Example Essay on Dell Adapting to Market Changes
A1) Fierce competition and strategic challenge is a common phenomenon faced in the business world. To excel your competitors and to maintain the excellence is the underlying concept of continuous learning and adaptive organization. Many firms grow with excellence because of visionary leaders, new ideas, new ways of doing things and adapt such long term strategies successfully, but there comes a time of stagnation or downfall when the competitor starts aggressively following and adding to the innovation, and if the former doesn’t keep continuously learning and adapting to the situations and markets.
Dell faced a similar situation when HP under the leadership of Mark Hurd in 2007 started to catch up very fast to gain the market share back and revamped its strategies and implemented them effectively. Dell had to quickly work to regain its market share. Dell’s long term strategy was in line with resource based strategy which deals with the competitive environment facing the organization but takes an ‘inside out’ approach, i.e. its starting point is the organizations internal environment.
Resource based view is an important, essential and an inside-out management concept that is useful in developing successful strategy. The strategy emphasizes and quest for gaining a competitive advantage on the basis of available resources. It is concerned with the internal resources, capability and effectiveness on the business. The Resource Based strategy comprises of both tangible and intangible resources. The strategy, also aides through creating a frame work, allowing the executives to consider their strength and weakness, understand marketing issues, leading to the improvement of the organization’s corporate performance. It is limited to the resources of an individual company and helps in explaining methods for the exploitation of the company’s resources. This is when Market based view comes into the picture!
Dell’s strategy in 2007-2008 was predominantly a market based view, but it also considered its core competencies and competitive advantage.
Market based view of strategy helps the organizations to recognize and choose competitive dimensions and encourage the management to meet the suitable winners. The strategy’s focuses mainly on achieving an attractive position in the industry. It helps in selecting the market combination for the product, in which a company uses its strategyBased on the Market view of strategy, a company analyzes the industry structure and according to the structure it creates its structure and strategy for effective positioning in the industry.
Dell’s strategy in 2007-2008
Michael Dell took over the reins from Rollins on January 31 -- taking back the role of CEO -- and set out to remake the $57 billion Round Rock, Tex., PC manufacturer. Starting in June, Dell began to complement its direct sales model by selling PCs through Wal-Mart and Sam's Club stores.
Dell's retooling comes just as it has lost its worldwide market share lead to Hewlett-Packard. According to research firm IDC, HP had a worldwide PC market share of 19.3% for the quarter ending June 30 compared to Dell's 16.1%. In 2005, Dell dominated the playing field with 18.2% market share compared to HP's 15.7%. (Can Dell’s Turnaround Strategy Keep HP at Bay?, 2007)
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"Dell's success had been, 'You tell us what you want and we will build it for you”. That approach has worked well with corporate [information technology] people and professional users. But that is a cut-throat market since these people have a good knowledge of prices. Dell always had a hard time with the non-expert buyers. (Can Dell’s Turnaround Strategy Keep HP at Bay?, 2007)
There were only a few technology buyers who valued picking out a specific video card and other components of a computer. And in order to compete with rival HP, Dell had to find new customers.
Dell had been refashioning itself largely to compete with HP which, under Hurd, has become more efficient. HP had also leveraged its relationships with retailers to better target consumers, which have been fueling PC sales. The big question was “whether Dell can take the best parts of its current business model and mesh them with new initiatives”.
For Dell, its new initiatives were -- expanding retail sales, better design and courting consumers -- take the company into uncharted waters ". (Can Dell’s Turnaround Strategy Keep HP at Bay?, 2007)
Market Penetration – Maintain status Quo and continue to do more of the same. “If it ain’t broke don’t fix it”. Many people believe the recession will end soon, so Dell could just ride it out and hope to hang onto the market share it currently has. This option is not a proactive approach and could prove to be risky, resulting in declining market share, lower profits, and the possibility of the competition advancing while Dell stays stagnant. –
• Increase product line: By introducing new products like a PDA, Dell can capture new markets and increase sales and awareness. However, Dell’s R&D budgets are well below that of its primary competitors. This option contains increased risk and high initial start-up costs.
RECOMMENDATIONS & IMPLEMENTATION
The booming PC market seems to have bottomed out, with little signs of improvement due to market saturation. Positive signs have come mainly in the form of limited PC replacement programs at some large companies and sales of notebook PCs. Any future PC market recovery will most likely be tied to an improvement in the economy.
Therefore, Dell should ramp its efforts in three non-core areas as key for future growth: servers, and services. Meanwhile, it can carry on with its aggressive price-cutting strategy for all of its products. Hopefully, these moves will allow them to gain traction in some markets, and even overtake some competitors in others. Once Dell has used its lowest price strategy to increase its installed base of clients in hardware sales, particularly in the enterprise market, the company can leverage its expertise in customer support to keep those clients. Even though Dell has already made some impressive progress in server and storage developments, it still lags behind other server vendors in total shipments and sales. The company needs to create a greater presence among enterprise and service-provider customers.
An expansion of the services group should also be pursued based on customer needs, which will vary around the globe. While, Dell continued to partner with third-party services firms, it should also bulk up on its own services capabilities so it can provide customers with more competitive broad services offerings. Dell needed to realize that it would need to expand its services capability significantly in order to be taken seriously in the industry (Breen, Bill, (2004), Living in Dell Time. Fast Company). Dell could also implement a fixed-price approach to services that will boost its presence in that market. New services, such as migrating from Unix-based servers to new ones based on Linux could be offered and combined with Dell's hardware. A total of $2 billion to $3 billion in service revenue can be achieved if this strategy is correctly implemented. Dell's three-pronged growth strategy by no means guarantees a sure-fire path to future profitability, but Dell's deliberate and measured steps to expand beyond its PC roots could result in additional good news in the future.
A3) The primary method Dell uses in order to achieve and sustain their competitive advantage is a unique, direct to customer business model (Dell, 2007). The model is known as Dell Direct, referring to the relationship between the company and its customers as being “direct.” This model helps Dell focus on price for customization, service and support, performance, latest technology and superior shareholder value. Additionally, Dell is able to distinguish itself from its competitors with its customized on- demand manufacturing. Through customisation of the products manufactured by dell, the company has the ability to offer more value for the money of its customers due to the removal of the intermediaries in the manufacturing, procurement and distribution processes of Dell.
Dell’s competitive advantage lies in its direct model success. Through Dell’s IT performance, which combines its resources, its relationship with suppliers and its consumer communication capabilities, Dell has attained a big advantage over its competitors.
Analysis of Dell’s Competitive Advantage:
Dell implements a Just-In-Time inventory system which operates on only 6 days of inventory. Dell is able to achieve greater profit margins and increased profits because of their inventory system. Inventory and labour are the highest liabilities of a firm. Operating only with 6 days of inventory, allows Dell to reduce its expenses on hiring people to track and maintain inventory, warehousing, and holding on to obsolete technology. This allows Dell to free up cash flow to invest in other value adding activities.
Dell use of the internet not only made the customer ordering process easier. They also use the internet to build better relationships with their suppliers. In order for Dell to work off of 6 days of inventory, their suppliers have to be very involved in the company to make sure superior service is met. The use of art production planning programs assist in predicting the quantities of components needed to build the computers. The forecast is passed to the supplier, who responds with cost estimates and plan their production as a result.
Dell’s e-commerce is a huge part of their competitive advantage. Their e-commerce internet infrastructure is so advanced and knowledgeable that by using it to determine trends and demands of their products, they have gained superiority over their competitors.
Dell achieves its competitive advantage over other firms in the industry by having superior supply chain management. Dell utilizes technology to interpret information. By being involved in the customer buying process they are able to determine their customers’ needs. This allows Dell to streamline production and have close relationships with their suppliers which results in getting timely deliveries in order to mass customize customer’s computers.
Analysis of Dell’s Business Model:
Dell’s initial success was due to its early implementation of the internet as the means of sales and marketing. “Dell's direct-to-the-customer strategy presents a highly attractive cost advantage that's tough to ignore. Their direct interaction with their customers continues to be “a key driver in sales for the quarter (2000).” Dell’s early work with using the internet helped them get a jump on their competition while their competition was finding it difficult to conduct successful Business to Business operations online since “exchanges are still in their infancy and many haven't even gone live yet. Matching customer ease of ordering and direct interaction through the internet proved successful because Dell believes that it is the customer that drives the business model.
Recommendations to build sustainable competitive advantage in future:
Over the years, dell has gained its competitive advantage through the usage of Internet as the tool for sales and marketing of its products. However, there is always a room for improvement to increase the competitive advantage between Dell and its competitors.
Dell should consider selectively adding other vendors to its supply chain management system. Due to the increase in Dell’s global sales, Dell may need to consider to selectively adding additional suppliers to their supply chain management system. The additional suppliers should not result in any significant cost to Dell and Dell might be able to negotiate better component costs from new suppliers. New suppliers would want to participate in this exchange because they would be seen doing business with a leading technology company.
Invest more in Research and Development. With the growth of quality competition, it is crucial for Dell to keep its competitive advantage by offering new technology products and services. Dell should consider expanding into peripheral product markets that would complement their computer sales.
Enhance customer support services. To be successful Dell needs to provide an immaculate customer support. In order to achieve this objective, Dell needs to keep a track and monitor the skills and knowledge of its employees involved in customer interaction via various mediums (phone, email, etc.).
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