency fluctuation Political countries instability in some of new competitive industry market .14 - .

but definitely a better understanding of its business and the ways to keep it efficient everlasting. Indeed.Dell Incorporation: Can Rivals Beat its Strategy? 3. The key factor of the company’s success is its “Direct Business Model” concept. Dell’s business model proved its efficiency and its attractiveness since the company entered to the “Fortune Global 500”. Finally.on its business . in addition to the close relationship both with customers and supply partners. it is evident that Dell does still hold a very strong competitive position. and especially when its major competitors started copying it.15 - . and should try to reduce as much as possible the negative impacts of the weaknesses and the threats revealed by the SWOT analysis . Dell’s attractiveness analysis : Looking at the SWOT analysis of the company’s business. but never succeed in implementing Dell’s innovative concept correctly: they didn’t realize that it’s a matter of a whole different way of operating. Dell Incorporation should profit from all the different opportunities of expansion and growth to make its business more profitable.

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