IBM compatibles for local business

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Founded in 1984, Dell was brought up, by Michael Dell, through upgrading IBM compatibles for local business in Texas, and on a simple concept: that by selling computer systems directly to customers, Dell could best understand their needs and efficiently provide the most effective computing solutions to meet those needs. This direct business model eliminates retailers that add unnecessary time and cost, or can diminish Dell's understanding of customer expectations. The direct model allows the company to build every system to order and offer customers powerful, richly-configured systems at competitive prices. Dell also introduces the latest relevant technology much more quickly than companies with slow-moving, indirect distribution channels, turning over inventory every three days on average.

In 1985 the company started assembling its own PC brand. Ever since, Dell had achieved phenomenal growth and by 2000 had topped $25 billion in sales and over $2 billion in net income. In late 2000, however, the PC industry's average 30-year growth rate crashed to a negative 10% due to slow economy. Dell Corp. had to make difficult decisions on how to sustain its profitability in light of its broad product portfolio--PCs, workstations, and servers on storage products for a broad cross-section of customers in the United States and worldwide.

Dell's high return to shareholders has been the result of a focused effort over time to balance growth with profitability and liquidity. Dell has consistently led its largest competitors in each of those categories.

Problems Identification

The future for Dell and the rest of the computer industry is shaping up to be a fairly difficult one mainly due to the weak economy. But, Dell's economic problems are normal and shared by all companies in any industry. What's not normal with Dell however, is its dilemma of how to maintain its leading position over its competition and achieving ambitious growth rates in an environment with which the economy is shaped up to be worst than anticipated, due to economic uncertainty, which makes consumers skittish and spending down. Therefore, in light of the above situation, we believe that Dell could be facing a predicament of whether they should maintain their strategic course or fundamentally change it in order to achieve the targeted growth rates?

Marketing theories and concepts

Dell's fortunes do look better than its rivals, though. Dell Computer's strategy was built around a number of core elements: build-to-order manufacturing, mass customization, partnerships with fewer suppliers, just-in-time components inventories, direct sales, market segmentation, customer service, market sensing, early integration of the Internet, low operating cost, and extensive data and information sharing with both supply partners and customers. Through this strategy, the company hoped to achieve what Michael Dell called “virtual integration” a stitching together of Dell's business with its supply partners and customers in real time such that all three appeared to be part of the same organizational team. To put the analysis in proper perspective, however, four major components that were essential to Dell's success to date are explained below:

Supply Chain Efficiency:

Dell's goal was to integrate the supply and demand sides of the business in order to eliminate the guesswork that leads to inventory shortage and overages. At the same time, Dell was able to ensure that the right computer system components were always available - at the right time and place - to build each customer's dream machine. And the savings from a more efficient supply chain could be passed on to customers, helping Dell hold onto its solid lead over the competition in good economic times, and in bad.

Segmentation/Customer Efficiency:

One of the brilliant segmentation approaches happened in Dell, it not only perfected customer service efficiency, but also helped cater and custom-build products for each customer segments.

Market Sensing:

Dell's timing to enter the PC market, then to establish the internet with, then to penetrate the storage and server market could not be more perfect for it helped Dell gain ground faster and establish its reputation as the number one PC manufacturer in the world.

Dell's Direct Model:

This sell-direct strategy meant, of course, that Dell had no in-house stock of finished goods inventories and that, unlike competitors using the traditional value chain model, it did not have to wait for resellers to clear out their own inventories before it could push new models into the marketplace. Equally important were the fact that customers who bought from Dell got the satisfaction of having their computers customized to their particular liking and pocketbook. Thus, that helped efficiently service consumers, cut back on production time, get instant consumer feedback, and establish a long-term relationship with its various customers.

The alternative courses of action

Alternative 1: Focus only on the four major core products (Desktops, Laptops, Workstations, Servers): This option suggest that Dell would only focus on operations that deals with its four main products and minimize or possible spin-off International and service portfolios investments.

Alternative 2: Focus on both the four major products (Desktops, Laptops, Workstations, Servers) and on International and Service Portfolio Investments: This approach suggest that Dell, pretty much, do whatever they have been doing in the past with minor improvement like expanding international business, expanding in services offered, and enhancing their operation in the four major products.

Recommended strategy

On August 2002 Business Week article indicated that Michael Dell's goal is to double Dell Computers' current revenue to $60 billion by 2007. We believe that the marketing strategy 2 “Focus on both the four major products (Desktops, Laptops, Workstations, Servers) and on International and Service Portfolio Investments” is the overall most closest, if not exceeding the Michael Dell goal. This strategy resulted in the highest combination of growth and profit to insure and secure Dell's leading position in the computer industry.

A major advantage of this strategy is that it fully grasp onto the various opportunities presented to Dell whether it is expanding Internationally or going after services and enhancing on the existing 4 products. One minor disadvantage present, and that of cost. It is highly costly to implement this approach for it requires more funding to expand overseas (Facilities and labor) and enhance and adopt the 4 core and services.

However, for Alternative #1, it is less costly than alternative #2 and help Dell direct its full attention and focus on its core products more efficiently rather that distract it with other segments like International markets.

We highly believe that Dell should emphasize further expansion into international markets due to the following reasons: 1) Foreign economies, unlike the US, are showing signs of higher growth rates and possibly increased penetration rate since they are not fully mature. 2) Asian and Eastern European Market are opening up and free trade is adopted by many nations, that itself signals a huge opportunity to gain market share in both governmental and private sectors. And once we form a solid ground in these areas, we are guaranteed sales increase after that. 3) Dell's Direct Model would be an excellent fit to the Eastern European and Asian market due to their price sensitivity and it would be an attractive offer since it allows consumers to build their own PC, server, storage, or/and service as low or as high as they want. In Asian market, we recommend the company joint venture with a domestic company like Toshiba. This would help Dell cut down on costs and gain the expertise needed in the Asian market.

Moreover, in the US market, Dell should penetrate aggressively the High-end servers market, Joint venture with EMC to enhance their storage capabilities, and assertively enter the consulting and other service areas. Based on previous data regarding growth rate and revenues for those markets by other competitors, we believe that it is highly profitable to engage in the 3 S's (Servers, Storages, Services).

Therefore, engaging in both international market penetration and the 3 S's should be the strategy that would help Dell reach higher sales target. We sense that the opportunities within the international markets and the US 3 S's market make it possible to achieve a higher target than what currently met in 2000 ($25Billion), especially with the help of extensive advertising, precise segmentation of those markets, and the factors mentioned above like joint venture.