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Challenges and competition are the primary constituents of business market. To survive the competition and challenges, organisations need to accept and act on the basic underlying concept of continuous learning and adaptive nature. Businesses are dynamic and therefore, organisations face both success and downfall at every turn. To be able to survive the changes and maintain the market share companies need to design and implement new strategies all the time.
A similar situation was faced by Dell, when HP had gained traction in the market with its new CEO, Mark Hurd in 2007. Dell executives had to quickly revise and design its resource based strategy to get back into business and gain market share.
Resource Based view of Strategy focuses on the resources available at the disposal of the company. It helps the company in choosing the market and the effects of the resources on the environment of the business sector. This strategy helps the company to give a competitive advantage on the basis of company's available resources. This strategy is limited to the resources of an individual company.
Market Based view of Strategy focuses on the market's trend and nature. The approach helps the organisation, design its structure and strategy to be employed for entering the market. It accounts for the market power like monopoly, barriers to entry, and bargaining power.
Michael Dell approach in 2007-2008
The company considerably swung away from its consecrated strategy and adopted the market based view strategy. The company started outsourcing its products for manufacturing and sales after the drastic decline in the PC market share, in order to compete with its competitor HP and claim their title of worldwide leader in the PC industry.
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". (Can Dell's Turnaround Strategy Keep HP at Bay?, 2007)
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)
Dells retooling its strategy paid off the company. Dell was holding a market share of 15.7% in the first quarter of 2008, compared to the market share of 14.8% in the fourth quarter of the fiscal year 2007.
Strategy Approach Options
â€¢ Pursue Associated Services Growth - within the US, 2000 service revenues accounted for over 37% of $2 billion in total revenues. This business unit was becoming an increasingly important part of Dell's portfolio with longevity, able to stand the test of time and market uncertainty, no matter what turn technology took.
New International Market Development - Target new segments and enter new markets with existing products. The Potential benefits of international expansion are increased market share, revenues, profit, and buyer awareness. However, the successful Dell Model might not work everywhere. The product chosen for expansion should be a commodity where the demand is already in place and the country must also value on-time delivery. In addition, terrorism, cultural barriers, political systems, and longer ROI must be taken into consideration as well as limits on foreign ownership and tariff barriers.
Recommendations & Implementation
The boom of PC industry hit its stagnant wall in the same time line of recession hitting the world economy. The market comprises of customers wanting to replacement of PC programs at large corporations or limited sales of notebook PC's. Thus, PC market recovery is strongly tied with the improvement in the economy.
Therefore, Dell should consider of developing its business and increasing its market share in areas like external storage and international expansion Dell can quickly grow its storage business by providing simplified and standardized storage solutions to customers ranging from small businesses to large, global corporations with enterprise-class requirements. It can leverage its ties to Microsoft, Intel and other prestige component vendors to focus on providing Windows-based storage and server products. This move will make its high-end storage products work with IBM, Hewlett-Packard and Compaq Computer Windows servers, as well as Dell servers. This allows Dell to widen its customer base by appealing to customers that don't have Dell servers, or have a mixture of servers from different vendors. With comprehensive support for multiple platforms, Dell can also offer customers a storage solution that leverages their existing Windows server investments, while scaling to accommodate their growing data requirements.
As Dell looked at expanding into international markets, it needed to consider entering the markets that are important to the region; for example, Germany in Europe, China in Asia, and Brazil in South America. Dell needs to carefully study of these types of key markets and should implement its Direct Model only after it understanding economic and political functions of these regions. However, this planned growth will place extensive load of demands on the size of Dell's information infrastructure needed to support global operations on such a large scale. To be prosperous in these markets, Dell must update its websites in the languages belonging to these regions and modify the accounting systems to handle the currencies of these regions. Keeping the new employees in touch with one another and with customers, suppliers, and partners will be a huge task, wanting the latest technology, rising the claim for instant information. The global market is huge and virtually untapped and Dell is in a great position to take advantage of this market, especially with the use of the Internet and its advanced online capabilities. Dell's primary most strategic advantage is the ability to sell direct from Dell, eliminating all the troubles in the normal distribution line due to middlemen. Anyone who desires a Dell must order it through the structured method (like mail, phone etc.), which is a perfect method for doing international business. Dell just needs to take the order and ship the products via one of its own transportations. Dell must focus on dominating the markets like Asia where it only have a hold of small 3.7% hold on the market with over 19.9 billion units. Asia is a virtually untapped market and is expected to grow rapidly in the next few years.
Dell Computer is a leader in the e-commerce computer hardware market. It is an established brand that leads personal computer manufacturers both in U.S. sales and overall online sales. Its trademark method of selling products to customers, corporate and individual consumers, originates from the Dell Direct model, a Web-enabled infrastructure that allows customers to customize their PCs and order other products they need or desire. This virtual integration structure eliminates the need to manufacture everything, and instead uses the power of the Internet to share and exchange information with suppliers and vendors to build a truly superior supply chain that keeps inventory turnover low and costs to a minimum (Harrington, 2002).
Dell's primary resources include the most advanced technology, which allows the company to successfully move along their superior supply chain and achieve the value they strive for. Dell's value chain allows Dell and its suppliers to exchange information and interact with each other. The Internet, Dell's important IT factor in its success, results in lower costs to customers than other retailers, the customers tell Dell exactly what they want and Dell creates products for the consumer without experiencing wasteful resources in production (Breen, 2004).
Analysis of Dell's Competitive Advantage:
Dell carries the tag of being, one of the best computer systems company in the world. Dell is able to sustain a competitive advantage over competitors in the computer industry because of an extremely efficient supply chain/distribution system. Dell is able to achieve superior profits in the industry because they are a knowledgeable user of information, communication, e-commerce, e-business, internet, and web technologies.
The direct Model strategy compels the company to use a JIT inventory system, as the customers are only allowed to order directly from Dell. Dell uses their website www.Dell.com to take customer's orders. The organization focuses on direct sales, cutting out other distribution channels entirely. This allows for a deeper relationship with the customers whereby Dell can offer their customer's better service, savings, convenience, and efficiency.
Dell's use of the internet has revolutionized the company. Dells extremely consumer friendly website offers the customers to place their orders with ease. The separate "Premier Pages" on Dells website designed for Dell's large accounts like corporation, educational institutions and Government, delivers easy navigation, dynamic price upgrades and wide range of available options. Customer relationship management software keeps close tabs on the types of computers that customers are buying.
Dell has set up strategic alliances with other companies to have their products sold on Dell's direct selling distribution channel. Back in 2000, Palm, Inc. made an agreement with Dell to offer an expanded line of handheld Palm products and accessories. This agreement allowed Dell to drive momentum for the Palm operating system market (Dell: 2000, April 17). Along with Palm, Xerox also partnered with Dell to take advantage of Dell's e-commerce. Advantages to Xerox were increased profits by offering the printers with the Dell computers. Advantages to Dell include selling high quality printers along with their computers, but more importantly, it allowed Dell to be involved in the customer buying process for printers. Being involved in the decision making process is the key to Dell's success because they see directly what the customers want and determine their production schedule from that information (Dell: 2000, May 22).
Analysis of Dell's Business Model:
The four markets within an industry are defined as Business to Business, Business to Consumer, Consumer to Business, and Consumer to Consumer. Dell focuses on Business to Business and Business to Consumer commerce to satisfy their business and individual customers. Dell differentiates between classes of customers because the needs of their business customers, who buy large quantities of computers, are different than the individuals who want to configure a single unit. "Dell's business model is no secret, of course, and it's been emulated with considerably less success by many of its competitors (Henricks, 2003)."
Dell recognized the challenges in dealing with the customers and fragmented them into two distinctive groups with different needs, dealing with the business customers (like corporations) and dealing with individual customers. Dell has done a remarkable job managing these two different types of consumers thus far. In the last couple of years, Dell decided to split their operations into two different websites with separate B2B sites. With separate sites, Dell planned to "simplify the Internet procurement process for businesses and institutions of all sizes, generating savings that can range to millions of dollars annually for large customers (1999)." However, this idea failed, and "Dell had to shut down its B2B site, four months after it launched. Dell said "the site failed to attract more than three suppliers".
Recommendations to build sustainable competitive advantage in future:
After analyzing Dell's IT and their competitive advantage as a result of their advanced and successful IT, it was challenging to come up with recommendations to help them achieve more success in an industry that they already prosper in. However, even with Dell's current success, we realize that in an ever-changing technology industry, there is always room for improvement.
1) Use "Customer Surveys" to gain market share. Although Dell does well in its markets overseas, Dell has lost some domestic market share and has more potential overseas. It is important for Dell to advertise and get their products noticed in international markets. In order achieve this goal, in-depth customer satisfaction surveys should be used in markets where they trail their competition. .
2) Dell could offer online data back-up capabilities. Another way to increase revenue is to offer existing customers (business and individual consumers) back-up capabilities on Dell's own servers. This process will have advantages for both consumers and Dell. For consumers, especially businesses, if something happens to their plants and computer systems, they can always retrieve their data from Dell who has their information backed up offsite on their system. By keeping their data saved at another location that is maintained by Dell, Dell can make money by charging for this additional service. Dell also has a built-in customer list based on the sales that they make for computer systems.
3) Enhance customer support services. Since successful customer support and communications are crucial to Dell's success, it is important that Dell keeps enough well-trained people on the phones and on the Internet for customer support. Based on the results of some surveys that say that Dell might be losing customers because of actual or perceived decrease in support, Dell should do a cost-benefit analysis to determine whether they should invest in more people who can answer technical questions & support customers with their problems and needs.