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Every business sector comprises of fierce competition and strategic challenges. Every organization experiences the downfall and success due to the competition in the market. In order to survive the competition, organizations have to adopt the concept of flexibility and continuous learning.
In the year 2007-2008, Dell Inc. the worldwide leader in personal computers encountered a similar situation, when Mark Hurd undertook the responsibilities of HP's CEO in 2007. HP quickly gained traction in the marketplace with its new and revamped strategies implemented effectively.
Market Based & Resource Based View Approach
Market Based View Approach (MBV)-
Market based view approach recognises the nature and trends of the market. The approach embeds the sources of value for the organization, in the competitive situation characterising its external product markets (Mona Makhija, 2003). The market approach determines the strategy and structure of the company to attain an effective position in the industry.
Resource Based View Approach (RBV)-
In comparison to MBV, the RBV approach concentrates inwardly towards the resources available for the firm to gain a competitive advantage (Mona Makhija, 2003). Both the tangible and intangible assets are elements of RBV. In the RBV approach, it is the internal capabilities of the company that determine the strategy for competing in its external environment (The internal Environment: A resource-Based View of Strategy). Concentrating on the resources allow the company to identify its strength and weakness, and compare to its competitors.
Dell's Strategy 2007-2008
Dell had wavered away from its antecedent approach and predominantly adopted a market based view approach, along consideration of its competitive advantage and core competencies.
Dell's retooling comes just as it has lost its worldwide market share lead to Hewlett-Packard. According to research firm IDC, HP had a worldwide PC market share of 19.1% for the quarter ending June 30, 2008 compared to Dell's 15.7%. In 2005, Dell dominated the playing field with 18.2% market share compared to HP's 15.7%. (Can Dell's Turnaround Strategy Keep HP at Bay, 2007).
In fiscal 2007, it was clear that nothing was sacrosanct at Dell. The company relieved Mr Kevin Rollins from his duties and Michael Dell took over. In 2008 it was reported that Dell was trying to sell its network of computer factories and attempts to enter in agreements with contract manufactures to produce its PC's in an effort to reduce production costs. As of late November 2008, the company had started outsourcing the full assembly to reduce operating cost significantly [Please put the reference of your module lecturer]. The Company started selling its products through retailers like Wal-Mart and Sam's Club.
Dell had been refashioning itself largely to compete with HP which, under Hurd, has become more efficient. HP had also leveraged its relationships with retailers to better target consumers, which have been fueling PC sales. The big question was "whether Dell can take the best parts of its current business model and mesh them with new initiatives". (Can Dell's Turnaround Strategy Keep HP at Bay, 2007)
Dell can just hang on to its current market share, till the recession lasts. This action could lead to a further reduction in total market share, sales and increase in the competitive gap between Dell and its competitors while Dell stands stagnant.
New International Market Development:-
Dell could ponder into new markets with current products. The advantages of the option are an increase in market share of IT, profits, and buyer awareness. The commodity chosen for expansion should be demanded at the time and should value on-time delivery.
New Products- Dell can introduce new products like PDA, Phones, etc. However, the R&D budgets need to be reviewed before the option is considered, to capture new product market share and profits.
Services Growth- in USA, 2000 services revenue are accounted for 37% overall of $2 billion total revenue. This business unit was becoming an increasingly important part of Dell's portfolio with longevity, able to stand the test of time and market uncertainty, no matter what turn technology took.
Restitution of Dell's Strategy Pillar:-
While gaining its market share and becoming the worldwide leader of personal computer industry, Dell can make an attempt to eradicate its MBV approach slowly and steadily. This option can be considered viable, once the market starts stabilizing and saturated.
Recommendations & Implementations:-
Once being the booming industry the PC market seems to be bottomed out, with few signs of market improvement. The only signs of improvement are the limited replacement of programs at large corporations and sales of notebook PC's. Further PC market recovery is most likely to be dependent on regaining economic stability.
Based on the current market situation, Dell can focus on noncore areas like servers, external storage and services. Dell's strategy of price cutting, can give the company competitive advantage for gaining traction in market and even overtake competitors. Once Dell has increased its market share, the company can leverage its expertise in providing support to maintain its share.
An expansion of the services group should also be pursued based on customer needs, which will vary around the globe. While, Dell continued to partner with third-party services firms, it should also bulk up on its own services capabilities so it can provide customers with more competitive broad services offerings. Dell needed to realize that it would need to expand its services capability significantly in order to be taken seriously in the industry (Breen, Bill, (2004), Living in Dell Time. Fast Company).
International Market Expansion:-
As Dell expand its services in new markets around the globe, it needs to consider the crucial areas within these regions like; Brazil in South America, China in Asia, etc. In order to expand its services in these untapped areas, Dell needs to closely examine the requirements and demands of these markets. However, the expansion would place extensive load on Dell support and information structure.
Thus, Dell should employ its competitive advantage strategies and model with utmost care to once again achieve the tag of worldwide leader in personal and corporate computer industry.
Dell & HP!! - Two rivals continuously trying to defeat each other for the tag of number one position in the PC and related industry. Since, early 21st century 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 follows initiatives like "High Quality, More Powerful, Faster, Customized and Cheaper". For every new product or service introduced 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.
It's a direct model approach evolves for every new product and service achieving delivery of high quality Computer'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 adopt flexibility and speed, and established it into the company's DNA.
Michael Dell describes the company as "the good guy", in other words Dell provide high standard services for less. The company follows the mantra of "better, faster, and cheaper" using branded components, customer service customized to meet the needs of the customers, and build-to-order manufacturing, which has led the company to serve its customers with high standards of quality and more powerful computing. Dell has a reputation for "effectively entering product markets where core proprietary elements had become standardized and undercutting existing players based on price". The company strategically, chooses the best providers (like Microsoft and Intel) for each components of the product and influences their scale investment in R&D. In early 2001, Dell achieved the tag of US market leader for the sales of Wintel servers.
Dell's focuses primarily on large corporations with secondary efforts on medium and small sized businesses. In addition, the company targets the global consumer directly, but with leveraging effort. Dell mainly targets on the segments that are presently or getting knowledgeable about computers.
Dell currently includes 6 main products: Laptops, PC's, storage devices, customer service, workstations, and auxiliary services.
To enter a particular market, Dell consistently uses the Direct Model approach, their products priced below that of their competitors. The low prices lead to the results of multi-level leveraging and from achieving economies of scale.
Direct mail order, on-line model, Premier Pages, catalogues, special training and certifications, editorials, sales reps, word-of-mouth, reviews and awards.
Direct from Dell: Telephone, on-line, mail-order. (Dell does not use any wholesalers or retailers to trade their products.)
In deduction, strategies adopted by Dell do match the company's 4 P's, positioning, and targeting and it can be summarized as a fast, low-cost and efficient business model, with superior customer value with virtual incorporation.
HP's strategy in servers and PC's differ from Dell in two important aspects:
Although HP uses direct sales force, which sold direct to large enterprises and few selected other customers, a very substantial share of HP's sales of PC's were achieved through retailers, distributors, and other channels.
While in-house personnel designed the 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 result of their persistent focus on the customer needs and demands. Dell's ultimate goal is to meet the needs of each customer with carefully tailored standards-based computing solutions. The company communicates directly with their customers -via the Internet, in person or on the phone - so their understanding of customer needs is instantaneous. It enables them to efficiently and effectively deliver world-class services and products that keep their targeted customers coming back.
Another source of distinctive competencies is 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 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 who 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.
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 were 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.