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Dell Inc., since established in 1984 with a distinctive idea of selling computer system to customers, has gained miraculous success with admirable reputation and high loyalty from customers. The company's revenue in 2009 was USD52.9 billion with total 96,000 employees around the world (Dell Corporate responsibility summary report, 2010). With the motto "Inspired by possibility, guided by purpose", the company always strives to create technology that can change the world and makes a positive change in customers' lives.
The main focus of the company is on direct sales, which totally accounted for 74% of PC units sales in 2008 (Rivkin, 2010) as shown in Figure 1. Sales through other channels (e.g. retail and reseller) were relative small compared with competitors.
Figure 1: PC unit sales in 2008 by channel (%)
The company's global management structure is organised with a focus on four groups, as shown in Figure 2, to effectively serve customers in each market segments with faster innovation and responsiveness.
Figure 2: Dell market structure
Since the mid 2000s, the company has experienced a sharp decrease in growth and net margins. Its growth showed a rapid but stable increase up to year 2005 before falling significantly in 2006 and onwards. The net income rested at USD 1433 million in 2009, as shown in Figure 3, which was 42% lower than that in 2008. The company has been surpassed by HP and Acer and thus rest as the third largest PC provider in unit terms. These figures indicate issues that need addressing promptly by the management.
Figure 3: Dell net income from 2002 to 2009 (USD million)
The "Direct Model" had been the major key to Dell's success in the past (Darlin, 2007). It was widely acknowledged by business students and imitated by various companies in different industries. Dell took orders directly from customers, built computers based on requirements and delivered the door to door, and therefore, the company could offer the most competitive price by saving on other costs such as distribution fees and inventory expenses.
However, with the significant change in the global market in recent years, the company has sensed the need for adjusting its business model. Laptops have increasingly become popular and gradually replace the dominant position of desktops. On one hand, customers prefer to see and touch a notebook first, then decide whether to but it or not On the other hand, as it takes longer time to manufacture them, Dell can no longer take advantage of its previous strategy - producing after receiving orders - but to make laptops in advance, and thus, loses its advantage in production cost (Darlin, 2007).
Another considerable issue is the decline of leadership in the company. Rollins replaced Dell to be the CEO in 2004, which resulted in a disastrous lost of confidence in employees' leadership (Corcoran, 2006). Michael Dell came back to the position in 2007 to regain the momentum of the organisation and tried to re-energise the company.
Other controversial issues are that Dell is claimed to neglect quality control and consumer service, which have seriously damaged the company's reputation in recent years (Snyder, 2010). The establishment of support call centre in India has proved to be infective and caused great dissatisfaction from customers. Besides, there are many complaints about a series of product flaws which are widely posted on blogs and websites (MacIver, 2008).
Strategy changing plans
The changing plans are valid from the start of 2010 and fulfilled at the end of 2012. Participants are the entire employees in the company under the control and direction of the CEO and senior directors. The impact of changes is expected to vary across location and departments. The contents are as following:
1/ Expanding operation by using full range of channels
Although the company has been quite successful with the famed Direct model, the necessity to enhance the cooperation with distributors and retailers can no longer be undervalued. Since the launching of Partner Direct programme in 2008, the number of registered solution providers with the company has increased significantly (Campbell, 2008). However, the company has not efficiently exploited these indirect channels. Sales by indirect channels accounted for 26% of total worldwide sales of the company in 2008, while the majority of consumers purchased their PCs through retail and distributor channels (Rivkin, 2010). On the other hand, many resellers still have doubt about working with the creator of Direct Model. The company, therefore, needs to enhance and develop its indirect channels by growing trust of resellers, organising conferences to deliver the company's willingness, offering promising deals and building a long term relationship with value added resellers.
Besides, it is important to invest more on the online service. It is expected that in five or ten years' time, the number of online consumers will increase significantly, thus the Dell.com system needs upgrading to take full advantage of this business model (www.dell.com).
2/ Enhancing operation outside the United States and Europe: since Asia and other areas of the world, apart from the USA and Europe, show high potential for growth and market development, Dell needs to penetrate more deeply in these countries to gain more market share.
3/ Cutting cost
With its consecutive decline in net margin, Dell needs to carry out a strict cost cutting programme. In order to achieve operational efficiency, it needs to cut USD4 billion in operation cost by 2011 (Shah, 2009). The actions for this plan are as below:
Layoffs: The company will have to trim workforce not only at headquarter but also at branches around the world.
Redesigning the company's structure: Public and large enterprises business units will be consolidated to simplify the structure since operation in these two areas is stable and almost saturated (www.dell.com, 2011).
Plants closedown: reduce factory capacity by closing plants, especially in those in the USA and Europe and move to Asian and South American countries to save cost.
Using green packaging: the company starts to widely use bamboo packaging as well as inflatable air bags, molded pulp, polyethylene cushions all made from recycled materials and expects it will save the company USD8 million and 150,000 trees over the next four years (Dell Corporate responsibility summary report, 2010).
Outsourcing hardware manufacturing: the company will use more contract manufacturers and lease some plants to partners.
appointing teams to not only answer customer queries, comments and complaints on its website, but to patrol and feed info into MySpace, Facebook and all manner of Dell-watching blogs and websites.
The process of change
After all the strategies are set, it is necessary to understand the nature of change and design an appropriate process for change to happen in Dell. The first important point of this process is to identify how the company works (Cameron & Green, 2009). Basing on the theory of organisational metaphors by Morgan (1986), Dell can be seen as an organism in which various subsystems are connected and closely correlated with the environment. High adaption to the outside world is emphasised and the needs of internal groups and individuals are highly considered and accomplished. From this view, changes in external environment, in this case the transition in the PC market from desktops to laptops and notebooks, high pressure from competitors, increasing demands from customers and other factors, have resulted in the need for a new revolution in the company. Inside forces originate from problems with human and managerial behaviours. Therefore, it is vital to communicate the need for change to the entire employees and utilise psychological support to guarantee success.
However, the common reaction which the company will encounter is the resistance of employees to this change because the process itself may looks scary and different to the current system (Plunkett, Attner & Allen, 2008). The management need to understand employees' range of emotions to effectively help them to adapt the new strategies. The transition curve, developed by Kubler-Ross (1969) is a useful tool to map the way people respond in this situation.
At first, people may be shocked and feel awkward towards the changes, and some may consider it as a threat to their position. Once they start to engage in the change reality in stage 2, they will be in state of anger and lost. As a result, the company's operation may be disrupted and possibly result in chaos. The management's role in these stages is quite significant in assisting people to proceed to the next stage as quickly as possible. Then people start to accept and adapt to changes in stage 3 and integrate them in stage 4. Therefore, the management as well as employees have to be fully aware of any possible reactions to minimise negative effects and adapt more effectively to change. On the other hand, the change process requires a complete effort of engagement and support from all stakeholders. Consequently, the entire organisation must be put into consideration, and conscientious planning and preparation should be executed beforehand.
The next task is to determine the change agent who is responsible for leading the whole process. The characteristics of the change agent are relatively important as they will directly impact the change programme (Henschel & Hildreth, 2007). Senge et al. (1999) argue that change process needs guidance of leadership and stress the necessity to create communities of independent leaders within the organisation. Leadership, therefore, is doubtlessly fundamental to lead people through the process and help in successful execution of change. Lack of leadership has been one of the main problems leading to ineffective operation in the company for many years, thus it is essential to design a leadership development plan and consider leadership as a tool in designing organisation to influence employees' behaviour (Spector, 2010). Wooten & James (2008) underline the necessity of leadership development to equip leaders with right mentality and perceptions to enforce management agenda and engage them on continuous crisis preparation process. Therefore leaders need to be well-trained, associate operation strategies with organisational core values, design effective human resource development interventions to management and provide clear and accurate messages to stakeholders.
Leadership in the company can be built based on the theory of Transformational leadership style by Bass & Avolio (1990). From this view, leaders can serve as a role model and enhance followers' admiration and respect for them. They have the ability to realise the extent to which followers' expectation can be raised and know how to motivate people, am indication for inspirational motivation. Under the intellectual stimulation of the leaders, innovation is encouraged and creativity is nurtured to generate new ideas. Finally, leaders need to listen and understand the others' need and potential development and interact accordingly by coaching, mentoring and giving them feedback. Moreover, the recent trend in leadership development is to develop leaders with emotional intelligence (Clarke, 2010). With emotion intelligence, leaders are capable of understanding and managing their own emotions, understanding others' emotions and managing good relationship (Goleman, 1995).
With such an important role, Michael Dell is identified as the change agent of this programme because of his power and influence over the company as well as characteristics and excellent foresight in business.
After selecting the change agent, the Eight-Step model of Kotter (1995) may be applicable in Dell's change process as it is said to be suitable for large organisations in transformational top down change. This model has proved to be useful and brings about success for many companies (e.g. the Leading Bold Change workshop of MasterCard Worldwide, The whole process may take place within 24 months.
Step One: Create Urgency
In this stage, the whole company need to recognise the urgency for change to create the initial motivation and understanding about the current situation. Employees need to know all the problems and that the company is on the edge of crisis, not only by acknowledging them current issues (e.g. consecutive declines in revenue growth figures) but also by honest and convincing discussions. Meetings are held in every single department around the world to share the situation and gather ideas. The company also can seek for support and suggestion from customers and outside stakeholders from IdeaStorm, which is an online brainstorm session launched in 2007 to communicate with customers. The most important mission of this step is to engage as many people as possible, at least 75% of the company's management as suggested by Kotter, and acknowledge them the change urgency, thus it needs investing appropriate time and effort for the whole process to be effective.
Step Two: Form a Powerful Coalition
As the change takes place in large scale, it is necessary to form groups of capable people to manage it. As suggested, the company will focus on three big business areas (i.e. Public and large enterprises, Small and medium firms, and consumers), thus there will be three change management team working together with the change agent, Michael Dell. Each team members are gathered from various sources of job location, status, ability and political power in sales, service, manufacturing, marketing, finance, IT and operation. There will be meetings among senior managers to discuss and identify parties that are suitable characteristics and have influence over areas of needed change.
Step Three: Create a Vision for Change
After urgency is set and leaders are determined, the next step is to provide a right, desirable vision as a direction for people to follow. The vision should be concise, comprehensible to stakeholders and applicable. The change agent needs to spend appropriate time meeting and gathering information and ideas from stakeholders to create the vision.
Step Four: Communicate the Vision
This step is focused on communication with stakeholders with an aim to involve as many people as possible in making the vision a reality. It should be delivered not only in formal meetings but also in daily activities at work, posted on the company's internal network in forms of open, heartfelt messages to obtain understanding and buy-in. Managers and team leaders should work as role models to inspire their juniors and be able to address their worries and hesitation. A feedback oriented culture should be encouraged to make team leaders interact better with members and come up with any useful ideas about change (Khan, 2009). The outcome after this step should be shown in employees' change in behaviour and their efforts to achieve new benefits.
Step Five: Empower people to act on the vision
According to Kotter, empowering action should be understood as getting rid of barriers to changes and promote optimism in the changing process. Any obstacles that prevent people from working towards the vision should be identified regularly and removed. The greatest obstacles from this programme may come from employee layoffs and the merger of the two business units. Human Resource department, therefore, need to have suitable plans to tackle these issues.
Self confidence needs enhancing and rewards are given to people who contribute to the change effort. It is also important to revise the organisational structure, job functions and management style to ensure unity in the whole system.
Step Six: Create Short-term Wins
Along with long term goals, the setting of short term targets may bring about many benefits. Critics decline, energy is boosted and employees, with a taste of early victory and achievement, will be highly motivated and more committed to the change process. Therefore, it is necessary to have some achievable targets and tasks that can be fulfilled in early stages, and reward substantially people who manage to meet targets.
Step Seven: Consolidate improvements
After the achievement of each short term win, the change leaders need to analyse best practices as well as failures, if any, to ensure continuous efforts to take place for the final vision to be reached. People should always be alerted about urgency, the ultimate objectives and the idea of continuous improvement. Ideas can be refreshed by investing new resources, recruiting change agents and engage new employees in the existing coalition. The desired result of this stage is that employees are still motivated and devoted to the change process.
Step Eight: institutionalise new approaches
Finally, to anchor change, it should become the core element of the company and embodied in daily work. The management should re-evaluate the whole process and make guidelines for the best practices. In this case, it is useful to apply the Mckinsey's 7S Framework to carry out a post-change analysis.
The model works as a check-list for change and highlights the complementary effect of changes in each S towards the others.
Also in this stage, key members of the coalition should be publicly honoured and all the stakeholders are acknowledged of the change success. When hiring and training new staff, the change values should be communicated in realistic ways by showing videos and delivering speeches about the change experience rather than normal handbooks. Besides, an organisational structure that promotes inspirational ways of working should be created and opportunities to replace existing changes with the new ones should be encouraged to achieve business efficiency.
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Centrelink: The Power of the Guiding Coalition http://www.kotterinternational.com/HowWeDoIt/CaseStudies/CaseStudies_Centrelink.aspx
Case Study: MasterCard Worldwide Takes Charge of Change
June 02, 2008