The Business Goals Of Dell Inc

Computer industry is one of the big and most profitable industries these days. There is a lot of competition between different companies in this field. Dell Computer Corporation was established in 1984 by Michael Dell. It ranks as one of the world’s largest computer selling company as it pioneered the concepts of selling computers directly to the customers and offering them build to order facilities. Dell also provided its customers direct toll free technical support and next day onsite service. It is broadening the competitive fundamental advantage of direct selling by increasingly applying the efficiencies of internet to its business. It offers an extensive selection of peripherals and software’s and designs and customizes products and services to the user requirements.

Dell’s complete high range of computer systems include – Dell Dimension and Optiplex desktops and Latitude and Studio notebooks and power edge network servers. It also sells HDTV’s, cameras, printers and other electronics built by other manufacturers. The products and services and sold in more than 150 countries and territories to customers extending from small business, government agencies, educational institutions, major corporations, medical institutions, and individuals. Dell International ranks 38 in the Fortune 500 America’s largest corporation’s annual rankings with $52,902.0 million revenues and $1433.0 million profit. Dell employees more than 96,000 people worldwide and hold 3rd largest market share for personal computers. Dell’s headquarters are located in Round Rock, Texas with manufacturing facilities in Austin, Texas, Limerick, Ireland, Penang and Malaysia.

Introduction of the company

In 1984, Michael Dell founded a company called PC’s limited when he was a student at University at Texas at Austin. From the starting he started trading with the idea of selling the personal computers directly to the customer and it will help its company in understanding the customers easily. In 1985 the company sold its first own design the ‘turbo – pc’. In the mid 1980’s the company went through many management changes like changing its name to Dell International and it also set up its first onsite service program. In 1990 Dell faced a fall of 64% in its profits. In 1992, Fortune Magazine included Dell in its list of world’s largest 500 companies. In 1996, dell started selling the computers through its websites. Its notable mergers and acquisitions were with Alien ware in 2006 and Perot systems in 2009.

Its current revenue is $52.902 billion and its operating income in $2.172 billion. The net income of company is also falling and is at $1.433 billion. The Total Assets of the company are $33.652 billion and Total Equity is $5.641. [3]

The Vision statement of Dell is it’s 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 the guiding force.

Dell’s mission is to be the most successful company worldwide by serving with highest quality, leading technology, flexible customization capability, It employees only the best employees to meet its customer satisfactions and also deals with the concern of its employees.

Entry barriers

An organisations external environment consists of 3 parts, remote environment, industry environment and operating environment. Remote environment is made up of economic, political, social, and technological factors. Industry environment is made up of entry barriers, supplier power, buyer power, and competitive rivalry etc. Operating environment is made up of competitors, customers, suppliers etc.

New entrants in the market are

Threaten to market share of competitors already in market.

Interested in entering Chinese market to gain a large market share from existing competitors.

Using direct model strategy dell is using a direct approach to attract the customers.

It’s Just – In – Time inventory keeps the inventory costs to minimum.

Political and government forces and legal issues.

The bargaining power of suppliers is very high, as there are large number of suppliers for components like hardware, keyboards etc.

High switching costs also makes the bargaining power of suppliers a major threat.

Dell is attempting to enter the premium segment of business with a premium line of notebook called Adamo, which was launched in the first quarter of 2009. Dell might face the following 2 entry barriers in this condition

It will be unable to offer the value proposition that Apple provides withy the Mac – an integrated end to end approach to hardware and operating system design.

Dell’s core competencies and not toward the premium buyers as its products lines are more focused on businesses and price sensitive customers.

Products

Dell offers a variety of products with different with different market segments. Dell corporate class represents brand where it emphasizes long life, reliability and service. These brands include:-

Optiplex (office desktop computers)

N series (desktop and notebook computers shipped with Linux or free dos installed)

Latitude (business focused notebooks)

Vostro (small business desktop and office systems)

Power edge (business servers)

Power vault (network attached storage)

Precision (high performance notebooks)

Power connect (network switches)

EMC (storage area networks)

Dell Consumer and home office class emphasizes performance, value and expandability. These brands include:-

Inspiron ( budget desktop and notebook computers)

Studio (mainstream desktop and laptops)

XPS (high end desktop and notebook computers)

Studio XPS

Alienware ( high performance gaming system)

Adamo ( high end luxury laptops)

Dell also deals with various peripheral devices like USB devices, LCD televisions, printers, Dell monitors, plasma TV’s, projectors for HDTV’s and monitors. Dell on Call (extended domestic support services), Dell support centre (extended support services abroad), Dell business support and your tech team (a support team available to home users). Discontinued products and brands include Axim (PDA), dimension (home and small office desktop computers), Dell digital Jukebox (MP3 player) and Dell Omniplex (desktop and tower computers).

Swot Analysis

Swot analysis is a strategic management method too audits an organization and its environment. It analyses the Strengths, Weaknesses, Opportunities and Threats involved in a business venture. Strengths and weaknesses are referred as internal factors and opportunities and threats are referred as external factors.

Strengths of a company are the resources and attributes that are helpful in achieving the objectives.

Its direct model approach offer direct relationships with customers such as corporate and institutional customers.

Strength of Dell is the extensive range of its products and services.

It is world’s largest PC maker.

Customization: – each dell system is built according to the specification of the customer.

Reliability, service and support, as Dell’s direct customer relationship, allow it to provide best customer service before and after the sale.

Price for performance: – if efficient manufacturing and distribution process allows it to offer customers powerful systems at competitive prices.

It turns inventories for an average for 6 days keeping inventory cost low.

It is able to introduce the latest technology as compared to other companies which are using indirect distribution channel.

Dell offers customers the ability to track their delivery.

Dell is one of the best known brands.

Weaknesses are the attributes of a company that are harmful for achieving the goal.

Dell attracts the college student segment for the market.

Its focus of corporate and governmental institutions affected its relationships with educational institutions.

Its dealing with large amount of supplies from different countries can cause an issue when products are recalled.

Dell is a computer maker not manufacturer.

Its direct model and customization process sometimes causes issue for the home users as they cannot go to the retailers as it does not use the distribution channel.

As Dell build computers according to the customer specifications it may take several days for the system to come to the customers whereas customers can buy other brand in a simple way.

Opportunities are the external environment which is helpful in growth and achieving the objectives of the company.

Introduction of new products to the customers like they have launched their new net book.

Expansion in educational and government market.

Demand for laptops is increasing a lot these days than for desktops. So Dell can expand in that market.

Dell has opportunity for expanding their growth in Europe, China and India.

Continuing to market on internet as it gives more information while placing the information.

Making and selling their low cost unbranded computers.

Expanding the one stop shop abilities provided to their customers.

Threats are external environment that can obstruct in achieving the objectives of the company. In computer world change is constant, like new hardware, new software, accessories etc are launched on daily basis.

So Dell should always keep on it and introduce new computer systems.

Dell Direct model attracts customers because it saves cost but since other companies are also able to offer low price, it could be a threat to Dell.

There is a good competition increasing between the popular brand name.

Exposure to the fluctuations in the world currency market.

Tariff trade barriers are affecting Dell’s position in many countries.

The advancement in technology can be a threat as well as an opportunity. It’s the technology that dictates the whole market and fastest and up to date products are always in demand. Dell has always kept its technology up to date to compete in the market.

Pestle analysis

It stands for Political, Economic, Social, Technological, Legal and Environmental analysis and leads to a description of macro environment of the industry.

Political: – Political factors include the government regulations under which company operates in the country. Computer industry faces a lot of restraints under this factor. No matter whether the company is doing production or do exporting, if the political stability of the country is not guarantee then the company will face many issues. To protect domestic manufacturers and production still many countries have restrictive policies. The only possible way to do business in those countries is in partnership with the local companies which lead to loss as have minority shares and have huge investment. So, a computer company can only grow in an industry which can be loose on its restrictions like China has opened its door for many industries. Since globalisation trade barriers decline and market emerge, allowing free trade to expand.

Economic: – Economic factors include exchange rates, economic growth, inflation rates etc and have major impact on how business operates a make decisions. It is the nature and directional the economy in which a firm compete. In China the primary threat for the computer companies is the software piracy. It also depends on the purchasing power of the potential customers. Currency fluctuation and changing inflation rates also determine the probability of the company. Dell is aware that in China people go for the cheapest systems.

Social: – These factors include the cultural aspects, age distributions, population growth rate and emphasis on safety. The demands of a company’s products depend on the trends in the social life. The main demand for computers depends on the educational level prevailing in that country. The higher it is the more is the demand for the computers. Computers are becoming a part of our daily life and the young generation is getting familiar with this technology at very young age.

Technological: – These factors include environmental aspects such as technology incentives, automaton, rate of change of technology and R and D activity etc. The increase in the research and development process has caused permanent innovation due t which there is short life cycle for the products as the technology changes very fast. The use of internet is a great opportunity for the companies as it is the fastest way to tailor their services to the customers. A great threat to Dell in china is that the access of internet in China is very costly.

Legal: – Legal factors include consumer law, health and safety law, discrimination law, trade and product restrictions etc which a computer industry faces a lot. As earlier in China external industries were not allowed to do business but after globalization they are allowed, but still in some countries they need to follow various restrictions. Like Dell has to follow various international and EU laws etc.

Environmental: – These factors include whether and change in climate which affects the tourism and farming etc industries a lot. It also involves waste disposals and noise control and computer industries face a threat as they need a proper place for disposal of their old computers as they are made up of technology and can be harmful sometimes.

Porter’s 5 forces model.

Porters five forces model is used to analyze an industry to determine the level of intensity regarding the competition and attractiveness of the industry. In this attractiveness is measured in terms of the profitability of an industry. Porter referred theses forces as micro environment rather than macro as they were more effective on the industry. If any of these forces changes the organisation have to reassess the market, but it doesn’t mean that if the organisation is having less profit it should leave the industry. The model includes threat of substitute products, threat of established rivals, threats of new entrants, the bargaining power of suppliers and the bargaining power of customers.

Threat of New Entrants

For Dell threat for new entrants is moderate, as

Barrier entries can make the new companies to not to enter the market like, large capital investments, lack of adequate distribution channels, government regulatory policies, inadequate situations, tariffs, lack to access raw materials, potential of patents and saturation of the market.

If Dell needs to entry a new country in themarjet then it will have to make the entry with the large production scale capability and variable cost per unit in order to compete.

Dell should know all the government rules and policies before making the decision to enter in that country.

Dell’s brand name and loyalty towards the customers can make a barrier for new entrants.

Threat of Established Rivals

It is the most important of the five forces as it describes the ongoing war between the different industries in the same market.

As Dell do not have retail stores so it somehow lacks in maintaining close relationships with the customers which other brands can do very easily.

Dell cam low its prices, like they know in China people opt for low price computers and cannot use internet, so they should open a retail store there.

Changes in strategy of a firm like enhancing quality, changing trends, providing services, adding features, extending warranties etc make a lot of change for the other countries. Like Dell, launched Adamo, their premium laptop last year, instead of the fact that apple is ruling the premium laptop market for many years, they provided an option for its customers also.

Threat of substitute products.

Some customers are very brand loyal so if they Dell will provide the same computer is low price also still they will buy the product of the brand which they like.

For Dell the main substitute for PC is Apple computer but due to high price and lack of software support people switch from Apple.

Strong presence of computers during the society.

The competitive strength can be measured by market share, rise in profit, sales pattern etc.

Bargaining Power of Suppliers

Suppliers play a very important role in computer industry. It affects the intensity of competition if there is huge number of suppliers and cost of switching between suppliers and raw material is high.

The bargaining power of Intel and Microsoft is more as they are the huge suppliers for software and hardware. They force the computer manufacturer to place their logos on the machine.

Dell is known for low cost and best quality computers and laptop. They key for this is maintaining good relationship and collaboration with the supplier of hardware and software.

Current trend also play an important role.

Barraging Power of Customers

The bargaining power of customers is high as

When many customers are buying products together and in huge quantity, for example if buying computers for an educational institute.

Rival firms offers discounts, extended warranties on computers, free software’s like antivirus etc to distract them.

Dell has always been a price sensitive company so have never faced any issue with the other rivals.

The reliability and customer service of Dell are important key factors for its performance.

The products of Dell are reliable and they provide an outstanding customer service. So the customers are brand loyal towards Dell.

Competitor advantages

Direct business model: – sell directly to the customers, instead through retailers etc.

Selling points are internet, call, mass catalogs mailings etc.

Do not sell only products but sell values also, as very proactive in solving clients issues, like preloaded software’s.

As compared to HP and Apple, Dell was new when internet came so it required less effort to adapt to new internet technologies.

Just in time components inventory makes a lot of profit for Dell.

Dell has a great partnership deals with its suppliers.

Using brand name processors and disk drives, speakers multimedia components, enhanced the quality and performance of Dell computers.

Its strategy was to partner with very few outside vendors and to stay with them as long as they can maintain their leadership in technology and quality.

As its partnership with a supplier was for a long time and has a specified percentage of its purchase it was assured of getting the volume amount of components when required on a timely basis.

Its formal partnership with the key suppliers made it possible to have some of their engineers assigned to Dell’s product design team, so when the new products were launched the engineers were stationed in Dell’s plant and if early customers call up with nay issues they were rectified on the spot.

Dell’s has always run its quality control programs, like all plants have the capability to run testing and quality processes on its components, parts, etc obtained from suppliers and also on the finished products that Dell assembled. All of the company’s plants are certified as meting ISO 9002 quality standards.

Built to order: – it always built its system according to the customer’s specifications and therefore they do not have huge inventory and even do not have to wait for the resellers to complete their inventory when new technology comes in.

Hp’s core competent was product innovation and where as Dell’s expertise was assembling and catering the customer with new technology at low cost.

Its use of market segmentation has played a important role in it growth, like it just aimed for 2 market segments

Governmental and corporate buyers who bought in large volume

Small business and individual buyers

Dell’s partnership with Intel, Microsoft Computer Associates and other PC technology providers help customer’s t more effective use of internet and latest technologies.

Financial analysis

Current Ratio

2009

2008

2007

Current Ratio

Dell

1.31

1.2

0.9

HP

1.22

1.02

11

Apple

2.64

2.5

1.98

Toshiba

0.95

0.8

0.78

It is used to estimate a company’s ability to repay its short term obligations. Ratio above 1 implies that the company will be able to repay all its current debt. Companies with low current ratios have difficulty in having their high turnover ratios. Dell has low current ratio than Apple, which mean it is good in short term financial than other competitor but Apple is more sound than Dell.

Profitability analysis

Profitability

Dell

Apple

Toshiba

Hewlett – Packard

Sector

Gross Margin

17.33

41.31

23.85

23.87

12.13

Operating Margin

4.29

29.38

1.49

9.31

1.54

EBITD 5 yr average

6.71

22.01

7.58

7.61

22.03

Net Profit Margin

2.86

21.75

0.73

7.09

1.22

Pre Tax Margin

3.9

29.75

1.49

8.81

1.98

Inventory Turnover

45.28

63.16

5.84

15.13

2.79

Asset Turnover

1.83

1.02

1..27

1.07

0.37

Return On Equity

31.03

33.97

4.12

20.3

14.78

Gross Margin represents the total sale revenue that the company retains after incurring the direct cost. A low gross margin indicates low amount of earnings and that the company is unable to control its production. Dell’s gross margin according to the sector is good but is behind its competitors.

Operating margin is a ratio used to measure the pricing strategy and operating efficiency of a company. A good oprtaing margin is required for the company to be able to pay its fixed cost such as interest on debt. So Dell’s operating margin is better than the whole sector and Toshiba, but lack behind Apple.

EBITD ratio shows the ability of a company to produce income on its operations in a year. Dell is low on it as compared to its other competitors so it will have to change more of its strategies to overcome them.

Net Profit Margin ratio tells us how effective a company is at its cost control. The higher it is the more effective the company is at converting revenue at actual profit. Dell according to the sector and Toshiba is good in this ration , means making profir but lacks behind its other competitors.

Inventory Turn Over