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Dell Inc. was founded by Michael Dell in 1983. He originally focused on selling desktop computers. Over the next two decades, it became world's leading supplier of computer systems and due to its low cost; Dell had an edge over its competitors. In 21st century, Dell was known globally, but it faced many ups and downs throughout its time in the industry. Dell increase product line in 1996, it included Desktop computers, Notebook computers, and Network servers. Dell also faced some severe problems in year 2006-2007, they lost their market share in the industry due to its competitor (HP) and as a result, its financial performance was poor when compared to previous years.
Dell is one of thelargest and fastest growing companies in computer industry, based on estimates of global market share. Dell's superior financial performance can directly be related its successful implementation of direct-sales model.
"Dell's mission is to be the most successful computer company in the world at delivering the best customer experience in markets. Dell will meet customer expectations of highest quality, leading technology, competitive pricing, financial stability, and individual and company accountability."
Ø INTERNAL ANALYSIS:
Dell's Direct Model approach enables the company to offer direct relationships with customers such as corporate and institutional. By doing so, Dell will better be aware and will be able to meet the needs and wants of the consumers. If Dell has the knowledge of the trend that is going on, they will have a better idea of how much to produce of what product. They also started focusing in other things like providing other form of products and services to customers. For example, customized computer systems (according to the orders), telephone and online purchasing, phone and online technical support and next-day, on-site product service. This wide range of products and services is definitely one of Dell's strengths. Dell laptops also had some great deals for the price compare to (HP & Apple) and the efficiency of Dell laptops is incomparable to other companies.
As Dell has no retailer or reseller, they had saved a lot of precious time and money. Dell's customers just had to place an order on phone. After taking down the order the computers were assembled, loaded their orders straight onto a delivery truck resulting in no finished goods inventory. This efficiency process allowed Dell to achieve inventory turnover of 15 times a year (1995), compared 4 to 7 inventory turnover via reseller and retailers. The 15 times inventory turnover turned out into a gross margin advantage of 1.8% to 3.3%, whereas the component costs dropped 15% every year in the industry. By 1996, Dell decreased their general and administrative expenses from 15% in 1994 to 9% 1996 by selling their notebook computers, desktop computers and servers through Dell.com and expected more cost saving in future. In 1998, their market shares reached to almost $ 140 from $ 41 in 1995. They were going very well with a bright future of a company until 2006 and 2007, when they had a worst time in history.
Dell was also ranked number one firm in US at the end of 2000. Dell had grown twice the industry rate in every product category, customer segment and regional market. Dells product won more than 300 awards because they focus on execution and have a better understanding of its customers' needs and wants. Dell Computer's award-winning customer service, industry-leading growth and consistently strong financial performance differentiate the company from competitors for the following reasons:
- Price for Performance - Dell boasts a very efficient procurement, manufacturing and distribution process allowing it to offer customers powerful systems at competitive prices.
- Customization - Each Dell system is built to order to meet each customer's specifications.
- Reliability, Service and Support - Dell's direct customer allows it to provide top-notch customer service before and after the sale.
- Latest Technology - Dell is able to introduce the latest relevant technology compared to companies using the indirect distribution channels. Dell turns over inventory for an average of every six days, keeping inventory costs low.
Finally in 2001, they become the number-one firm in global market share. Now the Dell increased their product line by selling many different products like network servers and storage system, laptops, workstations, services and peripheral products. According to EXIHIBIT 5, their sales to profit ratio, acid test ratio and other internal ratios were in favor of the company. They were doing great until (2006-07). They were the world's leading supplier of computer systems for two successive years and captured the whole US market completely in 2004. In 2005, they were setting target to achieve $60 billion of sales in 2007 and 80 billion in 2009. However, later in 2007, they outsourced to partners located in low-cost countries like China, India, Japan, Malaysia etc, resulting in savings of 23% of the total cost (EXHIBIT 4).
Dell's biggest weakness is that they don't have any retailer strategy. Dell did not support its retail strategy in their supply chain even when technology changed; they failed to adopt to change. Thus, sustainability of protecting the imitation was unprotected. That is why in 2007, Dell began to lose market share. Dell's focus on the corporate and government institutional customers somehow affected its ability to form relationships with educational institutions. Since many students purchase their PCs through their schools, Dell is obviously not popular among the college market yet as they should have. For home users, Dell's direct method and customization approach posed problems. For one, customers cannot go to retailers because Dell does not use distribution channels. Customers just can't buy Dell as simply as other brands because each product is custom-built according to their specifications and this might take days to finish. The worst year in dell's history was 2006-2007, in which reflected on its financial statements. Michael Dell was under enquiry by Securities Exchange Commissions for accounting irregularities; resulting, Dell ended up restating their financial statements through 2003-2006. These irregularities were mainly caused by timing and recognition of revenues and expenses. In 2007, dell lost global leading market of Personal Computer Company maker. After the 1st quarter of 2007, realised that PC shipment had dropped by 3%. It was also noticed that dell's salesperson were not treating every customer equally. They were more concerned on data rather than relationship building with customers. They even used data to identify unprofitable customer account so they can be dropped in future.
Ø EXTERNAL ANAYLSIS:
Personal computers are becoming a need more than ever. As the time goes on, customers are getting more and more educated about every type of brand in computer industry. Second-time buyers would most likely avail of Dell's custom-built computers because as their knowledge grows, so do their need to experiment or use some additional computer features. As the Demand for laptops are also growing. As a matter of fact, demand for laptop has overtaken the demand for desktops. This is another opportunity for Dell to grow in other segments.
The internet also provides Dell with greater opportunities to boost their business and services. Since all they have to do is go to Dell's website and seek out their desiring laptop with latest models and accessories on it to place their order or to get information. As Dell does not have retail stores, the online stores would surely make up for its absence. It is also more convenient for customers to shop online than to go to retail shop and do purchase at a physical store.
Dell was engage in a diversification strategy by launching many new products in market to its range. They firstly launched goods such as peripherals including printers and toners, but now also come up with new different product such as LCD televisions and other non-computing goods. Therefore, Dell was competing against iPod and other consumer electronics brands.
Industries like computers (PCs and Laptop) are very volatile market in which changes and updates are being made on daily basis. New software, hardware, peripheral devices and computer accessories are getting updated or introduced very rapidly. Therefore, it is essential for Dell to be always bewaring for new products or introduce new computer systems in the market.
The threat to become outdated is a vital reality in a computer business. Nowadays, companies must not only produce excellent quality of products but low in price too. This is one challenge that Dell has to face in this industry.
One of the biggest Dell's external threats is that price difference among brands (HP, Acer, and Lenovo) was getting lesser. Dell's Direct Model attracts customers because it saves cost. Since other companies are able to offer computers at lower costs, price difference is no longer an issue for a customer because substitutes are available in the market.
Technological advancement is a double-edge sword. It is an opportunity but at the same time a threat. Low-cost leadership strategy is no longer an issue to computer companies therefore it is important for computer companies to stand out from the rest. Technology dictates that the most up-to-date and fastest products are always the most popular. Dell has to always keep up with technological advancements to be able to compete.
Dell has an option whether to switch from Pull Strategy to Push Strategy or they remain follow the same Pull Strategy. Dell can also focus on Retail Strategy so the salesperson can tell to customers exactly what this product is.
As Dell computers faces transformation, they must adopt an intelligent transition strategy while maintaining its core competencies in clear view. No doubt, moving into retail Strategy would be costly and risky alteration but could be beneficial for the Company. As Dell has been more focused to its customers' desires and needs so they should also have ample resources to move into R&D and make every effort to make a product that will attract the spotlight. They must stay competitive by lowering their price range to other competitors and show they can roll with emerging trends and possibly initiate some of their own. In other words, as oppose to letting the dell name get old, they should indicate cutting edge. They should innovate using their advantages in supply chain management and build on their fresh business model aiming to set benchmark standards like they have done in the past.