DELL STRATEGIC MANAGEMENT ASSIGNMENT/CASE STUDY SOLUTION Dell Strategic Management Assignment/Case Study. It reviews the organizational structure, vision, mission, SWOT, PESTEL Analysis, Strategic Strategic Group Map Competition and Product Positioning Map of Dell. This is a sample paper. If you like to order your own paper, please Click Here
INTRODUCTION This report undergoes a strategic management overview of Dell, one of the leading PC vendors of the world with a unique operations model focusing on built to order and direct to consumer frameworks. The report begins with a comprehensive overview of the company’s operations, its hierarchy, location and principle of logistics. An understanding of the vision, mission and objectives allows for the strategic analysis to be put into context and perspective. Our first strategic analysis tool is the SWOT analysis followed by an internal a nd external factor analysis. This is accompanied by a TWOS matrix allowing the report to pin point specific strategies which may help the organization cash on its strength and opportunities to offset threats. An overview of the life cycle of the industry is followed by a PEST analysis. Understanding the political factors is critical and along with the location principles explained in the first section – section – allows allows us to pin point some strategic direction for the company. Similarly the economic, social and technological factors are discussed for the industry and the implications for Dell on a strategic level. A competitive analysis with other names in the industry is done through a product positioning map on the factors of price and customizati customization. on.
OVERVIEW OF PRODUCT AND SIZE Dell became the leading PC Vendor of the world in 2001. One of the most unique proposition of Dell is the by passing of reseller through a direct to final buyer strategy. This accounts for 90 percent of its sales leading to the reporting of higher profitability and revenues for the company. This direct to buyer results in a consumer intensive strategy is called by many as the key to the success of Dell’s model of b usiness (Kraemer, et al., 2000). The direct direct relationship relationship with consumers not allows for reduced costs, better inventory decisions and increased revenues but also allows for a better understanding of what the customer requires. The PCs are therefore built to the exact specifications specifications as required by the customer. This is a sharp contrast to the conventional model of PCs which are based on vendors who make attempts to predict the demands of the market. This built to order strategy helps Dell in multiple fronts, reducing overheads and increasing return on investments at the same time as allowing for a better understanding of the market and consumer needs. This specific strategy comes with several complications in operations. The operations need to make sure that all parts and components are quickly available so that customized configurations can be handled quickly. The capabilities of production and logistics of supplies must be optimized in order to make sure that there are quick turnarounds and orders are processed efficiently. The requirements of such an operations means there is an interesting structure of logistics. There is a focus on outsourcing of activities which are non strategic while the emphasis is laid down on key strategic areas. There is a relationship intensive strategy with partners who provide the components and elements of the Personal Computers so as to provide value added products. The actual production network of Dell is spread around the world ranging from America, Europe to to Asia. Some Some of the production cycles are outsourced outsourced to other manufacturers. manufacturers. There There is also a reliance on the supply of several components such as CD ROMs and Disk Drivers to outsiders. Partnership with software providers such as Office also allows it to further increase the value of final product. Outside p artners are
also used for installation, repairs on the site and integration of the overall systems. Resellers are used for recommendation of the product to consumers.
LOCATIONS The location factor of Dell is critical to the effectiveness of its built to order model. The basic decisive factor in choosing a location is to understand how costs can be minimized, built to order models can be extended and direct sales can be maximized around the world with minimum time and maximum customer satisfaction. Specific locations and their selection depend upon labor rates in an area, the transportation infrastructure, political barriers and the closeness to high demand areas. The headquarters originally was in Austin Texas, where the company was formed. Manufacturing units exist in Tennesse as well. Currently the manufacturing units in America are limited to these two areas. Brazil has a manufacturing unit of Dell in Eldorado do Sul. This location point was decided on the basis of the need to supply the South American market. There were also political factors such as the avoiding of tarrifs because of the choice of location. The European, Middle Eastern and African market are combined as one sector; the headquarters of which is based in the UK. Ireland is used for a production unit because of the tax incentives available over there (Loughran, 2000). Logistic hubs and technical support units are also deployed around the continent. Manufacturing units are placed strategically in the Asia-Pacific region as well. Malaysia because of its appropriate labor rates, political incentives and closeness to suppliers were chosen as the central location. Production units are placed around the continent including one in China with close suppliers in Taiwan.
HIERARCHY The organizational hierarchy can be seen as follows:-
VISION, MISSION, GOALS AND OBJECTIVES VISION “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 our guiding force” The vision statement is able to put forward one of the most important principles behind the operations of Dell. The industry that Dell operates in is one of the most d ynamic and ever changing one in the international market. Fluctuation of technology and consumer demands mean that change is the only constant. This is why the lack of prediction leads to the vision statement which focuses on the in terpretation of strategy through consumer needs, technology trends and international business climate.
MISSION STATEMENT “Dell’s mission is to be the most successful Computer Company in the world at delivering the best customer experience in markets we serve. In doing so, Dell will meet customer expectations of: Highest quality Leading technology Competitive pricing
Individual and company accountability Best-in-class service and support Flexible customization capability Superior corporate citizenship Financial stability”
BUSINESS OBJECTIVES Dell’s business objectives include quality, leading technology, competitive pricing and flexible customization support. Through a strong quality assurance team and in house capabilities to build most of its product it has been able to develop a strong QA engineering function. Through a participative culture of employees and a drive to meet future market needs it is able to incorporate all development of technologies in its expansion. Its business model has always been successful to stay on top of technology. Utilizing a build to order model it has been able to incorporate leading technology as well as provide flexibility of products to consumers. Through the removal of middle men in sales as well as developing in house capacities and optimized inventory management; Dell has also been able to achieve cost leadership in many market segments of the computer industry.
CULTURE, VALUES AND HISTORY Dell has a highly customer centric culture. Founded by Michael Dell in 1984, the company was founded to serve the customers directly with PCs that were able to meet specific needs. The company was named PC’s limited at that time. There has been one belief that has always driven the organization right from the beginning which is to be completely consumer focused to the point that they are able to incorporate customized requirements during ordering processes. The company was able to go public within 4 years. Dell made its entry into the laptop market in 1991 marking an aggressive growth rate in the following years becoming one of the top 5 computer companies of the world. Dell believes in high turnover solutions which are also available on their website. A technology savvy culture with a focus on consumer needs drives the operations and initiatives at the company. Another d riving factor for Dell has been delivering the computers directly to consumers. This build to order strategy has removed the middle man, increasing turnovers and decreasing costs for all parties involved. This allows Dell to sell at a highly competitive rate as compared to the competition. It is this consumer driven culture, innovative values and cost optimization that sets Dell apart (Dell, 1999). Company Culture as cited by the company’s website (www.dell.com) includes -
Meritocracy: Making sure that employees are rewarded for doing a good job in order to enforce better
performance and motivate the human resource in meeting measurable objectives -
Direct Relationships: Focuses on a relationship intensive strategy internally and externally making sure that
the environment is based on two way communication -
Empowerment: One of the most crucial factors of an innovative company is empowerment. Highly employee
participation culture is seen at Dell.
SWOT ANALYSIS STRENGTHS
The business model of dell which focuses on a built to orde r framework where the middleman is removed and PCs are sold directly to the end buyer
Strong strength of sales strategy through a variety of mediums ranging from conventional to e -commerce
Elimination of the mark ups added by the reselling party through the direct sales to end buyer re sulting in lower costs to consumer without cutting down margins for Dell
Reliability that comes out of a built to order model – reduction of over-heads related to large inventories and finished goods.
One of the industry leads in the Personal Computer market
Considerable number of manufacturing units across the world
Strong brand value and power in B2B as well as B2C
Significant margins over costs of production because of the direct sales to the end buyer
A highly relationship intensive strategy starting from the consumer sector and extending to the corporate and government sectors
Holds a large share in the market of personal computers
Through the built to order model of production, Dell is able to achieve a quick turnover as well as decrease the stock required in the inventory
High level of quality assurance through extensive testing in the pro duction process A wide array of customers including specific market segments such as hospitals and universities
Top ranked Server on Intel technology by the publication Technology Business
Strong understanding of individual customer segment needs
Wide array of methods of advertising and marketing
There are not a lot of production units and regional offices in the west – including the United States
For some consumers it is an inconvenience that Dell PCs cannot be purchased through retail outlets
It has not been able to penetrate into several international segments as a leading supplier even though the number of locations in the international market are great
In the printer market it does not produce its own products – rather purchases it from Lexmark
There is a strong dependency on outside suppliers from foreign lands which leads to a strong dependency on fuel supply and their prices leading to fluctuation
The size of the company comes in the way of faster growth
There is a continuing demand for personal computers
There is a strong and evolving market for notebooks and tablets
There are strong opportunities of partnership in the market including one potentially with Microsoft
There is a strong margin of expansion in consumer electronics
Consumer spending on technology is relatively untouched compared to other products
Strong growth in the market of color printers
There are more mergers and acquisitions happening in the industry – a threat of strong consolidation trend in the PC industry
The influence and dependency on outside suppliers means increasing oil prices are crippling the spending of the consumers on PCs
The demand of commercial usage of PCs are not increasing at the same pace
Strong competition continues to act as a threat
The growth of the market has slowed down
Strong fluctuation in price
Computing power fees has reduced
The market has widened
The fluctuating value and devaluation of currency continues to happen in the international market
WEAKNESSES OPPORTUNITIES THREATS Source: (Kharif, 2005) and (Dell, 1999)
Key External Factors Opportunities There is a continuing demand for personal computers There is a strong and evolving market for notebooks and tablets There are strong opportunities of partnership in the market including one potentially with Microsoft There is a strong margin of expansion in consumer electronics Consumer spending on technology is relatively untouched compared to other products Strong growth in the market of color printers Threats There are more mergers and acquisitions happening in the industry – a threat of strong consolidation trend in the PC industry The influence and dependency on outside suppliers means increasing oil prices are crippling the spending of the consumers on PCs The demand of commercial usage of PCs are
Weight
Rating
Weighted Score
.1
3
.3
.1
4
.4
.1
4
.4
.05
2
.1
.05
2
.1
.05
2
.1
.05
3
.15
.05
3
.15
.025
2
.05
not increasing at the same pace Strong competition continues to act as a threat The growth of the market has slowed down Strong fluctuation in price Computing power fees has reduced The market has widened The fluctuating value and devaluation of currency continues to happen in the international market
Total
.15
3
.45
.1 .025 .025 .05 .05
2 4 3 3 2
.2 .1 .075 .15 .1
1
2.85
INTERNAL FACTOR EVALUATION (IFE) MATRIX Key Internal Factors Strengths The business model of dell which focuses on a built to order framework where the middleman is removed and PCs are sold directly to the end buyer Strong strength of sales strategy through a variety of mediums ranging from conventional to e-commerce Elimination of the mark ups added by the reselling party through the direct sales to end buyer resulting in lower costs to consumer without cutting down margins for Dell Reliability that comes out of a built to order model – reduction of over-heads related to large inventories and finished goods. One of the industry leads in the Personal Computer market Considerable number of manufacturing units across the world Strong brand value and power in B2B as well as B2C Significant margins over costs of production because of the direct sales to the end buyer
A highly relationship intensive strategy starting from the consumer sector and
Weight
Rating
Weighted Score
.1
4
.4
.05
3
.15
.025
3
.075
.05
3
.15
.1
4
.4
.05
4
.2
.05
4
.2
.05
3
.15
.025
3
.075
extending to the corporate and government sectors Holds a large share in the market of personal computers Through the built to order model of production, Dell is able to achieve a quick turnover as well as decrease the stock required in the inventory High level of quality assurance through extensive testing in the production process A wide array of customers including specific market segments such as hospitals and universities Top ranked Server on Intel technology by the publication Technology Business Strong understanding of individual customer segment needs Wide array of methods of advertising and marketing
.05
3
.15
.05
3
.15
.05
3
.15
.05
4
.2
.05
4
.2
.025
3
.075
.025
4
.1
There are not a lot of production units and regional offices in the west – including the United States For some consumers it is an inconvenience that Dell PCs cannot be purchased through retail outlets It has not been able to penetrate into several international segments as a leading supplier even though the number of locations in the international market are great In the printer market it does not produce its own products – rather purchases it from Lexmark There is a strong dependency on outside suppliers from foreign lands which leads to a strong dependency on fuel supply and their prices leading to fluctuation The size of the company comes in the way of faster growth
.025
2
.05
.025
1
.025
.05
2
.1
.025
1
.025
.05
2
.1
.025
1
.025
Total
1.00
Weaknesses
TWOS MATRIX
3.15
Strengths Weaknesses The business model of dell There are not a lot of which focuses on a built to production units and order framework where the regional offices in the west – middleman is removed and including the United States PCs are sold directly to the For some consumers it is an end buyer inconvenience that Dell PCs Strong strength of sales cannot be purchased through strategy through a variety of retail outlets mediums ranging from It has not been able to conventional to e-commerce penetrate into several
Elimination of the mark ups added by the reselling party through the direct sales to end buyer resulting in lower costs to consumer without cutting down margins for Dell Reliability that comes out of a built to order model – reduction of over-heads related to large inventories and finished goods. One of the industry leads in the Personal Computer market Considerable number of manufacturing units across the world Strong brand value and power in B2B as well as B2C Significant margins over costs of production because of the direct sales to the end buyer A highly relationship intensive strategy starting from the consumer sector and extending to the corporate and government sectors Holds a large share in the market of personal
international segments as a leading supplier even though the number of locations in the international market are great In the printer market it does not produce its own products – rather purchases it from Lexmark There is a strong dependency on outside suppliers from foreign lands which leads to a strong dependency on fuel supply and their prices leading to fluctuation The size of the company comes in the way of faster growth
computers Through the built to order model of production, Dell is able to achieve a quick turnover as well as decrease the stock required in the inventory High level of quality assurance through extensive testing in the production process A wide array of customers including specific market segments such as hospitals and universities Top ranked Server on Intel technology by the publication Technology Business Strong understanding of individual customer segment needs Wide array of methods of advertising and marketing Opportunities
There is a continuing demand for personal computers There is a strong and evolving market for notebooks and tablets There are strong opportunities of partnership in the market including one potentially with Microsoft There is a strong margin of expansion in consumer electronics Consumer spending on technology is relatively untouched compared to
S-O Strategies Expansion intensive strategy into the personal computer as well as laptop Market [Combination of Strength 1, Strength 5, Opportunity 1] Strategize such that all future developments are in line with the evolving technology and focus on a corporate social responsibility agenda (Strength number 14 and Opportunity number 1)
W-O Strategies
The development of further production units as well as retail units in the United States [A combination of Weakness 1, Weakness 3 and Opportunity 5] Diversification strategy towards the printer market into the color printers – including development of internal capabilities [Weakness 4 and Opportunity 6]
other products Strong growth in the market of color printers Threats
There are more mergers and acquisitions happening in the industry – a threat of strong consolidation trend in the PC industry
S-T Strategies Provide attractive pricing and discounting packages on specific products to the B2C market [A combination of strength 9 and Threat 4]
The influence and dependency on outside suppliers means increasing oil prices are crippling the spending of the consumers on PCs
W-T Strategies
Counter competition and increasing market share by penetrating into the Asian and European market for leading supplier position in maximum locations [A combination of weakness 3 and threat 1]
The demand of commercial usage of PCs are not increasing at the same pace Strong competition continues to act as a threat The growth of the market has slowed down Strong fluctuation in price Computing power fees has reduced The market has widened The fluctuating value and devaluation of currency continues to happen in the international market
LIFE CYCLE OF THE FIRM’S INDUSTRY STAGE 1: DEVELOPMENT OF THE PRODUCT The first stage of the life cycle is marked by a research intensive and secretive process. The more the innovation in a PC company, such as apple, the more investment goes into the research process. Code name are usually utilized without naming it till it’s developed completely
STAGE 2: ANNOUNCEMENT OF THE PRODUCT
This stage is not to be mixed with the actual product introduction stage. The purpose is to bring the media and big guns to an event and announce what will be coming through in the near future. The product does not always reach its final shape at the time of announcement of the product.
STAGE 3: INTRODUCTION OF PRODUCT The introduction of the product is the stage when the final product is ready to be delivered to the consumers. At the time of announcement, the supply of the product is not that high and expensive in order to hit big profits. At this point of time, a new product is also started to be developed which means Stage 1 of a future product starts at the Stage 3 of the new product.
STAGE 4: MAINTENANCE It is during this stage of the life cycle that the price starts decreasing and the supply increases – getting even with the actual demand in the market. The products will be send to all major sales point of Dell around the world at a lower cost than before. It is at this stage of the new product that the future product is announced.
STAGE 5: RETIREMENT Since Dell operates in a highly technological environment, changes and advancement are frequent which results in a relatively quicker retirmenet of products. This is now replaced by the introduction of the product which incorporates new technology.
IDENTIFICATION OF ENVIRONMENTAL CHANGES POLITICAL FACTORS: The political factors include legislature, government regulations and other restrictions/provisions of political nature. This directly implicates the conditions under which Dell has to o perate. Political factors have caused certain restraints from time to time because of the political instability. Some of the political factors include the ones that come as a direct result of signing of W orld Trade Organizations. Market access is one such factor. For example, Texas and Malaysia, two of the top choices for Dell in the region are central to U.S Tennesse and to Asia Pacific respectively. Ireland, another hub of Dell, is in close proximity to United Kingdom, Germany and france. Tarriff free access to markets are one of the biggest political incentives to Dell. Political changes which cause an impact on market access and their conditions can have consequences on pricing strategy of Dell as well as supply choices. Political incentives such as tax holidays provided by Malaysia are another such political factor. Low corporate taxes, financial incentives, land support and per capita grants per employee are other such factors which contribute to the political dynamics of the operating environment for Dell.
ECONOMIC The economic situation around the world, in specific regions have a direct impact on two things. A) The changing economic situation and landscape has a direct impact on the pricing strategy and profit margin of Dell and B) Economic turmoils such as the one faced right now by the world decreases consumer power to buy the Dell products. Currency fluctuation and Changes in Oil pr ices are another factor which causes strong disruption in pricing models of Dell. Strong dependency on foreign supply means these two factors become all the more critical.
SOCIAL
Demand for computers has a strong dependency on several social factors. One of the most critical of these social factors is the level of education that prevails within a country. Higher education standards lead to strong demand for the PCs around the globe.
TECHNOLOGICAL Technological changes in environment include the advancement of components, more e fficient parts, internet access, newer ways to market the product and the pace a t which products keep getting smaller and faster. This change in speed and size is central to the changes that are required on a regular basis by Dell in order to keep up with the business environment. Source: (Kharif, 2005)
STRATEGIC GROUP MAP COMPETITION PRODUCT POSITIONING MAP HP: HP is the closest competition to Dell. W ith a strong advantage over Dell in the segment of Printers, it has an edge on that front. On the other hand Dell continues to have an edge in terms of its competitive price over HP. The weakness, however, remains in the printer segment infront of HP (Schmid and Kelber, 2005). IBM: Dell and IBM do not have conflicting target market segments. However, IBM seems to have a better penetration into the Asian market as well as better access to cheaper wage rates. One of the most important competitive edge for IBM is the server market (Schmid and Kelber, 2005). Apple Computers: Apple is one of the most innovative firms in the PC market. Their target market is different from Dell as well. They are more innovative and sell the products on premium prices. Leading edge design and low variety in products are the features of Apple. Note: The product positioning is based on customization and cost. Customization is seen as the variety in product portfolio as well as the customizable specifications within one product.
PRODUCT POSITIONING MAP Expensive Apple
Customizable
HP
Dell IBM Inexpensive
RECOMMENDATIONS
Generic
RECOMMENDATIONS FOR STRATEGY IMPLEMENTATION Dell’s strategy has been focused on building computers that can be ordered by consumers through a strong internal capability of manufacturing and quick inventory turnarounds. This build to order strategy has been the differentiating factor for Dell for the past few decades. The removal of the middle man gives it high margin in direct sales as well as provides low costs to its consumers. One of the strong strategic advantages for Dell has been its ability to adapt to changes. As an employer Dell has focused on a strong relationship with employees, focusing on their motivation, well being, reward strategy and empowerment strategy. Its strategic supply chain management, data integration with suppliers, relationship intensive approach and integrating physical store sales with online sales has made sure Dell continues to grow at a n exceptional rate. The following are recommended as strategic line of action for Dell
An involvement in CSR activities including a Green Campaign for collection of old PCs/electronic equipment for recycling/disposition in an e nvironmental friendly way. This will lead to better image in the society as well as sustainable development and cost efficiency in the long term
A series of internal marketing efforts to maintain a highly innovative culture within the organization for a re enforcement of its employer values for high performance management and employee participation.
Venture into R&D partnership with an established company sharing intellectual resources and the hardware infrastructure of Del for development of technology savvy products for future.
Building more manufacturing plants around the world and specifically in the US. Global expansion should be met with region specific capacity building as well as to reduce supply chain costs/complications and dependency on external factor
Internal capacity building for the development of printer products in order to cut down its costs, increase quality and increase market share in competition to HP.
CONCLUSION The industry of personal computers, laptops and related hardware is one which evolves continuously. The result of globalization, political incentives and technological advances can be seen on a regular basis. This means that a reassessment of strategy for all the players in the industry is important in order to keep the respective competitive advantage going. Dell’s structure allows for efficiency, cost optimization, customer relationship intensive strategies and optimum supply chain. This report assessed the strategic direction that Dell has been taking on the basis of its external environment and internal capabilities/limitations. Through TWOS, PEST, positioning maps and internal/external key factor evaluation, the report came up with a five point recommendation focusing on research and development, production plants, internal capability development, high performance management and corporate social responsibility.
Dell Porter’s Five Forces Analysis
Posted on October 5, 2012
Dell is very famous for custom-built PC and other computer related products and selling them online. Dell is very efficient in terms of dealing with its suppliers and keeping the inventory near to zero level which helps the company to adapt JIT method which lowers the prices to the final user.
The bargaining power of suppliers According to common assumption, power is high where the brand is powerful. Therefore, Dell is assumed to have far higher bargaining power than the suppliers. Dell has been successfully managing its competitors in terms of getting the needed supply of inventories and get them produce the inventories according to the specifications of the company. And the CEO of the company, Michael Dell also mentioned that Dell Company never sticks to one supplier forever, as they always change the suppliers if the suppliers are not meeting the demands of Dell. And the company always goes to the supplier which is innovative and cost competitive among other rival suppliers. Therefore, it again indicates that Dell has higher bargaining power than its suppliers. Another indication of Dell to be in better position than its suppliers is that Dell got most of its suppliers locate their businesses and manufacturing units close to Dell’s manufacturing and assembly units. By getting the suppliers near its manufacturing units, inventory is down to an incredible four days and efficiency is the key ingredient. Moreover, suppliers can regularly supply their in ventories to Dell within hours of assembling the computers which indicates a strong corporate understanding of both Dell and its suppliers.
Threat of new Entrants As it has been stated by Michael Dell, his only fear about his business empire is the possibility of new entrants to the market who could adversely affect his business. And moreover, Dell’s new strategy is the product diversification, therefore, almost all electronic companies are potential entrants to this new market.
Bargaining power of Customers One of the competitive advantages Dell has gained has been through offering in-person relationships with corporate and institutional customers. This is done by telephone, internet purchasing, customized computer systems where corporate clients can go to Dell’s special website called Premier Dell.com and configure computer systems in regard to the price and specifications.
Moreover, they have post sales online supports which are online and in some cases the company engineers can even visit the customer sites. As long as the company has been serving giant companies such as governments, and huge companies such as Cox communications, EDS and etc, they tend to be permanent customers as it costs massive money for the customers to switch from Dell to another company. Moreover, as the company has been diversifying its product ranges from simply computers to other products such printers, storage services; this indicates that the company will be serving all type of customers, not only corporate clients. Therefore, Dell has to focus on improving its customer service to small business and individual customers as well to gain their lifetime loyalty.
REFERENCES -
Dell, M. (1999). Direct From Dell: Chairman and Chief Executive Officer, Dell Computer Corporation. Collins
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Kharif, O. (2005). “Dell, Time for a New Model?” BusinessWeek
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Schmid, N. and Kelber, A. (2005). The Dell Company – A Strategic Analysis. Management Seminar.
Hochschule -
www.dell.com
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www.hp.com
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www.ibm.com
