Organisation's industry overview
Dell, Inc. is a public listed American multinational information technology (IT) corporation, listed on NASDAQ (DELL) and HKEX (4331), based in 1 Dell Way, Round Rock, Austin, Texas, United States. The company develops, sells and supports computers and related products and IT services, including consulting.
Dell originates from its founder's name, Michael Dell, CEO and Chairman. The company is one of the largest technological corporations in the world, with over 103,000 employees worldwide. Currently, Fortune Magazine listed Dell as the 38th largest company in the United States and the 5th largest company in Texas by total revenue.
Dell has grown organically and inorganically since its inception on November 4, 1984, notable mergers and acquisitions including Alienware in 2006 and Perot Systems in 2009. Since 2009, the company sold personal computers, servers, data storage devices, network switches, software and computer peripherals. Dell also sells HDTVs, cameras, printers, MP3 players and other electronics built by other manufacturers. The company is well known for its innovations in supply chain management and electronic commerce. (Reference #1)
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According to business IT analyst, (Sap.com, Reference #2), PCs are slowly being replaced by tablets and smartphones. 3D displays as well as mobile social media will become part of our daily lives. Software will make way for apps while other trends for 2011 will include augmented reality and cloud computing.
Another WAN optimisation vendor, Riverbed Technology, sees 2011 as a critical year for IT, as the growing network strain caused by the growth of bandwidth-intensive applications will drive enterprises to invest in solutions that ensure improved productivity while lowering costs. Despite a slight uptick in IT budgets, due to CIO mandates, ROI will still be a very critical component of IT purchasing decisions. (Reference #3)
Dell's major competitors include Hewlett-Packard (HP), Acer, Toshiba, Gateway, Sony, Asus, Lenovo, IBM, Samsung, Apple and Cisco Systems, among others (Figures 1 - 3). Dell and its subsidiary, Alienware, compete in the enthusiast market against AVADirect, Falcon Northwest, VoodooPC (a subsidiary of HP), and other manufacturers.
Figure 1: Yahoo Finance, Dell's Direct Competitors. (Reference #4)
Figure 2: Company Hardware (US) Ranked by Sales (Reference #4)
Figure 3: Company Shares (by Global Brand Owner) - 2009 - Retail Volume - % breakdown (Reference #5)
Opportunities and threats
As with any large manufacturers in the world, Dell has vast opportunities to explore and is also bound to face with threats from its opponents, directly or indirectly. We highlight some of the organisation's opportunities and threats below:
Despite the growth of tablets and consumer devices, enterpriseIT departments will continue to purchasedesktopsand laptop PCs, as these are complementary rather than competition.
Business-class PCs will be needed to offer data protection and security.
Users are more educated and demand better enhancements and customisations of their needs for PCs
Increased communication and technological integration allows higher efficiency in terms of speed of deployment and information sharing between Dell and its customers.
Competition from existing and new entrants, targeting and specialising in specific areas, which are part of Dell's core business areas.
Smaller competitors who can provide customisations to end-users' needs.
Market volatility and evolution of high-tech Smartphones and advancements in data mobility may reduce the end-users' needs of owning PCs.
Many players in the market result in contamination of prices and increase price wars.
All of the above will gradually reduce Dell's market share.
Organisation's objectives and strategy
Organisation (Reference #6)
Dell's board of directors ("Board") is committed to the achievement of business success and the enhancement of long-term stockholder value with the highest standards of integrity and ethics.
The Board and management are jointly responsible for managing and operating Dell's business with the highest standards of responsibility, ethics and integrity. In that regard, the Board expects each director, as well as each member of senior management, to lead by example in a culture that emphasizes trust, integrity, honesty, judgement, respect, managerial courage and responsibility. Furthermore, the Board expects each director and each member of senior management, to act ethically at all times and to adhere to the policies, as well as the spirit, expressed in Dell's Code of Conduct. No waiver of the Code of Conduct for a director or executive officer shall be permitted without the approval of the Board.
Always on Time
Marked to Standard
The standing committees of the board maintain the following committees to assist it in discharging its oversight responsibilities:
the Audit Committee, which handles accounting issues, including auditing and reporting;
the Leadership Development and Compensation Committee, which evaluates performance, reviews and recommends compensation for the CEO and other employees of the company;
the Governance and Nominating Committee, which handles various corporate matters (including nomination of the board);
the Finance Committee, which handles financial matters such as proposed mergers and acquisitions.
Dell commits to deliver new and better solutions that directly address customer needs.
Its mission "is to be the most successful computer company in the world at delivering the best customer experience in markets we serve" (Reference #7). In doing that Dell plans to deliver innovative and cost-effective solutions that meet today's real-life customer challenges and work seamlessly in existing environments and with other products.
The company gathers requirements directly through daily interactions with its customers, organized events, social media ventures and customer panels. Its partnership with a wide variety of key industry software, hardware and component suppliers give Dell a uniquely broad perspective on the computing landscape.
Dell is uniquely positioned to impact industry trends by maintaining strong internal development capabilities through its innovation approach. The company partners, rather than compete with top industry technology suppliers and original development manufacturers. Dell steers enabling industry standards and technologies though industry groups and strategic partners. In this way, Dell spurs innovation and delivers value to its customers. (Reference #8)
Dell has mounted a strong global comeback in the past couple of years, from declining unit sales, by moving aggressively into the retail segment. The company has thus moved away from its 'direct Dell' strategy of selling direct to customers. In the US, the company has done this by developing partnerships with leading retailers such as Best Buy. This strategy has provided Dell with a fresh source of growth during a slowing market, enabling it to recover some of the market share that it had lost to HP, as well as Asian challengers such as Acer, Lenovo and Toshiba. (Reference #6)
Some of Dell's marketing strategies include lowering prices at all times of the year, offering free bonus products (such as Dell printers), and offering free shipping in order to encourage more sales and to stave off competitors.
Other strategies include enterprise solutions strategies, other operating strategies, strategic investments including acquisition strategy, as highlighted during its 2010 Analyst Meeting in Austin, Texas on Thursday, June 24. These strategies will allow Dell to carry out its cost-cutting measures; and enable the company to effectively manage periodic product and services transitions; effectively manage the growth of its distribution capabilities and add to its product and services offerings; to achieve favorable pricing from its vendors; to eliminate disruptions in component or product availability, to generate substantial non-U.S. net revenue; to access the capital markets; to hedge effectively its exposure to fluctuations in foreign currency exchange rates and interest rates; to obtain licenses to intellectual property developed by others on commercially reasonable and competitive terms; to maintain strong internal controls; and to attract, retain, and motivate key personnel. (Reference #9)
Strengths and weaknesses
We highlight below some of Dell's strengths and weakness:
Commitment from its stakeholders
Very well-structured and focused organisation
Strong chain management i.e. strong strategic partnership with its suppliers and resellers
Strong relationships with enterprises namely, large corporations and government agencies, with strong organisational foundations and financial standings.
Centralised organisation may restrict decision-making at lower levels
Its partnership with key industry suppliers may lose its flavour if this relationship is not constantly maintained as suppliers may focus on Dell's competitors instead.
Dell's lack of focus on mainstream PC users i.e. students and education sectors, which form the largest growing market segment compared to enterprises.
Dell BPMM Framework - Balance Scorecard & Strategy Map
Executing of a strategy is a great challenge for companies, and today it has never been more important in the current competitive market. As part of its pursuit to be competitive, a Business Performance Measurement & Management (BPMM) framework should be implemented to help translate Dell's strategy into operational terms. This framework to link it's long term strategy and measures to more tactical planning & budgeting will enable top level management/executives to provide clearer guidance and direction; institute greater accountability in the workforces; use it as a communications tool for stakeholders, employees, partners and regulators; and helps bring together a single and unified culture in pursuit of Dell's ultimate goals.
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To help bridge the gap between Dell's strategy and its operational actions a BPMM framework was developed in the form of a Balance Scorecard (BSC) Strategy Map (Figure 4 & Appendix 1). This comprehensive map provides are clear overview of what the key Dell strategies are and enlightens four perspectives around those strategies, namely:
Learning and Growth
By providing clarity around the strategic objectives and perspectives on the strategy map, Dell will then be able to formulate a set of balanced scorecards such as that in Figure 5 (Appendix 2). These scorecards comprise of 5 sections including:
A diagram of the cause and effect relationship between Dell's strategic objectives;
A statement of objectives must be achieved or is critical to Dell's success;
How the achievements/successes will be tracked or measured;
A level of performance or rate of improvement required; and
A set of action plans to achieve the objectives outlined.
In conjunction with the BSC, a design assessment (Figure 6 & Appendix 3) is also included in the overall framework with a set of criteria to determine if the measures in the BSC's will be effective in measuring and supporting Dell's strategic management system. The assessment criteria revolve around the measure's usefulness, objectivity/subjectivity, completeness, and responsiveness.
Figure 4: Illustration of Dell Strategy Map (also refer to Appendix 1 for expanded view)
Figure 5: Illustration of Dell Balance Scorecard (also refer to Appendix 2 for expanded view)
Figure 6: Illustration of Measures Design Criteria (also refer to Appendix 3 for expanded view)
Dell BPMM Framework - Strategy & Value Creation Process
3.2.1) Dell's strategy focuses on three core themes:
Single Vs Double Loop Learning
Dell's current corporate strategy in essence, is to move away from being a 'Boxmaker' in terms of PC and server hardware. Although historically Dell has been adept at implementing a highly efficient supply chain, PC's and laptops are virtually a commodity and margins on server hardware are narrowing also.
In response, Dell has embarked on acquisitions across the technology industry spectrum and also developed some capabilities in house such as their software as a service (SAAS) cloud computing offering.
Acquisitions in the areas of technology services, IT security and digital medical archiving are aimed at increasing profitability and growing revenue by transforming dell into a one-stop IT solutions shop - similar to what IBM has accomplished over the last decade and what competitors such as HP are actively pursuing now.
Figure 7:Framework for Single & Double Loop Learning
We could view this strategy and outcomes through the dimension of single loop learning. Dell has taken the 'decisions and actions' or 'action strategy' to diversify and have made close to a dozen acquisitions in the last 24 months across the globe. The intended 'consequences' in terms of Argyris and Schön framework is to expand and grow the 'non-hardware' revenue base.
The observation and consequent decision in this single loop appears to be 'Keep making acquisitions'. This would also seem logical as Dell's F4Q11 results show a cash position of USD14.3B. Generally, investors have little patience for large amounts of idle capital so it could be argued that this measurement of at bank and the desire to transform into largely a services company is driving this cycle of acquisitions.
The real and measurable outcome of this strategy for Dell has been year on year growth (2010-2011) of just 1.1% in its services segment. Analysts argue that this multilayer initiative to transform will be difficult as Dell does not currently have the infrastructure in place to a be a one-stop IT shop and will require double digit billions of investment. In addition, there's heavy competition in the IT services market too.
Our proposed strategy map, scorecard and measures should provide the 'cause and effect' of Dell's acquisition strategy which is vital to double loop learning. It will provide executive management with the right information to determine if this current strategy will lead to increased shareholder value in the foreseeable future.
Our proposed strategy and measures aim to produce a highly skilled sales team that is aligned to Dell's corporate and business strategies, especially the services segment and ensuring they have access to a comprehensive and accurate customer intelligence database. This will put them in the best possible position to develop intimate partner relationships and be able to translate this into increased top line revenue by selling best value solutions to existing and new customers.
From the financial perspective, it will be able to establish if these internal and customer orientated strategies can drive revenue growth and increased profitability and return on resource investment.
After implementation, there should be the knowledge capital within Dell to either further evolve or refine the existing strategy or it will allow the leadership team to reconsider it armed with the right information to question the underlying assumption (Governing Variable) of the existing strategy - i.e. that expanding into the services/solutions market with increase revenue/share price. The reality is that it may not but we will put the measures in place to determine this (or not) as soon as possible.
Historically, aligning corporate and business strategies with the wider workforce within an organisation is problematic due to a range of reasons including culture, politics and communication barriers. Despite best efforts made to implement our strategy, it's highly likely Dell would face the same challenges which could be exacerbated by the relatively high number of acquisitions undertaken recently.
Also in terms of the implementation, we can't accurately predict the reaction within the market to our strategy of acquiring accounts. In theory, if Dell acquires a new customer, assuming it's not a start-up company, then a competitor is loosing revenue which could lead to a further increase in competition and/or a price war.
Wider external factors such as the global economy can have a significant detrimental effect on revenue and immune to any corrective measures due to the very nature of the problem.
With regard to limitations in our analysis process, this group is working from only publicly available information - we don't have access to any existing internal data or metrics to compliment or validate our analysis. Recent history is littered with the corpses of corporations that went from being a shareholders dream to worst nightmare literally overnight - Lehman Brothers, Worldcom and Enron to name just a few.