Examining the Strategies Advantages and future of Dell

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Dell & HP - two rivals continuously trying to beat each other for the number one tag in the PC and related industry. Since early 2000's to till date, there are notable differences in their long term strategies and counter competitive strategies, yet they share a common desire- to be the number one!!

Dell's Strategy:

"High Quality, More Powerful, Faster, Customized and Cheaper". For every new product or service it introduces to the market, Dell consistently implements its startup mindset of "build-to-order computers" (referred to as the direct model approach) from the very beginning of the development and production process. Dell's business was unique in that it was able to consistently make significant profits in low margin product areas.

Its' direct model approach evolves for every new product and service achieving delivery of high quality PC's in a very cost efficient manner; one of continuous improvement. Dell is a continuous-growth model, constantly adapting, changing and finding ways to master its environment, as opposed to just responding to it. In addition, Dell has been able to take flexibility and speed, and build it into the company's DNA.

Positioning- Michael Dell portrays his company as "the good guy", the Robin Hood of the computer industry offering more for less. Their mantra is "better, faster, cheaper" using brand name components, build to order manufacturing, and customized customer service, which led to high quality and more powerful computing power. Dell had a reputation for "effectively entering product markets where core proprietary elements had become standardized and undercutting existing players based on price." Dell's strategy was to choose the best in class providers (like Intel and Microsoft) for each component and leveraging their scale investment in R&D. By 2001, Dell had become the US market leader in Wintel server sales.

Target Market - Dell's main focus is on large corporations with secondary efforts on small and medium sized businesses. In addition, they also target the global consumer directly, but with minimal effort. Dell mainly focuses on the segments that are already knowledgeable about computers.

Products - Dell currently has 6 main products: PC's, laptops, customer service, storage devices, workstations, and auxiliary services.

Pricing - When Dell decides to enter a particular market, it consistently uses the Direct Model approach, pricing their product below that of their competitors. These low prices are the result of multi-level leveraging and from achieving economies of scale.

Promotion - On-line model, direct mail order, catalogues, Premier Pages, special training and certifications, word-of-mouth, editorials, reviews, sales reps, and awards

Place - Direct from Dell: On-line, telephone, mail-order. (Dell does not use any retailers or wholesalers to sell their products.)

In conclusion, Dell's strategies do match the company's 4 P's, targeting, and positioning and can be summarized as a low-cost, fast and efficient business model, with superior customer value with virtual integration.

HP's strategy in PC's and servers differed from Dell in two important respects:

Although HP had direct sales force that sold direct to large enterprises and select other customers, a very sizable share of HP's sales of PC's were made through distributors, retailers, and other channels.

While in-house personnel designedthe company's PC's and x86 servers, the vast majority were assembled by contract manufacturers located in various parts of the world. Big volume orders from large enterprise customers were assembled to each customer's particular specifications. The remaining units were assembled and shipped to HP's retail and distribution partners; these were configured in a variety of waysthat HP and its resellers thought would be attractive to customers and then assembled in large production runs to maximize manufacturing efficiencies.

Distinctive Competencies of dell:

Distinctive competencies are firm-specific strengths that allow a company to differentiate its products and achieve substantially lower costs than its rivals, ultimately providing that company with a competitive advantage. One source distinctive competencies can arise from are resources. Dell has a number of firm-specific and difficult to imitate resources, giving them a strong distinctive competency. For instance, Dell operates one of the world's leading Internet sites at www.dell.com, which makes them the ideal company to show customers how to take advantage of online tools. Additionally, Dell's climb to market leadership is a product of their persistent focus on the customer. Dell works hard to meet the needs of each customer with carefully tailored standards-based computing solutions. They communicate directly with their customers - in person, via the Internet or the phone - so their understanding of their needs is instantaneous. It enables them to effectively and efficiently deliver world-class products and services that keep their customers coming back.

Another source of distinctive competencies are capabilities, which refers to a company's skills at coordinating its resources and putting them to productive use. For Dell, these skills reside in the organization's rules, routines and procedures, particularly in terms of establishing customer relationships and delivering custom-tailored solutions in an extremely efficient fashion and within a short time-frame. The way in which Dell achieved these capabilities will be discussed more in-depth later, when discussion organizational structure.

Competitive Advantages

Competitive advantage is derived from three factors: the amount of value customers place on a company's products, the price that the company charges for said products, and the costs of creating that value. Value is something that customers assign to a product. It is a function of the attributes of the product, such as its performance, design, quality, and point-of-sale and after-sale services. Many customers place a very high value on the personal computers manufactured and sold by Dell. One factor for this high value is Dell's superior performance, ranking high in tests against competitor's products on a monthly basis, as scored via various benchmarks within computing magazines and websites (The Built To Order Revolution, 1). They also have a very high quality, having very few instances of machines being dead-on-arrival, and few component failures within a system's lifetime. Finally, both their point-of-sale and after-sale service are top-notch. As part of the sales process, customers have the ability to completely tailor their system to their specific needs either via the company's website, or over the phone with a Dell sales representative. During this process, they can find more information about specific components, get Dell recommendations, etc., all of which make the overall sales experience little trouble. Once the system has been shipped and arrives, Dell offers outstanding service. If, for instance, a customer believes a component is defective, they are directed to various links on the Dell website by a support technician which takes them through various troubleshooting techniques. If it turns out that the component is, in fact, defective, Dell ships a replacement component as soon as possible, allowing the customer to either replace the part themselves or dispatching a support technician to their location to perform the install for them. This creates a very high value of Dell's systems in the eyes of the customer. Additionally, the cost of Dell's system is very competitive, offering a significant discount to the actual value of the computers, allowing Dell to achieve an even higher competitive advantage over its rivals.

Dell has also expanded into other IT products and services which absolutely makes a good strategic sense.

New Ventures

Expanding Beyond a Single Industry

Over the past few years, Dell has adopted a "white space" strategy where it released new products by creatively redeploying and recombining their existing competencies. The specific industries they entered was the consumer electronics industry, releasing products such as their Digital Jukebox MP3 player and their LCD televisions, and the computer peripheral industry, with their new line of inkjet and laser printers. In order to successfully expand beyond the personal computer industry, they had to construct their business model at two levels. First, they leveraged their core set of competencies, their direct sales and customer service strategies, from their personal computer business and transplanted them to their consumer electronics and peripheral divisions as a means of developing a business model for each of these new divisions.

Then, they had to develop a multibusiness model that justified entry into the new industries in a way that would increase their profitability. Their multibusiness model was based on strategies that used strategic alliances and partnerships to release products developed by a different company under their own brand name. An example of this is their line of inkjet and laser printers. In 2002, Dell and Lexmark formed a partnership under which Dell would tout Lexmark as its preferred printing supplier, allowing them to sell combination PC and printing packages and retain most of the profits (Popovich, 1). This move not only helped them financially, but also increased their level of customer service. According to Tim Peters, vice president and general manager of imaging and printing at Dell, they "'are confident [their] printers and ink and toner cartridge replacement experience will be no exception to what customers expect from Dell'" (Popovich, 2). This did, however, affect them in that, shortly before the announcement, Hewlett-Packard declared it was canceling a reseller agreement with Dell because of the computer maker's intention to market its own branded printers, creating a potentially potent new challenger to HP, who was and still is the world's top selling printing and imaging company.


This leveraging of competencies to expand into other industries was an example of Dell diversifying into a related industry. Related diversification involves diversifying into a new business activity in a different industry that is directly related to a company's existing industry by commonalities between one or more components of each activity's value chain. This diversification involved linking both their manufacturing processes as well as their sales and marketing strategies. By developing complements to their personal computer industry, they were able to leverage their knowledge of computer components and their interactions, increasing their profitability by being able to sell their complementary products as bundles, allowing customers to purchase all of their computing needs from and single source.