Dell, Inc, which was ranked the 25th largest company on the Fortune 500 list by Forbes magazine, began its cosmic rise in 1984 when Michael Dell used a mere $1000 dollars to found PC's Limited. Working in a college dorm room at the University of Texas, Michael Dell had a goal to produce IBM compatible computers from stock components to suit individual customer needs. The company vision was to produce computers that could easily be fitted with individual components to build a computer system to accommodate individual requirements. The goal was to give the customer exactly what they needed or wanted. The computers were built from stock parts as they were ordered. In 1985, the founder dropped out of school, got a family loan for $300,000 dollars and began to give his full attention to the new company. Later the same year the company introduced its first company designed computer, the Turbo PC.Â The computer boasted an Intel 8088 processor that ran at an impressive speed of 8MHz. And it sold in the United States for $795 dollars. The computer systems, which were advertised in computer magazines nationally, were purchased through direct sales. Given a list of options, the customers choose the components they wanted and the computers were built as they were ordered. By ordering the components wholesale, they company was able to provide great pricing, which proved to be much lower than their competitors'. The company's business formula proved to be a great success and the first year of trading they grossed more that $73 million dollars.
Michael Dell's performance in his roles as Dell's CEO and Chairman
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As the leader of the Company, M. Dell has developed a new style of management based on both technical knowledge and marketing know-how. He had lot of good marketing ideas that allow the company to be a strong competitor on the I.T. especially in PCs, Internet and e-commerce practices. As he was the youngest CEO, he worked very hard to be able to overpass his weaknesses. So he became familiar with all parts of the business, he overcame his shyness and learned to control his ego. He was very clever when he choose to use a social strategy that allows him to motivate people winning their loyalty and respect. He was also considered as a very accessible CEO because he chooses to delegate authority to subordinates. Mr. Dell 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.
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;
Allowing customers to purchase custom built products and custom-tailored services is the most effective way to meet customer needs;
Non proprietary, standardized technologies deliver the best value to customers
Searching a low-cost structure where cost savings can be passed along to customers in the form of lower prices;
Dell should endeavor to deliver added value to customers by: researching all the technological options, trying to determine which ones are "optimal", and being accountable to customers' for helping them obtain the highest return on their investment in information technology (IT) products and services.
In accordance with these tenets, Dell's strategy had seven core elements: a cost-efficient approach to build-to-order manufacturing, partnerships with suppliers aimed at squeezing cost savings out of the supply chain, direct sales to customers, award-winning customer service and technical support, customer-driven R&D, emphasis on using standardized technologies, and product-line expansion aimed at capturing a bigger share of the dollars, its customers spent for IT products and services.
1. Cost-Efficient Build-To-Order Manufacturing
Dell built its computers, workstations, and servers to order; none were produced for inventory. Dell customers could order custom-equipped servers and workstations according to the needs of their applications. Dell was regarded as a world-class manufacturing innovator and a pioneer in how to mass-produce a customized product. Dell's build-to-order strategy meant that the company had no in-house stock of finished goods inventories and that, unlike competitors using the traditional value chain model; it did not have to wait for resellers to clear out their own inventories before it could push new models into the marketplace-resellers typically operated with 30 to 60 days inventory of prebuilt models. Equally important was the fact that customer who bought from Dell got the satisfaction of having their computers customized to their particular liking and pocketbook. All assembly plants had the capability to run testing and quality control process on components, parts, and subassemblies obtained from suppliers, as well as on the finished products Dell assembled.
2. Partnerships with Suppliers
Always on Time
Marked to Standard
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. Dell management evaluated the various makers of each component; picked the best one or two as suppliers; and then stuck with them as long as they maintained their leadership in technology, 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. New advances were coming so fast in certain computer parts and components (particularly microprocessors, disk drives, and wireless devices) that any given item in inventory was obsolete in a matter of months, sometimes quicker.
3. Dell's Direct Sales Strategy and Marketing Efforts
With thousands of phone, fax, and Internet orders daily and ongoing field sales force contact with customers, the company kept its finger on the market pulse, quickly detecting shifts in sales trends, design problems, 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. Dell saw its direct sales approach as a totally customer-driven system, with the flexibility to transition quickly to new generations of components and PC models. Dell's Customer-Based Sales and Marketing Focus whereas many technology companies organized their sales and marketing efforts around product lines, Dell was organized around customer groups. Dell had placed managers in charge of developing sales and service programs appropriate to the needs and expectations of each customer group.
4. 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. 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. Dell was aggressively pursuing initiatives to enhance its online technical support tools and reduce the number and cost of telephone support calls. The company was adding Web-based customer service and support tools to make customers' online experiences pleasant and satisfying.
5. Customer-Driven Research and Development and Standardized Technology
Dell's R&D focus was to track and test new developments in components and software, as certain which ones would prove most useful and cost-effective for customers, and then design them into Dell products. 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 helps steer customers to options and solutions most relevant to their needs. The company talked to its customers frequently about "relevant technology," listening carefully to customers' needs and problems and endeavoring to identify the most cost-effective solutions. Studies conducted by Dell indicated that, over time, products incorporating standardized technology delivered about twice the performance per dollar of cost as products based on proprietary technology. The company's R&D unit also studied and implemented ways to control quality and to streamline the assembly process.
6. Expansion into New Products
Dell's recent expansion into data storage hardware, switches, handheld PCs, printers, 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. Michael Dell tends to look at what is the next big opportunity all the time. They can't take on too many of these at once, because it kind of overloads the system. But they believe fundamentally that if you think about the whole market, it's about an $800 billion market, all areas of technology over time go through a process of standardization or commoditization. And they try to look at those, anticipate what's happening, and develop strategies that will allow Dell to get into those markets.
7. 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, entry into the white-box segment of the PC industry, and advertising. 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, to streamline the order-to-delivery process, to encourage greater customer use of 1ts Web site, 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. Dell believed its low-cost 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. Advertising Michael Dell was a strong believer in the power of advertising and frequently espoused its importance in the company's strategy.
Does Dell's expansion into other IT product make good sense? Why or why not?
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Yes or course Dell's expansion into the other IT products make good sense because in order to global leader, Dell just cannot stick to few products. In order to beat the big giants in the market, Dell need to innovate new products and for this they need to expand their brands into IT products as well so that they can be competitive in the market and become the number one leader into the computer and IT world.
SWOT analysis of Dell
The SWOT analysis of Dell's situation:
Direct business model: Just-in-time manufacturing and Build to customer order
Cost/ differentiation strategy
Highest quality and technology
Best-in class service and support
Flexible customization capability
Superior corporate citizenship
Real time adaptation to environmental changes
Effective leverage of skills, technologies and core competencies while competing against rivals
Highly qualified and professional employees
Overall operating and cost efficiency
High dependency on component suppliers and manufacturers of subassemblies and other devices (drivers, printers, scanners, modems, memory cards, data storage, etc.
Potential growth in overseas markets
Perpetual expansion of Pc's industry market
Fierce competition (prices and market shares)
Emerging of new competitive forces
Tariffs, taxes and trade barriers
Political instability in some countries
Dell's attractiveness analysis:
Looking at the SWOT analysis of the company's business, it is evident that Dell does still hold a very strong competitive position. The key factor of the company's success is its "Direct Business Model" concept, in addition to the close relationship both with customers and supply partners, but definitely a better understanding of its business and the ways to keep it efficient everlasting. Indeed, Dell's business model proved its efficiency and its attractiveness since the company entered to the "Fortune Global 500", and especially when its major competitors started copying it, 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. Finally, Dell Incorporation should profit from all the different opportunities of expansion and growth to make its business more profitable, and should try to reduce as much as possible the negative impacts of the weaknesses and the threats revealed by the SWOT analysis on its business.
Which company is competitively stronger - Dell or Hewlett-Packard?
Two companies dominate the personal computer business: Dell, with 17.4 percent market share, and Hewlett-Packard with 17.1 percent. Indeed, Dell and H-P are rivals in just about every market. And while Dell is, by almost every measure, winning at every turn, Hewlett-Packard is working overtime to catch up with its younger, stronger rival. Dell has a massively better business model than Hewlett-Packard. Hence it can be said that Dell is competitively stronger than HP.
In what respects, if any, is Hewlett-Packard's strategy in PCs more appealing or better than Dell's strategy?
Dell's strategies are much more appealing because HP had face major losses and after undergoing merger with Compaq, now the company is stable, but much of its profits still comes out from printers and not from the computers and hence Dell is still dominating the market and the strategies set my Dell are much more appealing to the customers than HP's.
What issues and problems does Michael Dell need to address
Michael Dell needs to fix the customer service problems. For this one new tool, called DellConnect, enables the tech staff to connect to the customer's computer and fix problems on the spot or show the customer how to do it. But still customers are not very much happy with the system and Mr. Dell needs to have good support staff to help the customers technically online so that the customers does not get disappointed and switch to other products. Dell also needs to manufacture other products as well and does not stick only to computers as Dell is a well known brand now around the world and Dell can capture the market easily with its new brands.
Recommendations for Dell to overtake HP in global sales of PCs
As Dell computers faces transformation, they must adopt an intelligent transition strategy while maintaining its core competencies in clear view. Moving into retail is a costly and risky alteration to the old ways. Dell should also have ample resources to move into R&D and strive to make a product that will attract the spotlight. They must stay competitive and show they can roll with emerging trends and possibly initiate some of their own. In other words, they shouldn't let the Dell name get old, but rather, signify cutting edge. Finally, they should use their advantages in supply chain management to innovate and build on their fresh business model. They should aim to set benchmark standards like they have in the past.