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The Dell Computer Company so far is been considered the most successful business company in the world among those that are in market for the past twenty years. In 2005, the company was titled the Number 1 Personal Computer vendor in the world besides being an unknown start-up in 1984.With its unique strategy of doing business, it has enabled itself to be the highlight of the computer industry comprising of some big giants including HP, IBM and Microsoft. Dell has maintained its sustainability and competitive advantage by using its superior customer service and market leadership and strong financial results.
Dell has developed its structure on the concept of 3-m model. As Dell is a multidivisional company with different operating divisions representing separate profit centers, it implements the cooperative form of related constrained strategy. Dell's corporate utilization consists of sharing of R&D, finance, marketing, human resources, manufacturing, and information systems. This combination is possible because "Dell pride itself on a 'flat' corporate structure that encourages each worker to contribute "innovative ideas (Martinsons).
Cost Differentiation strategy
Dell has remained consistent in being a cost leader in the industry and yet provide high quality PCs by using its Direct Business Model approach. This model helped Dell to keep just- in-time manufacturing, built-to-order products, low inventory and direct customer relationship with manufacturer. It also enabled Dell to cut out the intermediary costs.
Dell has enabled to excel in another advantage over its competitors by including in its operating system the build to customer order strategy to sell PCs directly to customers. This has resulted in Dell being able to understand the customer's needs better and providing the solutions that are most effective for meeting customers need. Dell has a direct dealing with its customers, suppliers and communicates directly with employees. Company's market penetration is sustained by this simple concept.
Just-In-Time (JIT) Inventory
The third core competency of Dell operating system or internal environment is its JIT inventory system using which has enabled Dell to meet the customer's requirements within time and by using fresh inventories (less than five days old). This inventory period saves time and money for Dell. Surplus supplies cause extra costs so Dell saves this extra costs for its customers with the added advantage of custom designs for the customers.
Dell's external environment can be classified under three components:
The Remote Environment
The Remote environment is made up of economic, technological, ecological, social and political, factors. Dell faced healthy economic conditions in US till 2008 but after the crisis due to the recession in US markets the sales revenue was affected by decreased demand. This impact later affected the global revenues as the impact of crisis spread globally to other markets. There are no significant political pressures faced by Dell. Its technological environment is a rapidly changing one where its important to cope up with the advancements.
The Industry Environment
The industry environment is composed of bargaining power of customers, supplier power, and threats of the substitute availability, entry barriers and competitive rivalry. Dell's industry structure is highly competitive and is explained through Porter 5 force analysis.
The Operating Environment
The operating environment is made up of competitors, customers, labor, and suppliers. Fir the customers of Dell, it is a quality brand at a good price. Its competitive environment is intense with major brands like HP, Sun and IBM fighting neck to neck globally with Dell with very less price and quality differences. This has raised the effort for Dell to provide its customers with a unique value package that others don't offer. One of such efforts made by Dell is not using Microsoft's operating system which other computer brands do, but this is considered a weakness compared to the rest. Other factors where Dell has enabled to manage the lead are:
Price for Performance
Dell's procurement, distribution and manufacturing processes allow the company to offer powerful systems and services at prices better than competitors.
Every single order is built according to the individual requirements of the customers as customization is always been an asset for Dell.
Service, Support and Reliability
Dell's services that are provided directly to the customers have allowed company to give high customer satisfaction before and after the sale.
Latest technology is an essence of Dell's strategy and this strategy has enabled Dell to stand out among all the competitors who are still relying upon indirect distribution channels. The inventory turnover of Dell is on average of six days which helps in keeping low inventory costs.
Porter 5 Forces Model
Summing up the External Environment of Dell, it can be said that with the operating system implemented by Dell, which includes its direct selling and build to customer order, Dell has managed to increase its sales each year and is among the top competitors of computer market. Its different approaches have allowed Dell to enter into this highly competitive market in a unique way. Dell's sales are increasing dramatically which shows it is moving in the right direction However, threats from market rivalry, intensity of competition and bargaining power of suppliers and buyers is an acute issue and thus requires Dell to keep formulating hard core and sustainable operational and selling strategy in terms of the value it provides to its customers (Byrnes, 2003).
Dell's Business Level Strategy
The market was already much fragmented when Dell entered in 1984 and had reached the maturity limit. At that time, Dell entered with its unique direct selling model which gave it a competitive edge through its low selling price. Dell has always looked to the market trends as an aid for the development of new products as the overall market for IT and related products is influenced by trends. Now customers are more aware and educated about their purchases ad so they want increased customization, portability and durability, creating a constant need for Dell to meet their demands. The competitors are also much efficient in responding to changing trends of market and to any strategy opted to get part of their market share. Thus Dell also needs to take care of this issue of intense market competition.
From start till yet, the base of Dell's Business Strategy is giving its customers a superior feel in what they are buying by providing them with made to customer order products at low prices and fast delivery. This strategy, although tried to be replicated by many others, has enabled Dell to sustain the intense and changing threats from market and be able to increase the scope of its operations from US to almost everywhere globally (Byrnes, 2003).
Recommendations for Dell
Improve few features in Dell's product differentiation strategies.
Control R&D patents:
Dependency on extreme standardization and outsourcing must be reduced.
Innovative services must be introduced instead of services based on packages without patents.
Affiliate with other players in market to achieve better advantages and compete using combination of huge range of products. Its simple website e-business presence might not be enough.
Rethink its Virtual Network by moving from the short term outsourcing in value chain activities to lessen prices to a more appropriate long run effective idea to be better able to meet competitors.
Moving from Hardware to Software would be another good option which can allow Dell to start developing proprietary software.
Some functional level recommendations are:
Enhance customer experience by making corresponding products available at its website.
Another improvement to be made can be of increasing the market share in educational market by exploring ways to generate attention from education markets particularly college students by either using product differentiation through more aggressive sales marketing. (Cuizon, 2009)
Dell may use social networking sites for advertising.
Dell is working in an extremely intense market for personal computers, particularly laptops now. The industry is driven by ever changing consumer needs and demands and thus for companies like Dell, it requires constant effort to keep up with the adaptation so as to satisfy the changing needs of customers. Dell, with the help of its strengths, keeping close eye on weaknesses and investing properly in opportunities while coping with threats from macro-environment can enable itself to position and sustain itself as a significant player in the intensely competitive market.