Michael Dell and his vision of customizable home computers

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Background

Michael Dell had a vision of customizable home computers far before the idea was even possible. Dell started his first company at the age of nine and was making 2,000 dollars a month. In college, he started a computer component and personal computer company that he called PCs Ltd. He was innovative in his thinking and bought all of his parts and computers directly from IBM wholesales. He would then place an advertisement in the local newspapers and sell them for 10 to 15 percent less than retailers. Dell was so successful at selling the computers that he decided to drop out of college and running PCs Ltd full time. The company was selling IBM clones for nearly half the cost. As computers became more popular, so did PCs Ltd. The company was growing and needed to change its strategy as it expanded with the changing computer market.

In 1987, PCs Ltd was renamed to simply Dell. In 1988, the company went public and temporarily lost its direction. This seems to happen quite frequently to companies that have a clear vision and then go through a public offering. Management begins to focus more on the stockholders than they do on the customer. When this happens, the vision of the company is changed in order to maximize bottom line profits. Dell computers were being sold in retail stores and soft warehouses. This is something that Michael Dell did not want to happen.

He always saw his computers as being completely custom and made as they were being ordered. Trying to sell them in retail stores was making the company less profitable and less successful.

Michael Dell

In the early years of his career, Michael Dell was said to be the quintessential CEO in the United States. This is because he was able to take his small idea and turn it into a billion dollar empire.

It is in the most difficult situations when leaders do great things. Dell was in a tight situation with its sales decisions and needed to do something to make the company more profitable. Dell chose to revert to his original vision and offer affordable, customizable computers to everyone. He did this by utilizing just in time production and other operations strategies. Customers could go online and choose everything they wanted on their computer as well as the things they did not want. These strategies and ideas led Dell to be one of the leading personal computer companies in the world. In 2004 he made another noble decision as the leader of Dell computers and stepped down as the CEO. I think that this shows his dedication to the company. He knew that his original idea for Dell had worked, but the market was evolving and the company would need fresh new leadership to lead it into the future. He knew that the new opportunities were in the global market and he had no experience in these markets.

I feel that Michael Dell has done a great job as CEO and continues to do a great job as the chairman of the board. Although Dell has had some problems recently with some of the services it offers, they are adapting with customer feedback.

Dell is also positioning themselves globally, this is something that Michael Dell thought he needed someone else to lead the company into a new era. He was able to put his ego aside for what was best for his company. I think that these are signs of a great leader and entrepreneur.

Dell’s Strategy

The core of Dell Computer’s strategy from 2002 to 2004 was to use its strong capabilities in supply chain management, low cost manufacturing, and direct sales capabilities to expand into product categories where it could provide added value to its customers in the form of lower prices (Strategy, pg C136). They accomplished this by taking popular technology products and reengineering them. They could figure out how the product was made and make minor changes to make the product more affordable to the customer. If they could not build the product themselves they would outsource the work to other firms and sell the product under the Dell name. This strategy was build around a set of core elements. Theses core elements were cost efficiency, partnerships with suppliers, direct sales to customers, timely and efficient support and being the first to utilize the internet. Their relationship with suppliers is especially important. At this time Dell was building the computers as soon as the orders came into the computer. They used just in time inventory practices to make sure they were utilizing warehouse and work space as well as cut costs. At times they would have to operate on as little as two hours of inventory. If Dell did not have strong relationships with their suppliers, their production time would suffer and customers would have to wait longer to get their custom computer.

By following their core competencies and keeping solid relationships with suppliers, Dell could effectively run their low cost supplier strategy. At the time the strategy was working great because they were the only low cost computer supplier. In time other companies would also offer low cost computer and Dell would have to find other ways to sell their computers.

Dell decided that in order to differentiate themselves from the other rising competition, they would start offering other products and services to their customers. They set up contracts with local computer stores to fix the Dell computers in the customer’s home. Dell also set up technical support hot lines and web sites in order to help customers with any small problems that came up. These types of services are what set Dell apart from the low cost competitors. Once again they were able to come up with an innovative strategy to develop a competitive advantage. The only problem with these services is that they lacked in quality. I know from personal experience that when I use the Dell hotline, I always talk to someone from another country that I cannot understand. I never get a good answer and I am usually forced to take it to a computer repair store. Also the websites are usually only helpful if your computer is running properly. I have seen the customer forums where people leave feedback on the internet about the product they own or the service they are using. I think that this is a great way to receive information from the customer. People would rather use their computer to take a survey than sit down and mail one back to the company. So to say that their services make good strategic sense is a hard question to answer. I think that their idea was on point, but they need to refine their services to make them worthwhile to the customer.

SWOT Analysis

Strengths

Dell has a major strength in market share and product cost. Consumers can not buy computers, or any other form of technology, fast enough to keep up with the advancements. Dell offers these products at a much lower price than its competitors and allows consumers to be able to have the newest products as soon as they hit the market. This is a huge advantage over their competitors. The people who purchase the technology are getting younger and younger and the only way to take advantage of the growing customer base is to offer the products at a lower price.

Weaknesses

The major weakness of Dell is the quality of the products and customer support. As a consumer I do understand that you get what you pay for. When buying a $200 desktop from dell rather than a $2,000 desktop from Apple, I realize that the quality of the two will differ. A way to level the playing field would be to have top notch customer service to help the customers when something does go wrong. This is not the case with Dell. They have chosen to outsource their customer service to foreign countries in order to cut costs. This has only frustrated the loyal Dell customers and made buying a Dell less attractive.

Opportunities

The global economy is a huge opportunity for Dell’s low cost strategy is a perfect fit for growing economies around the world. As countries like India and China become more productive, their people will have more disposable income. Dell can offer them affordable computers that they will be able to use to be even more productive. In the world today, if you are not a global company, you are not a major player in the industry.

Threats

The threats to Dell are obvious. It would be very easy for another computer company, like apple or IBM, to come up with an even more affordable computer than what Dell is offering. This would force Dell to cut costs even further and I do not think that would be a smart option. Next is the threat of the consumer becoming more technically savvy. Consumers are beginning to learn everything they can about the products they buy and the technology they use. If they are able to build their own computers and buy the components themselves, they will have no need for companies like Dell.

Dell should be able to capitalize on the transition to the global market. If they are able to reach customers in growing nations, they should be able to see huge profits. Although, if they do not fix their customer service and quality issues, they could be in trouble as consumers look for new innovative products in the future.

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