By: Dan McLindon Kyle McDaniel Jeremy Smiley Tom Anderson Ray Moorman Dell Inc. Case Study
Key Question for Dell Can Dell overtake HP as the world leader in personal computers with its current strategies of Build to Order and Direct to Consumer sales?
Secondary Questions What contributed to Dell’s success and rapid growth in the late 1990’s? Why is Dell choosing to become more like HP? What does Dell do well and where does it struggle? Can Dell ever be successful in B2C market in developing countries with Direct to Consumer distribution? What is Dell? A computer manufacturer? A consumer electronics company? An IT service partner? What is their focus? What is Dell doing today to set itself apart from the competition in the highly competitive and rapidly evolving personal computer industry?
Industry Overview (Supply) Porter’s five forces: Threat of substitute products High Rivalry among existing competitors High Bargaining power of buyers High Bargaining power of suppliers Low Threat of new entrants High
2007 PC Vendor Market Share Dell’s PC business model has not translated into global leadership.
Build to Order Conclusion – Dell has spent its time and money on innovation to become an efficient manufacturer of computer hardware. Was that an effective use of their resources?
Is Dell’s Build to Order model still a competitive advantage or has it become a liability?
Dell Inc. Product Timeline Conclusion – Expanding product set into several highly competitive markets with well established players. Strategy is be the low cost leader.
Internal Analysis – Core Competencies Red – Easy for competitors to develop Yellow – Possible for competitors to develop Green – Very difficult for competitors to develop
Dell's Geographic Performance(Operating Incomes) U.S. Business & EMEA markets showing strongest growth trends.
Internal Analysis – Markets Served Conclusion – Dell is strong in the US B2B market, but that strategy does not translate to success in B2C. Only 39% of sales generated outside US, compared to 67% global sales by HP.
Internal Analysis - Manufacturing Conclusion – Dell already starting to outsource its competitive advantage. Can it still compete with HP in the B2C market? Will outsourcing manufacturing impact their advantage in B2B market?
Will dell’s strategy allow it to achieve the growth it desires? Which business models are dated and which can still prove a competitive advantage?
Elements of Strategy • Cost Efficient Build to Order • Competition has tried to emulate with limited success • ýAlthough other vendors have not replicated Dell’s strategy, they’ve done enough to close the cost advantage gap. • ýDell’s lean manufacturing techniques work best in production of desktop PCs. Consumer tastes have shifted to laptops. • Dell’s Strategy Contribution towards a future competitive advantage… Cooling Warming
Elements of Strategy • Partner with Suppliers • ýIBM, HP, Sony, Toshiba, Fujitsu abandoned vertical integration for strategic outsourcing of components in the early 1990s. • Partnering with suppliers to utilize their expertise is a given at this point, no contribution to competitive advantage. • Dell’s Strategy Contribution towards a future competitive advantage… Cooling Warming
Elements of Strategy • þCompetitors have not been able to shorten their supply chain as effectively as Dell • þCompetitorshave had difficulty implementing the sell direct strategy because it cannibalizes other sales channels. • ýDisadvantage in some foreign markets where small business and individual customers want more of a hands on shopping experience. • Dell’s Strategy • Direct Sales Contribution towards a future competitive advantage… Cooling Warming
Elements of Strategy • Industry is evolving with new products. Dell has demonstrated success in entering product segments and succeeding as the low cost provider. Examples are servers and networking equipment. • Name recognition from desktops and notebooks gives consumers confidence to try other products. • Opportunity for growth is large outside of PCs and servers where Dells market share is negligible. Market share is ≤5% in data storage, networking, printers, and IT services. • Dell’s Strategy • Expansion of products and services Contribution towards a future competitive advantage… Cooling Warming
Elements of Strategy • Dell’s growing pains with off shoring support services are behind them. Processes and best practices standardized world wide. • Voice of the customer – regional forms, IdeaStorm • Custom websites for large customers, product design services, value add services • ýBelow customer satisfaction goal in Americas • Dell’s Strategy • Customer Service and Technical Support Contribution towards a future competitive advantage… Cooling Warming
Elements of Strategy • Advocate for customers needs – useful, cost effective technologies • Quality Control streamlines the assembly process and reduces costs • Growing budget -- $600M in 2008 • Facilitates entry into new products and services • Dell’s Strategy • R&D focused on customer needs Contribution towards a future competitive advantage… Cooling Warming
Elements of Strategy • Use of Standardized Technologies • More cost effective than proprietary technology • Standardized technologies are upgradeable • ýStrategy is easily replicated • Dell’s Strategy Contribution towards a future competitive advantage… Cooling Warming
Elements of Strategy Contribution towards a future competitive advantage… Cooling Warming
US Market Share – Dell vs. HP Conclusion – From 2005 declining trend in both US & World Market Share for Dell. HP has gained market share during that time. Possible reason for HP’s success is acquisitions (Compaq 2002, EDS 2008)
Contributors to HP's Operating Income HP acquires EDS Dell should continue focusing efforts on growing IT services business and look for acquisition of IT services company to continue to compete and hold market share against HP.
Leading Providers of Information Technology (2007) Acquisition of CSC would give Dell increased IT services market share of 3.3% vs. HP’s 5.3% combined market share (with EDS)
Recommendations • Acquire a larger IT services company to supplement Dell's current IT services department - CSC is a possibility • Gain immediate market share • Focus on critical customers by creating dedicated department head's with authority to meet the demands of the following groups: • Large Companies (larger than 400 employees) (already exists, continue current services) • - Small-Med companies (less than 400 employees) • - Government Agencies • - Higher Education Universities • - K-12 Primary School Systems • Focus on speed of service, customization to meet needs of each organization, build loyalty with groups who have more frequent demand and servicing needs.
Recommendations • Hire product development specialists from product/branding focused companies. • Helps Dell to get a fresh perspective on their product and new ideas for development. • Redesign laptop and PC brands to make them more exciting for personal use consumers. • Dell's competing with HP and Apple who are creating products customers desire. • Financials indicate consumer products are struggling vs. competition. • Increase R&D budget to create more exciting models.
Recommendations • Sell only a couple standard model PC's and laptops in retail centers like Wal-Mart and Best Buy – out of sight, out of mind mentality for consumers. • Allows Dell to appeal to everyday customers who don't desire custom computers. • Use suppliers/manufacturers to build these standard models with no changes to the specs – keep costs down. • Continue to build PC’s and custom laptops in-house to take advantage of logistics and efficiencies • This also builds brand awareness with consumers who may want custom computers. • Allow current marketing programs to target higher-end users who desire personalized PC’s. • Acquire Chinese PC/laptop maker to enter Chinese market – Increase revenues from Asia-Pacific/Japanese market.