Competitive advantage of Dell and other technology companies

Dell’s competitive advantage is their direct customer focus and this has made the company one of the leading suppliers of technology and direct computer systems. Constant interaction with its customers online and via the telephone gives Dell the ability to understand unique computing needs that drive individual and enterprise productivity. Even though growth rates for the computer industry are expected to be less than previous years, Dell can still successfully operate, enjoying healthy sustainable profits. A main problem is a sagging US economy which Dell has no control over and a saturated PC market with lower profit margins from industry price wars. Dell should focus on being a “market taker”, instead of trying to be a market maker and capitalize on its ability to enter new markets and quickly dominate, as it did in the low-end server and workstation markets. It should pursue a multi-continental expansion of its middle and high end server products. Dell should also pursue the external data storage market through acquiring a leading company like the EMC Corporation. Having already captured a large share of the US market, Dell should try and increase its server, storage, and service segment penetration overseas to gain more international market share, particularly in China and Latin America. Studies might also be done on African and Russian markets as Dell has no physical presence in these regions. The only viable strategy in order to achieve Michael Dell’s goal to double Dell Computers’ current revenue to $60 billion by 2007 is to work on methods to improve sales in these 3 new areas. A combination of service, storage and server product growth across newly established international markets will help achieve this ambitious goal. While the US economy is in a recession, there is still plenty of room to grow outside its borders.

Industry Snapshot

In the early 2000s, the electronic computer industry was struggling amidst a weak economic climate that presented challenges in business and consumer markets alike. According to the U.S. Census Bureau, after a sharp increase from $56.9 billion in 1998 to $64.7 billion in 1999, electronic computer shipment values fell in 2000 to $62.9 billion. As the economy took a turn for the worse, shipment values plunged to $55.8 billion in 2001. This affected virtually every product segment within the industry, including servers and workstations. Along with values, actual unit shipments also declined, falling from 27.2 million in 2000 to 22.7 million in 2001.

A number of factors were causing consumers to delay purchases of new computers in the early 2000s. The terrorist attacks that occurred on September 11, 2001, shook already declining levels of consumer confidence. By late 2002, rising unemployment and a possible war with Iraq served to further exacerbate the average consumer’s outlook. Thus, many were content to get by with existing personal computer (PC) technology in the short term, saving discretionary tech purchases for items like DVD players, MP3 players, and digital cameras.

In the corporate sector, these same conditions led to a temporary slowdown in technology spending, as companies awaited better times. According to several industry analysts, the wave of year-2000-related new equipment purchases that took place at the end of the 1990s, as well as the availability of quality used equipment from bankrupt Internet companies in the early 2000s, also had a negative impact on the corporate market for new electronic computers.

Global competition among computer makers has favored nimble, low-cost producers, and many of these are U.S. firms. In fact, according to International Data Corp. (IDC), in late 2001 the four largest U.S.-owned computer makers–Dell, Compaq, Hewlett-Packard, and IBM–controlled almost 40 percent of world PC shipments. In late 2000, Dell proved itself as a potent competitor by wresting the title of world market leader away from Compaq. By late 2002, Hewlett-Packard had acquired Compaq, creating a new industry heavyweight that challenged Dell’s leadership position.

In 2004, the U.S. Census Bureau reported 109 electronic manufacturing companies with shipments totaling $39.5 billion, up 3.3 percent over $38.3 billion in 2003. Thus, unit shipments increased from 23 million in 2003 to 39.5 million in 2004.

The industry reported 2,278 companies manufacturing electronic computers in 2005, employing 90,762 people who generated some $196,557.41 million in revenue. On average, sales per establishment stood at $116.4 million. Electronic computers represented 59.7 percent of the market, while digital personal computers garnered 23.5 percent of the market.

DELL’s Competitors and Market Players

Hewlett-Packard/Compaq

HP provides personal computers, imaging and printing products, access devices, consulting, and IT infrastructure services to both individual and enterprises customers. The company, founded in 1938 and based in Palo Alto, California, has a presence in 170 countries across the globe. The company recorded revenues of $104.3 billion in 2007 and employs 309,000(2008) people worldwide.

HP maintains excellent account management for its largest global enterprise. HP is setting the standard in the notebook industry with the best combination of advanced features and extremely competitive prices.

Apple

Apple Computer is well known for being the most visible dissenter to the Windows/Intel standards that dominate the PC business. The company designs, manufactures and markets personal computers and related software, services, peripherals, and networking solutions. Apple also designs, develops, and markets portable digital music players along with related accessories and services, including the online distribution of third-party music, audio books, music videos, short films, and television shows.

It is headquartered in Cupertino, California. The company primarily operates in the Americas, Europe and Japan. Apple recorded revenue of $24.01 billion in 2006 and employs 17,787 full-time and 2,399 temporary people.

Apple’s marketing strategy has always be giving away (or nearly so) software to get people to buy hardware. Apple has been widely acknowledged as the leader in computer design and innovations. Apple’s contrary view of marketing may be the wave of future, even as it looks to the past, where the value is placed on the hardware. Apple believes that typical notebooks have become commoditized. They sell for discounted prices and bring in tiny profits. But when laptop is unique, there can be a justifiable premium, and customers are willing to pay that.

Toshiba

Toshiba Corporation is a Japanese multinational conglomerate manufacturing company, headquartered in Tokyo, Japan. The company product line includes digital products, digital telephony, electronic devices & components, home appliances and others. It recorded revenue of $52.265 billion during the fiscal year ended in March 31, 2006.

Toshiba pursues a tightly focused, two-fold strategy. Through its “Differentiation Strategy”, Toshiba seeks to offer new value through innovative products that create and develop new market. In its “Commodity Strategy”, it seeks to advance the overall business through economies of scale that support worldwide delivery of competitive products.

In developing its new mobile PCs, Toshiba is providing a product embodying its “True Mobility” concept: thin, light, with long battery life. Toshiba has also added body strength, superb quality, advanced security, network connectivity, and usability. With the resulting PCs, Toshiba will seek to bring new levels of value to the notebook PC market and to increase market share.

Lenovo/IBM

Lenovo Group Limited is the largest personal computer manufacturer in the Asia-Pacific region as of 2006. The company produces desktop, laptop, servers, handheld computers, imaging equipment, and mobile phone handsets. It also provides information technology integration and support services, and its QDI unit offers contract manufacturing. The company has executive headquarters in Beijing, China and in Morrisville, North Carolina, USA. It is incorporated in Hong Kong. The company recorded revenue of $13 billion during 2005 and employs 19,000 people.

On May 1, 2005 Lenovo Group Limited, the leading PC brand in China and across Asia bought IBM’s PC division. Lenovo’s consumer strength and market leadership in China can let Lenovo and IBM successful in the world fastest growing IT market. IBM will be the preferred services and customer financing provider to Lenovo.

The promise Lenovo brings to the channel is of a well-capitalized company with low production costs that can go toe-to-toe with Dell. Since Lenovo is now a global brand name, the company cannot count simply on high-end models for the business sector, and hence, has to develop Lenovo-branded notebooks targeting the consumer segment, a weak segment for the ThinkPad line.

Differential Advantage for each company

Ability to design new products

a) Focus On the Best Solution, not just the Best Technology

A Dell mantra is that today’s technology is tomorrow’s commodity. Dell waits until the cost of that technology falls low enough for it to be stuffed into computers at state-of-the-art factories and then sold direct at a cheap price, which allows the company to drive for share.

b) Dell’s innovation approach is Listen ƒ  Solve ƒ  Impact.

They started their innovation process with asking their customers

“What would you really want this thing to do? Is there a different way to accomplish that?” Then they meet with their suppliers and ask, “Can we do this in a different way?” Then they try to come up with a totally different approach that exceeds the original objectives.

By questioning all the aspects of its business, they continuously inject improvement and innovation into their products as well as culture.

Ability to deliver the service

a) Dell’s build-to-order manufacturing and sales model changed the way companies buy computers. Dell has excellent supply chain for notebook products and strong marketing execution capabilities. Dell remains the leader in service and support for the largest global enterprises.

b) Dell’s climb to market leadership is the result of a persistent focus on delivering the best possible customer experience by directly selling computing products and services online and through catalogs.

c) Dell are strong in the hardware business and have established their own speedy distribution and low cost manufacturing system.

Ability to Market

a) Dell’s marketing strategy is simple: satisfying customers and making a profit. By focusing on product customization, customer needs and customer service, Dell is still one of the most customer-centric companies in operation today.

b) Dell’s sales and marketing efforts are organized around the needs, trends, and characteristics of our customers. Their direct business model provides direct and continuous feedback from customers, thereby allowing them to develop and refine our products and marketing programs for specific customer groups. Customers may offer suggestions for current and future Dell products, services, and operations on an interactive portion of our website called Dell IdeaStorm. This constant flow of communication allows them to rapidly gauge customer satisfaction and target new or existing products

Ability to manage

a) Ensuring that customers are satisfied every time they interact with Dell is a goal owned by every Dell team member. The Dell Executive Leadership Team sets the strategic direction for how they’ll continue to keep customers at the forefront of all we do – from designing and delivering services and solutions that meet the unique and evolving needs of our customers to developing innovative new products that deliver a superior customer experience.

Ability to design new products

a) HP’s efforts are focused on identifying the areas where they believe they can make a unique contribution and the areas where partnering with other leading technology companies will leverage their cost structure and maximize customers’ experiences.

b) HP Labs, together with the various research and development groups within the five principal business segments of HP, are responsible for their research and development efforts.

Ability to deliver service

HP’s customers are organized by consumer and commercial customer groups, and distribution is organized by direct and channel. Within the channel, they have various types of partners that they utilize for various customer groups. The partners include:

i. retailers that sell products to the public through their own physical or Internet stores;

ii. resellers that sell products and services, frequently with their own value-added products or services, to targeted customer groups;

iii. distribution partners that supply our solutions to smaller resellers with which they do not have direct relationships;

iv. original equipment manufacturers (“OEMs”) that integrate their products with their own hardware or software and sell the integrated products;

v. independent software vendors (“ISVs”) that provide their clients with specialized software products, frequently driving sales of additional non-HP products and services, and often assist us in selling our products and services to clients purchasing their products; and

vi. systems integrators that provide various levels and kinds of expertise in designing and implementing custom IT solutions and often partner with HPS to extend their expertise or influence the sale of our products and services.

Ability to Market

HP is focused on driving efficiencies and productivity gains in both the direct and indirect business. The mix of HP’s business by channel or direct sales differs substantially by business and region. Some of the business segments that caters to different markets

i. Technology Solutions Group (TSG) manages enterprise and public sector customer relationships and also is charged with simplifying sales processes across our segments to improve speed and effectiveness of customer delivery.

ii. Personal Systems Group (PSG) manages SMB customer relationships and commercial reseller channels, due largely to the significant volume of commercial PCs that HP sells through these channels. In addition to commercial channel relationships, the volume direct organization, which is charged with the management of direct sales for volume products, is hosted within PSG.

Ability to manage

To create an organization that could sustain its competitive advantage regardless of marketplace whims and what their competitors were building, HP founders based their corporate culture on the integration and reinforcement of critical opposites. This became known as the Hewlett-Packard Way. HP has achieved “what appears to be the greatest dichotomy: creating an environment that celebrates individualism, but at the same time one that is also wholly supportive of teamwork. Although HP people are taught to engage in cross-functional teams, they are also rated on the performance of decentralized business units and personal achievement.”

Expected Future Strategies

Dell has had a strategy of moving to the services market for years. Businesses, corporations and governments need three things in order to recover from a disaster – servers (or mainframes), storage and communications. Dell has all three, in impressive quantities.

Dell might release a digital music player meant to compete with Apple’s famous iPod.

Dell is also reported to be working on software for a range of portable PCs, which will make it possible for users to organize and download media content from several online resources.

After introduction of computer peripherals like printers and toners, Dell can look at diversifying into LCD and other non-computer goods through strong supply chain giving direct competition to iPod and other consumer electronics brands

Differentiating capabilities and Strategic position

Dell differentiates its PCs by permitting customers to design their own computer system and offering complementary services such as online customer support, three-year on-site warranty, web hosting, installation and configuration of customers’ hardware and software.

Dell has tried to create deeper relationships with customers by expanding high quality services and was rewarded for the uniqueness of their premium price.

Demand Management

One of key strengths of the Dell direct model is, it can accurately measure the customer requirements and demand figures on real time basis. This enables to switch the supply accordingly faster than its competitors. A good example is Dell can launch a promotion worldwide in a few minutes than its rivals could do online.

The vital information collected directly from the customers acts as a source of product innovation for future purposes and enables a platform to work with the manufactures more closely.

JIT Inventory System

Michael Dell states that Dell is so successful because of “Knowledge Management”. Mr. Dell defines that term by saying “physical assets are being replaced by intellectual assets.” This relates to Dell’s inventory system. Dell implements a Just-In-Time inventory system which operates on only 6 days of inventory.

A competitive advantage is seen when a company, such as Dell, links supply chain management with customer relationship management and supplier relationship management. This link is known as DVCM (Dynamic Value Chain Management). Dell’s initial success was due to its early use of the internet.

Competitor’s Targeting

Lenovo/IBM

Lenovo product lines of personal computer have covered all market segments, from high-end to low-end. Combined with IBM PCs, personal computer of Lenovo has 11 series of laptop and 11 series of desktop. C, N, V, Y, G, K, F, T, J, TY, QT, BT, YT, IdeaPad, and Idea Center Series(Including K, Qa).

To target new customer groups, Lenovo introduced its own branded Lenovo 3000, specially designed for small and medium sized businesses.

Lenovo has increased innovation for customers developing more low-power, lighter, and easier to use product. The company sustains its competitive advantage through hardware reliability, lower notebook PC failure rate and better customer complaint management.

Lenovo raised a principle” To computer user, it is not the higher configuration, the better, but the more convenient to use and reasonable price, the better.” They found a big market in it and launched some more differentiated and competitive products like Y series

Lenovo divides its business model into relationship marketing model and transaction marketing model.

• Relationship marketing model is to establish, maintain and strengthen the customer relationship, as well as other partners. Customers in relationship marketing model are mainly enterprises, institutions, governments, which would usually invite public bidding for purchasing.

• Transaction marketing model concerns how to help customers increase capacity and the purchase of individual transactions. Customers in transaction marketing model are mainly individual, small enterprises or other organization with a small order. Transaction models are including agents, dealers, retail, direct telephone sales, transaction-oriented customer trends, fashion and personalization.

Initially, IBM PC was positioning at Differentiation Focus, where they focused on big business based on their high quality products. At the same time, Lenovo was positioning at Cost Focus, where they focused on low cost PC and the consumers market, claiming unique customer services / reliability.

However, after the acquisition Lenovo try to target broader market segments such as SMEs while maintaining its unique competencies, moving themselves to the Differentiation of Generic Competitive Strategies.

HP

When buying a computer/notebook from HP, it is almost tempting to buy the complete package, computer, digital camera, printer, as their additional component prices are very reasonable, due to low mark-up on basic products. HP is able to offer more of a basic package from within its range, set prices for set laptops, so the customer may end up with a notebook that has other benefits than the basic Dell model, which may not always be required.

Customers that would be looking for the complete package would tend to be more families/young business people, not maybe as many companies or students.

Demographically and Psychographic customers would range but maybe in a more controlled manner compared to Dell.

Customers may look at this from different perspectives, thinking that the basic HP offers more of a package deal, where Dell is what you ask for is what you get, no bells, no whistles.

The increased competition in the last years and shifts in customers buying patterns that have made value-added resellers (VARs) a very important part of HP’s selling strategy. HP invents engineers and delivers technology solutions to their customers for business and social use.

HP’s success is dependent on increasing the loyalty of their customers. Listening closely to customers to fully understand what it is they need, then delivering solutions that translate into customer happiness. This is essential to earn customer loyalty. Competitive total cost of ownership, quality, inventiveness, and the way HP does business drives customer loyalty.

In this part of this research paper we would analyze the Dell Corp by utilizing the

strategic management matrix tools. For example, we would explore the SWOT Analysis,

External Factor Matrix Analysis, Competitive Profile Matrix Analysis and finally the

Internal Factor Matrix Analysis to analyze the strategic position of Dell Corporation in

the industry.

Our objective here is to utilize the strategic management tools mentioned in the

course books and in the research material reviewed during the class secession to come up

with valuable conclusion that would add value to Dell Corporation.

However before we proceed to strategic analysis, we would critically view the

core issues of Dell Corp. This step would help us to better understand the development

and implementation of strategies in this organization.

The Core Issues at Dell Corp:

1. The Price War is going on between PC Makers.

2. Revenues Down in 2002 compare to 2001 (31.9 to 31.1 billion)

3. Worldwide sales of PC’s Down 11% in 2001, Dell’s Sales Up

4. Leadership at Dell Corporation

5. Service Contracts

6. Maintaining the Market Share

In this part of this research paper we would analyze the Dell Corp by utilizing the

strategic management matrix tools. For example, we would explore the SWOT Analysis,

External Factor Matrix Analysis, Competitive Profile Matrix Analysis and finally the

Internal Factor Matrix Analysis to analyze the strategic position of Dell Corporation in

the industry.

Our objective here is to utilize the strategic management tools mentioned in the

course books and in the research material reviewed during the class secession to come up

with valuable conclusion that would add value to Dell Corporation.

However before we proceed to strategic analysis, we would critically view the

core issues of Dell Corp. This step would help us to better understand the development

and implementation of strategies in this organization.

The Core Issues at Dell Corp:

1. The Price War is going on between PC Makers.

2. Revenues Down in 2002 compare to 2001 (31.9 to 31.1 billion)

3. Worldwide sales of PC’s Down 11% in 2001, Dell’s Sales Up

4. Leadership at Dell Corporation

5. Service Contracts

6. Maintaining the Market Share

Dell’s global presence creates opportunities for expansion in the overseas

markets. Its awareness about the environment makes it a responsible investor. Its user

friendly web site makes it easy for those who are not computer expert to go online and do

the shopping in a very safe environment.

After SWOT Analysis we would explore the External Factor Evaluation Matrix to

look how Dell is standing in the market compare to its competitors in I.T industry.

External Factor Evaluation Matrix

The 3.50 WEIGHTED SCORE in Dell’s EFE Matrix represents that Dell is

responding in an excellent way to it’s opportunities and threats in the I.T. industry. In

other words we can conclude that Dell’s strategies efficiently and effectively take

advantage of its opportunities and take serious steps to minimize the potential threats.

The WEIGHTS are industry based and RATINGS represent the effectiveness of

firm’s strategy. Or we can conclude how effectively Dell’s strategy is responding to the

factors.

Interpretation of Ratings: 4 = Superior Response; 3 = Above Average Response; 2

= Average Response and 1 = Poor Response.

6

© Ijaz and John, Argosy Business School, Argosy University, San Francisco, California, USA

Dell Corporation, Strategic Case Analysis prepared by Ijaz Qureshi and John Mufich, Argosy University Business School, San

The Critical Success Factors in Competitive Profile Matrix includes both internal

and external issues. In CPM ratings represents Strengths and Weaknesses. 4 = Major

Strength; 3 = Minor Strength; 2 = Minor Weaknesses and 1 = Major Weakness.

Dell’s 3.65 score represent that it is competing fiercely with its competitors in the

domestic and global markets.

7

Dell Corporation, Strategic Case Analysis prepared by Ijaz Qureshi and John Mufich, Argosy University Business School, San

Francisco, California, USA.

IFE Matrix is the Internal Audit of an organization. This Strategic Management

Tool evaluates and summarizes the major strength and weaknesses of the Dell.

Dell’s WEIGHTED SCORE of 3.50 represent that it is excellent in its overall

internal strategies when it come to explore strengths and weaknesses.

The WEIGHTS are industry based and RATINGS represent the effectiveness of

firm’s strategy. Or we can conclude how effectively Dell’s strategy is responding to the

factors.

Strengths

Weaknesses

Production Adaptability

Rapid I.T. Advancement

Financial Ratio

Price Wars

Product Reliability

Strong Brands in The Market (IBM)

Customer Relationship

Build To Order

Competitive Prices

Leading technologies

Opportunities

Threats

Global Markets

I.T. Advancement

Internet Usage

Price Wars

Outsourcing

Strong Brands in The Market (IBM)

Ecommerce

Changing Consumer Needs

EMS

HP / Compaq Merger

Maintaining Low Price Leadership

Emerging Markets

Global Presence

Indian I.T Industry

External Factor Evaluation Matrix NO’S

OPPORTUNITIES

WEIGHTS

RATINGS

WEIGHTED SCORE

1

Global Markets

.10

3

.3

2

Internet Usage

.10

3

.3

3

Outsourcing

.10

4

.4

4

Ecommerce

.20

4

.8

5

EMS

.10

4

.4

6

Maintaining Low Price Leadership

.05

3

.15

7

Global Presence

.05

2

.1

THREATS

1

I.T. Advancement

.05

4

.2

2

Price Wars

.05

4

.2

3

Strong Brands in The Market (IBM)

.10

3

.3

4

Changing Consumer Needs

.05

4

.2

5

HP / Compaq Merger

.05

3

.15

Total

1.00

3.5

The 3.50 WEIGHTED SCORE in Dell’s EFE Matrix represents that Dell is responding in an excellent way to it’s opportunities and threats in the I.T. industry. In other words we can conclude that Dell’s strategies efficiently and effectively take advantage of its opportunities and take serious steps to minimize the potential threats.

The WEIGHTS are industry based and RATINGS represent the effectiveness of firm’s strategy. Or we can conclude how effectively Dell’s strategy is responding to the factors.

The Competitive Profile Matrix

Critical Success Factors DELL IBM HP/COMPAQ

C.S.FACTORS

WGHT

RTG

SCR

RTG

SCORE

RTG

SCR

1

Ecommerce

.15

4

.60

4

.60

4

.60

2

Leadership

.15

4

.60

4

.60

4

.60

3

Global Expansion

.10

3

.30

4

.40

3

.30

4

Competitive Prices

.05

3

.15

4

.20

4

.20

5

Service/Repair

.10

3

.30

4

.40

3

.30

6

Direct to customers

.05

4

.20

3

.15

4

.20

7

Adaptability

.10

3

.30

4

.40

3

.30

8

Understanding Customers

.10

4

.40

4

.40

3

.30

9

EMS

.05

4

.20

3

.15

3

.15

10

World’s Leading Web Site

.05

4

.20

4

.20

3

.15

11

Quality Control

.10

4

.40

4

.40

3

.30

Total

1.00

3.65

3.90

3.40

COMPETITIVE LANDSCAPE

United States – PCs

Major suppliers to PC manufacturers are electronic component manufacturers, including integrated circuit manufacturers. The majority of components used in the manufacture of PCs display minimal differentiation between suppliers and in order to reduce costs are often sourced from companies operating from low cost manufacturing regions.

PC manufacturers do not incur significant costs when switching suppliers of basic components and in such instances supplier power is low. However, Intel, the leading manufacturer of CPUs