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The most common thing that happens in today's business world is change. Managers today work in a ever changing economy and should be able to take decisions dynamically. Strategic Management is the tool which the present managers use to counter the problems created by change. Strategic management helps determine an Organization's course of action. It determines mainly three things, what the long term goals of a company are, what are the best possible ways to achieve these goals and what are the required resources and in what way they should be allocated.
"Strategic management is an ongoing process that assesses the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly [i.e. regularly] to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment."
. The two companies that I select are DELL computers and IBM.
2. Porters Five Forces model
Porter's five force model is an analysis which is used to measure the competitiveness in an organization and its structure and corporate strategy, it is widely used today by many organizations and companies. The model originated from Micheal E. Porter's 1980 book "Competitive Strategy : Techniques for analyzing industries and competitors". According to Porter there are five forces that shape every single industry, these forces help us to analyze the intensity of competition and its profitability. The five forces are
Rivalry among competitive firms
Potential entry of new competitors
Potential development of substitute products
Bargaining power of suppliers
Bargaining power of consumers
(Micheal E. Porter, 1980)
Rivalry Among Competitive firms:
Dell and IBM have always been rival companies, if not for anything at least because they are both dominants over a single market with similar products. When any person is trying to buy a laptop or a server the choice eventually boils down to on thing, Dell Vs IBM, its either this or that. The companies have achieved this status because of their marketing strategies. Dell believes in direct selling, they sell their product either by phone or online or any means possible but direct, they sell laptops of high quality at a lower price than their competitors. IBM on the other hand believes in enterprise, they build relationships, sell products and services that are loosely related and style themselves as solution providers. Both the strategies are effective and compete with each other, though different in many ways they try for the same thing, customers.
Potential Entry of New Competitors
Dell and IBM are in a field where it is very difficult to place any kind of barriers for the new companies, there are already many number of firms that produce the same kind of products, but these two have attained top spots. They mainly bank on customer loyalty and brand preference to block out the other companies. Dell.com is a website of dell where they provide sales and service to the customers, it is easy and efficient and holds the customer's interest and loyalty. IBM as per their strategy provide inter related services and products, if a customer buys a product then he will have a need for another product, which IBM offers too. Through brand preference and some compatibility issues, customers who once choose IBM will prefer it again.
Potential Development of Substitute Products
Dell and IBM are not likely to face competition of this nature, but the recent product that has raised the alertness of their strategists is the new Apple Ipad, it is everything a laptop is but lithe and nimble and also more stylish. Although currently it does not pose any serious threat to the laptops, it soon might. Dell and IBM should take care that the consumers do not become comfortable with the substitute product.
Bargaining Power of Suppliers
Dell computers are known for their quality and services, they are the manufacturers of laptops, PCs and servers of the highest quality. This they could achieve only by maintaining a better relationship and collaboration with their suppliers. IBM too works hand in hand with their suppliers and help each other to face the competition from the competitors.
Bargaining Power of Consumers
IBM is a firm that depends on enterprise and relationship, has a very high consumer bargain force acting upon it, most of its consumers are corporate firms which order products on a large scale, IBM tries to satisfy them by making products as to each consumers taste and makes profit by further selling them other services like on site repair and other similar offers. Dell on the other hand maintains one of the best customer - enterprise relation there is, they have a very good service staff and work very fast, they keep customer loyalty by offering service swiftly and surely.
SWOT Analysis of Dell and IBM
Dell's direct marketing model is its main strength. They maintain a direct relationship with customer and offer then services like purchasing through telephone or internet.
Their award winning customer support and service, they offer innovative services like next day repair and on site product service and hole the consumers loyalty.
Customization, each of the dell system is built as according to the wishes of the customer and his choices.
Dell's offering of the latest technology is one of the most important of it strengths, they offer relevant latest technology that other competitors using indirect distribution channels.
Dell's biggest weakness is attracting the college student segment of the market. Dell's sales revenue from educational institutions such as colleges only accounts for a measly 5% of the total. Dell's focus on the corporate and government institutional customers somehow affected its ability to form relationships with educational institutions.
Dell's direct selling method sometimes causes problems to the customers because they cannot buy Dell computers at a retail store, all the computers must be customized and should be ordered from the company website and this can sometimes take time.
Personal computers are becoming now a necessity for everyone. Everybody is getting more educated in computer studies, all organizations are becoming computerized, demand for PCs and laptops is rising. Second time buyers most likely prefer Dell because of its customization service, because as their knowledge grows they will like to experiment with combinations of technology.
Product extensions, Dell could try to produce a few more products to sell to its already large consumer base.
New strategic partnerships, Dell could benefit from forming an alliance with a company which is as big as Dell and has a wide variety of products. Dells direct selling and the others wide inventory can be profitable to both.
Other competitors like IBM are closing in on dell on direct selling method, they too are using internet to the maximum and providing customers information, sales and service online.
IBM drives on innovation, its advance business management and valuable intellectual property along with many patents, software and ideas are it main strengths
Its wide network and enterprise, IBM handles 95% of business tasks of the top 1000 companies of the world.
Today, IBM has entered a wide range of fields including Business continuity, snap services, End user services, integrated subject services, IT strategy and architecture services etc. The good will of the company along with its huge base of loyal customers is one of its greatest strengths.
High investment in Research and development
IBM has 260,000 employees who are highly paid and along with that the operating costs are very high even for such big a company.
It has failed to attract the younger generation of the consumers since the company mostly operates in corporate circles and most of its products are bought by firms.
Recent merger with Lenovo, with IBM providing the latest chip technology and Lenovo taking care of the exterior, it might result in a greater success for both.
The rising energy prices and cost makes running and operations of the business difficult. IBM has addressed by making its strategy related to environment. With its green strategy it is able to save up to forty percent of energy costs.
With so much investment in R & D IBM has access to the technology as it is invented, this provides IBM with an edge over other competitors.
Many competitors like Dell, HP and Microsoft have captured large segments of the market
The global recession is a large threat for IBM. The company prices are higher as compared to other service providers in the same industry therefore; the IBM needs to take effective cost reduction strategies to deal with the unstable market conditions.
PEST Analysis of DELL and IBM
DELL AND IBM
One of the recent political development poses a great threat to Computer industry. The Chinese government is trying to promote it national PC vendors to foreign companies. The government control over internet could mean loss of a market to Dell and IBM.
The computer industry expects a growth of approximately ten percent over the next years. This growth is influenced by the economic situation in a specific country, having an impact on the purchasing power of potential customers. Additionally, changing inflation rates and currency fluctuation also determine the profitability of a company.
The high increase rate of the internet using population provide with a wide range of opportunities, since Dell is already a stalwart in using internet to the maximum profit, it has a slight edge over IBM
The computer industry is the one industry which is effected on every change in technology, with internet users and service providers increasing, and latest technology arriving almost every week, opportunities and competition coexist.
4.Scenario Planning and Game Theory
For Dell the most possible scenario in the recent future is the competition it will face because of its loss of status as a stalwart in the internet sales. But since this question is about changes brought in by environment, we will focus on that. The most effecting thing to the computer industry is the environmental restrictions that the governments of the different nations would enforce. IBM in this sense has an edge because of its R and D department. They have already started the process of going green and are way ahead of Dell. Dell being a relatively smaller company than IBM will have to start its own process or at least invest in research or take steps to counter the problem.
If we take the approach of game theory here the opposites both are on the same field but with different strategies. Dell still trusts in direct selling and IBM still on enterprise. But recent developments show that IBM has already started going online to counter Dell. For Dell, the best possible way to counter IBM is to get into a merger that will enforce and expand its inventory and give it a network to rival that of IBM. For IBM the strategists would be better off making strategies to go online and take that piece of market from Dell and to attract the younger generation on which Dell has a grip on because of its recently successful product series of Alienware.
5. PORTER'S DIAMOND
This analysis is basically used to determine how strong a company is on its home ground. The more established a company is at it's roots, the more can it compete with other companies globally. The main factors that determine the strength of a company and its competitiveness are given by Micheal .E. Porter are as follows
The situation in a country regarding production factors, like skilled labor, infrastructure, etc., which are relevant for competition in particular industries.
(Micheal .E. Porter, 1990)
Dell and IBM both originated from United States, so the factor influences both the companies equally. As we have discussed earlier IBM has a slight advantage over Dell since the factor conditions comprise of things like quality of research and infrastructure.
2. Home demand conditions
Describes the state of home demand for products and services produced in a country.
(Micheal .E. Porter, 1990)
In this, Dell has advantage since the customer base of Dell is larger than IBM, since IBM mostly sell to corporate companies.
3. Related and Supporting Industries
The existence or non-existence of internationally competitive supplying industries and supporting industries.
(Micheal .E. Porter, 1990)
This factor acts equally on both the discussed companies and since United States is upfront in software industry the demand for computers will also be high. IBM has an advantage over Dell because of their corporate relationships and innovative business ideas.
4. Firm Strategy, Structure, and Rivalry
The conditions in a country that determine how companies are established, are organized and are managed, and that determine the characteristics of domestic competition
(Micheal .E. Porter, 1990)
Here, the most effecting factors to be considered is the commitment of the workforce of the company and their management structures. IBM has a very sophisticated management structure but Dell has a more committed and competitive human capital. Domestically they are at the peak of competition with each other, but IBM is a big company and Dell an emerging one, I believe that if Dell continues to grow at the same rate it will soon have a significant advantage over IBM .
So, considering the factors stated above and evaluating the advantages of each of the company over the other, we can deduce that Dell is more competitive than IBM because it is equally successful as IBM but with much less expenditure and infrastructure, also Dell is already planning to go into the fields where IBM has a strong stand.
Dell's mission is to be the most successful Computer Company in the world at delivering the best customer experience in markets they serve. In doing so, Dell will
meet customer expectations of:
â€¢ Individual and company accountability
â€¢ Best-in-class service and support
â€¢ Flexible customization capability
This is the vision statement that Dell has given recently "Its the way we do business. It's the way we interact with the community. It's the way we interpret the world around us-- our customers needs, the future of
technology, and the global business climate. Whatever changes the future may
bring our vision - Dell Vision - will be our guiding force. So Dell needs full customer satisfaction. In order to become the most successful computer company, they need the newest technology and loyal customers.
Dell's recent goals are to become the greenest company there is and to double its sales and production. Dell also has a goal to sell a PC every 5 seconds worldwide.
"At IBM, we strive to lead in the invention, development and manufacture of the industry's most advanced information technologies, including computer systems, software, storage systems and microelectronics."
"Solutions for a small planet". They style themselves as solution providers for the businesses and corporate firms.
These are the goals given out by IBM.com for the next five years.
1) To create a cell phone that produces a 3D hologram of people and the environment so that users can interact and virtually SHOW what they are talking about.
2) To create batteries that use oxygen to re-energize.
3) To utilize already present technology such as mass data networks within businesses' output energy in a recycled manner that could actually heat or cool buildings.
4) To improve transportation by a device that gives ALL possibilities for a driver's possible routes to a location taking into consideration driver's patterns, weather, construction, best modes, etc.
5) To use static or kinetic energy to operate small devices such as the iPod without batteries altogether.
6) To use current technology to gather very specific information such as info about nearby streams, earthquake data, etc.
As per the SWOT and PEST analysis of the two companies, by matching their strengths with opportunities and their weaknesses with threats, we can form strategies that would help them achieve their goals.
For Dell, expansion of their empire is needed, as we have learnt that other companies are matching up to the Dell's otherwise unique direct selling method and also closing the gap between the prices. Staying online will not help Dell to grow, they must have retail stores too. In view of the environmental changes they also have to take steps so as to make the company environmental friendly. To achieve these goals the best possible way would be to make an alliance with another big company and work towards common goals.
For IBM, their mission and goals synchronize with their concept of encouraging innovation. Innovation alone can get them to their goals. To counter the changes and effects which would effect the company in recent future, IBM needs to form a strategy that helps it cut down the company's expenditure. They have to exploit internet and try to reach common consumers too. These would help them increase their consumer base and there by their profits.
With the help of the discussion above we can conclude by saying that due to the results of the analysis and evaluating the selected company's goals and visions, I have tried to best form strategies which would help them counter the changes that they would likely face and to achieve their goals.
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