Fierce competition and strategic challenge is a common phenomenon faced in the business world. To excel your competitors and to maintain the excellence is the underlying concept of continuous learning and adaptive organization. Many firms grow with excellence because of visionary leaders, new ideas, new ways of doing things and adapt such long term strategies successfully, but there comes a time of stagnation or downfall when the competitor starts aggressively following and adding to the innovation, and if the former doesn't keep continuously learning and adapting to the situations and markets.
Dell faced a similar situation when HP under the leadership of Mark Hurd in 2007 started to catch up very fast to gain the market share back and revamped its strategies and implemented them effectively. Dell had to quickly work to regain its market share. Dell's long term strategy was in line with resource based strategy which deals with the competitive environment facing the organization but takes an 'inside out' approach, i.e. its starting point is the organizations internal environment.
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Resource based view is an important, essential and an inside-out management concept that is useful in developing successful strategy. Resources based view strategy identifies and emphasizes on the important of resources in achieving competitive advantage. It concerns the capability and effectiveness of internal resources. Both tangible and intangible resources are included in resources based view. The resources based view of strategy also creates a frame work for the executives to think about their strength and weakness, understand marketing issue that helps to improve corporate performance.
Resource based view has a lot of advantage but at the same time, it also has a lot of loops and limitation. Resources based view of strategy concern only internal factors and on the basis of internal resources it determined the key characteristic of the resources. In resources based view, company determines the value of resources based on the characteristics of product markets . It concern only individual company resources and explain how to exploit the resources, while the resource of competitors and changes in environment are also essential to determine the competitive advantages. This is when Market based view comes into picture!
Dell's strategy in 2007-2008 was predominantly a market based view, but it also considered its core competencies and competitive advantage.
Market based view of strategy helps the organizations to identify and select competitive dimensions and promote the management to meet the appropriate winners. In the market based view of strategy, the main focus of strategy is to gain attractive position in the industry. Market based view is helpful in selecting the product market combination in which a company uses its strategy. With the help of market based view, a company analyzes the industry structure and according to the structure it creates its structure and strategy for effective positioning in the industry. For making effective and suitable strategy, company uses external resources in market based view that is quite effective to analyze the impact of external environment over the business operations. Market based view of strategy is also helpful in expansion plan for company and for this purpose, it considers political factors, customers, market condition, technology, social etc. factors for making strategy.
Dell's strategy in 2007-2008
Michael Dell took over the reins from Rollins on January 31 -- taking back the role of CEO -- and set out to remake the $57 billion Round Rock, Tex., PC manufacturer. Starting in June, Dell began to complement its direct sales model by selling PCs through Wal-Mart and Sam's Club stores. The company has since courted consumers with laptops in a range of colors including "midnight blue," "flamingo pink," "spring green" and "espresso brown," but consumers who have ordered some of these colorful models have experienced delays due to supply chain problems related to producing the different hues in volume.
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 19.3% for the quarter ending June 30 compared to Dell's 16.1%. In 2005, Dell dominated the playing field with 18.2% market share compared to HP's 15.7%.
Analysts generally agree that Dell is on more solid footing than it was a year ago. Last month, the company reported fiscal second quarter net income of $733 million, or 32 cents a share, on revenues of $14.8 billion, up 4.8% from a year ago. Meanwhile, gross margins of 19.9% were at their highest levels since the year 2000 due to lower prices for parts, including memory, displays and batteries.
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But questions remain about Dell's turnaround. Dell's biggest challenge is that the two pillars of its business model -- supply chain efficiency and direct build-to-order sales -- don't provide the advantage they once did. Indeed, Hewlett-Packard is a much stronger competitor than it has been in the past, and Acer, a Taiwan-based PC manufacturer, announced plans to buy U.S. PC vendor Gateway on August 27. Once the acquisition is finalized, Acer will become the third-largest computer maker in the world. These competitors have closed in on Dell's supply chain edge.
And finally, Dell hasn't historically targeted its products to consumers -- a segment that has generated most of the growth and innovation in the technology industry in recent years. In July, CEO Michael Dell said at a product launch that the company will have to become savvier about product design to woo consumers who increasingly see technology products as fashion accessories. "We are kind of in the fashion business. We have been putting quite a bit more energy into this. It will be reflected in future products," Dell stated.
"Dell's success has been, 'You tell us what you want and we will build it for you". That approach has worked well with corporate [information technology] people and professional users. But that is a cut-throat market since these people have a good knowledge of prices. Dell has always had a hard time with the non-expert buyers."
There are only so many technology buyers who value picking out a specific video card and other components in a computer. And in order to compete with rival HP, Dell has to find new customers. On August 16, HP reported fiscal third quarter earnings of $2.1 billion on revenues of $25.4 billion, up 16% from the same quarter a year ago. HP also projected its annual revenues for the year ending October 31 at between $103 billion and $103.2 billion. Wall Street analysts expect Dell to report revenues of about $60 billion for its fiscal year ending January 30, according to Thomson Financial.
HP CEO Mark Hurd said on a conference call following the announcement of the company's earnings that HP is "executing on the plans we have laid out, delivering on our commitments to customers and investors, and effectively balancing our growth, investments, and cost reduction opportunities."
Dell has been refashioning itself largely to compete with HP which, under Hurd, has become more efficient. HP has also leveraged its relationships with retailers to better target consumers, which have been fueling PC sales. The big question is whether Dell can take the best parts of its current business model and mesh them with new initiatives.
For Dell, most of its new initiatives -- better design, expanding retail sales and courting consumers -- take the company into uncharted waters ".
Market Penetration - Maintain status Quo and continue to do more of the same. "If it ain't broke don't fix it". Many people believe the recession will end soon, so Dell could just ride it out and hope to hang onto the marketshare it currently has. This option is not a proactive approach and could prove to be risky, resulting in declining market share, lower profits, and the possibility of the competition advancing while Dell stays stagnant.
Product Development -
â€¢ Pursue Mid-Range Server Growth. By 2001, Dell was the market leader in entry level servers, but had no presence in the mid-range server market. Pursuing this growth option could result in increased market share and higher profits due to the higher selling prices and markups of these units, but could be risky if technology suddenly changes. Increased post sale costs are also a concern, as server sales don't just stop upon delivery, they require continued service regarding reliability, serviceability, availability, and manageability.
â€¢ Increase product line: By introducing new products like a PDA, Dell can capture new markets and increase sales and awareness. However, Dell's R&D budgets are well below that of its primary competitors. This option contains increased risk and high initial start-up costs.
â€¢ Pursue Associated Services Growth - within the US, 2000 service revenues accounted for over 37% of $2 billion in total revenues. 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.
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New International Market Development - Target new segments and enter new markets with existing products. The Potential benefits of international expansion are increased market share, revenues, profit, and buyer awareness. However, the successful Dell Model might not work everywhere. The product chosen for expansion should be a commodity where the demand is already in place and the country must also value on-time delivery. In addition, terrorism, cultural barriers, political systems, and longer ROI must be taken into consideration as well as limits on foreign ownership and tariff barriers.
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The booming PC market seems to have bottomed out, with little signs of improvement due to market saturation. Positive signs have come mainly in the form of limited PC replacement programs at some large companies and sales of notebook PCs. Any future PC market recovery will most likely be tied to an improvement in the economy.
Therefore, Dell should ramp its efforts in three non-core areas as key for future growth: servers, external storage and services. Meanwhile, it can carry on with its aggressive price-cutting strategy for all of its products. Hopefully, these moves will allow them to gain traction in some markets, and even overtake some competitors in others. Once Dell has used its lowest price strategy to increase its installed base of clients in hardware sales, particularly in the enterprise market, the company can leverage its expertise in customer support to keep those clients. Even though Dell has already made some impressive progress in server and storage developments, it still lags behind other server vendors in total shipments and sales. The company needs to create a greater presence among enterprise and service-provider customers.
Dell can quickly grow its storage business by providing simplified and standardized storage solutions to customers ranging from small businesses to large, global corporations with enterprise-class requirements. It can leverage its ties to Microsoft, Intel and other prestige component vendors to focus on providing Windows-based storage and server products. This move will make its high-end storage products work with IBM, Hewlett-Packard and Compaq Computer Windows servers, as well as Dell servers. This allows Dell to widen its customer base by appealing to customers that don't have Dell servers, or have a mixture of servers from different vendors. With comprehensive support for multiple platforms, Dell can also offer customers a storage solution that leverages their existing Windows server investments, while scaling to accommodate their growing data requirements.
An expansion of the services group should also be pursued based on customer needs, which will vary from country to country. While Dell continues to partner with third-party services firms in some areas, it should also bulk up on its own services capabilities so it can provide customers with more complete services offerings. Dell should realize that it would need to expand its services capability significantly in order to be taken seriously by some global enterprise and service-provider customers. Dell can also implement a fixed-price approach to services that will boost its presence in that market. New services, such as migrating from Unix-based servers to new ones based on Linux can be offered and combined with Dell's hardware. A total of $2 billion to $3 billion in service revenue can be achieved if this strategy is correctly implemented. Dell's three-pronged growth strategy by no means guarantees a sure-fire path to future profitability, but Dell's deliberate and measured steps to expand beyond its PC roots could result in additional good news in the future.
As Dell looks at expanding into international markets, it needs to consider entering the markets that are key to the region. For example, Germany in Europe, China in Asia, and Brazil in South America. Dell needs to carefully study these types of key markets and implement its Direct Model only after it understands how these regions economically and politically function. However, this expansionary growth will place extensive demands on Dell's information infrastructure needed to support such global operations. To be successful in these new markets, Dell must update its websites in the particular languages and modify the accounting systems to handle the specific currencies. Keeping these new employees in touch with one another and with customers, suppliers, and partners will be a gigantic task requiring the latest technology, increasing the demand for instant information. The global market is huge and virtually untapped and Dell is in a great position to take advantage of this market, especially with the use of the Internet and its advanced online capabilities. Dell's most important strategic advantage is the ability to sell direct from Dell, eliminating all the middlemen in the normal distribution line. Anyone who wants a Dell must order it through the mail, online, or over the phone, which is a perfect method for doing international business. Dell just takes the order and ships the computers via one of its many shippers. Dell should focus on dominating the Asian market where they only have a 3.7% hold on a market with over 19.9 billion units. Asia is a virtually untapped market and is expected to grow rapidly in the next few years.
Dell currently has two manufacturing plants and four technical support offices in the Asia area. Dell should look for ways to optimize these facilities and budget some advertising towards attracting enterprise and big businesses in that region. If Dell can capture larger clients in China and India, it may be able to dominate the Asian market, drastically increasing its revenues.