The strategy of Dell to lead in Computing

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The two strategies considered are the market based and resource based views. The former is a reflection of Porter's five forces (1980); a model that facilitates analysis of a specific industry that allows firms to develop a competitive edge over its rivals. According to Lockett et. al (2009) this strategic management approach emanates from industrial organisational economics and analyses the "firms optimal response to its external environment, including the behaviour of rivals but it tends to retain its traditional characterization of the firm's internal workings as a 'black box' beyond scrutiny". In other words an organisation's internal assets and competences are not considered.

The resource based view (RBV), or capabilities view, considers firm's competitive advantage is dependent on the distinctiveness of its internal capabilities (Johnson 2008).

Wernerfelt (1984) links these two strategic ideas together by suggesting that barriers to entry that serve to reduce the attractiveness of a market to potential competitors (Porter 1980) are similar to resource position barriers which can be achieved in a number of ways from different classes of resources.

In 2008 Dell had five strategies in place to 'reignite company's revenue growth'; global consumer product sales to large enterprise customers, laptop computers, sales to small and medium enterprises and sales in emerging countries. The interventions employed by Dell to implement this are appraised below.

Dell's strategy in attaining number one position on 2007 was essentially customer driven and both strategic approaches are evident in the case.

Dell closely observed its market, for instance, diversifying into consulting services which were 'forecast to be in $850-$900 billion range in 2011'. Its strategy was to reduce the cost of 'enhanced services' to large corporate customers for which its competitors such as HP and Sun Microsystems charged very high hourly rates. Concurrently Dell was using its capability of designing low cost routes for the benefit of the customer. In 2007-8 it made six acquisitions that enhanced its 'value added' capabilities in software-related products; all of the capabilities acquired were customer driven geared to simplifying IT for the benefit of the customer (Christensen et al. 2005). Dell adapted to changing customer requirements and built its resource based barrier, This example also demonstrated the market based view of examining the behaviour of its rivals as 'executives at Dell believed that having greater capability to offer commercial customers simple cost effective ways to manage their IT than competitors would give it competitive advantage'.

Dell adapted its approach from direct sales to web based sales to consumers in 1990s but retained a major account approach so far as corporate customers were concerned providing its biggest customers with dedicated salespeople and customised services that enabled the firm to become global number one in the corporate PC market.

By 2004 Dell's sales were over 50% web generated with 'revenues generated greater than Yahoo, Google, e-Bay and Amazon combined' and increasing. Dell continued to enhance its website capability to reduce lead times and make ordering easier for the customer (Christensen et al. 2005) building e-loyalty. More recently it broke from its tradition of direct sales and adopted the 'white box' vendor approach which allowed it penetration into the small business market; watching competitor behaviour while building customer base.

In emerging markets, Dell initially failed but quickly realised that far Eastern consumers were not attracted to online purchasing; they need to see and feel the product and to discuss such a major purchase with family and friends. Dell overcame these cultural differences by opening kiosks where consumers could see the product and then be assisted to order the required model online. This illustrates that one of the firm's most valuable resources is Michael Dell's business acumen. When he stepped aside as CEO in 2004, this missing resource became apparent when the 'performance stalled in 2006' and Dell returned to the role. The ability to identify mistakes and 'cut losses' reinforce the value of Dell's capabilities as a learning organisation and agility to change direction which is often lacking in large global companies.

In 2008 a cost cutting target was set at $3 billion, in an effort to restore margins. According to the Wall St Journal, quoted in the case study, Dell failed to transfer the bulk of its business to laptop manufacture quickly enough and, when it did through a joint manufacturing venture with an Asian manufacturer, the "two-two" approach, it costs were too high to compete with its competitors. Despite its previous superior capability in supply chain management a decision was made to outsource all laptop production sell US manufacturing plants. A market based approach to rival behaviour had to be taken through drawing upon its learning capability to regain its profitability and post outstanding revenue gains.

In 2008 Dell also re-engineered its workforce, increasing numbers dealing with customer directly but removing those not in the 'front line' and cutting costs considerably so continuing to build the customer loyalty resource based barrier. This followed the 2007 decision to make made extensive use of social networking to receive ideas from customers added to Dell's ability to innovate, to receive and solve customer complaints hence reducing propensity to producing faulty machines. These interventions build up a service advantage which Kaleka (2011) states as being a powerful approach involving the whole organisation. '

Sustainability is a crucial issue for the future (Ohmae, 1982) and one that Dell needs to focus on continually. Dell's use of the Christensen et al's (2004) 'Jobs to be done theory' should be continued and extended; this means continuing to find new ways to gain customer feedback and ideas and to invoke market based view of competitor behaviours so as to retain first mover advantage. Strengthening the resource position barrier at every opportunity to ensure that rivals cannot imitate Dell's strategy easily; customer loyalty, technological lead, customer loyalty and machine capacity to keep a first mover position as suggested by Wernerfelt (1984). Emerging markets are a potentially vast growth area where competition from low cost producers such as Lenova and Acer will be fierce. However Forrester Research quoted in the case study anticipates increasing demand for PCs and servers in which Dell has considerable expertise, R & D capability as well as other the resource capabilities mentioned earlier. Dell should continue to act like an entrepreneurial player keeping its agility to adapt to a rapidly changing and increasingly competitive environment.

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Ohmae, K. (1982) The Mind of the Strategist McGraw Hill

Porter, M.E. (1998) Competitive Strategy: Techniques for Analyzing Industries and Competitors New York:The Free Press

Christensen, C et al. (2005) Marketing Malpractice: The Cause and the Cure.  Harvard Business Review 83, (12) pp. 74-83

Kalela, A. (2011) When Exporting Manufacturers Compete on the Basis of Service: Resources and Marketing Capabilities Driving Service Advantage and Performance. Journal of International Marketing, 19 (1), pp. 40-58

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