The Success of Dell's Business Innovation Model - Case Study Example

Introduction The outline of this paper is divided into three parts. Firstly, it provides a brief history of Dell Company. Secondly, it explains the concept of Business model in general and explains the way in which Dell had built its business model. Finally, this project summarizes the key success factors which can be attributed to the success of Dell. Over the past few years the computer industry has grown very competitive with the advancement of technology. Dell is one of the many computer hardware companies that began its humble journey under the leadership of Michael Dell (Dell, 2014). The company had later adopted its name from its owner. What began as a humble beginning was not confined to its small size. Over years Dell had transformed its business from a small company to one of the largest multinational companies in the whole world. It took Dell less than 30 years to transform itself under the competent leadership of Mr. Dell. The first step towards this beginning commenced when it was first decided that the company would go public. Initially 34.2 million dollars were raised from the initial public offering made by the company. The success of the company can be analyzed in retrospect. Product innovation has been one of the chief reasons by which the company has been an important reason for the success of the company. This could be understood better if one analyzes the range products that are being offered by the company. The business expanded from its initial offering of computer hardware to include a wide variety of products ranging from personal computers and storage devices to camera and printers. Dell now involves a considerable portion of IT services. Selling products produced by third party has been one of the common practices adopted by companies and Dell is no exception. Business Model The primary aim of an organization is to create value for its customers and deliver it to them at most affordable price. Business innovation is just the process by which an organization achieves this goal in the most successful manner. The idea behind any innovation is to create a unique business which enhances its value immensely and make it popular among the customers. It is believed that revamping of the business by incorporating innovative practices in it raises the value proposition of the business and propels it ahead of its competitors (Rajala, Westerlund and Möller, 2012). Research work of Osterwalder had identified nine different dimensions of business innovation; namely core capabilities, partner network, value configuration, value proposition, target customer, customer relationship, distribution channel, cost structure and revenue stream (Osterwalder and Pigneur, 2010). Core Capabilities: This refers to key functions of the organization in connection to products and services offered. Partner Network: This refers to strategic alliances that a business establishes with other businesses for mutual benefit. Value Configuration: This involves resources of an organization, which are used to deliver value to the customers. Target Customer: Refers to a particular customer segment that a company wishes to serve. Customer Relationship: This defines the ease with which a company communicates with customers. Distribution Channel: This involves the middlemen, whom a company employs to deliver its products to customers. Cost Structure: Refers to cost incurred by a company to deliver its products to end users. Revenue Stream: Refers to the flow of revenue streams for customers. Though these dimensions can only serve as a benchmark for the business regarding the strategy it applies for its business innovation the ultimate combination that is used by the business is solely its own prerogative. The concept of business model is an elusive one as there is no discrete definition for it. Business model innovation has been widely debated in the academic literature and has proved quite difficult to be achieved in reality (Velu and Khanna, 2013). Over past few years, the computer hardware industry had undergone a variety of changes through strategic alliances and acquisitions (Mitchell and Coles, 2004). In such a dynamic market, Dell had to rethink its business strategy and consequently, laid more emphasis on building customer relationships, engaging in direct sales, segmenting customers for the purpose of selling various categories of products and applying its built-to-order production system. Any type of business innovation can only begin after a thorough analysis of what is required and what is not. Businesses mostly study their value chain in order to comprehend what they really require and what they must eliminate to become competitive. Dell began this process with an analysis of its value chain and found the elements that did not produce any value for its customers. The traditional distribution channel of Dell had included suppliers, makers of PCs, distributors, retailers and finally, the consumers (McDonald, 1993). Common sense would tell that management of such an extensive value chain is likely to raise the cost of doing business. So, in order to improve business, Dell improvised the existing business model by establishing a direct relationship only with its suppliers and final customers (Logman, 2007). Dell is one of the organizations, which had employed a model of business innovation to provide competitive edge to its business. Dell had applied a build-to-order business model, which had major contribution in improving organizational efficiency. The business model adopted by Dell has helped to maintain its competitive position in the dynamic computer business. Academic literature indicates that business innovation by way of focusing on customer value can often lead to creation of new customer segments for an organization. It was observed that firms should not only focus on demanding customers who want sophisticated products, but also on the less demanding ones who desire convenient products. The innovation principle of Dell can be traced to this philosophy. Value innovation by itself is a complex idea as it has multiple dimensions like loyalty rate and intensity rate (Wyman, 2007). In order to make this process simpler there has been a constant effort to link the value innovation in terms of financial gain of the firm. The findings of Kalakota and Robinson, 2004 suggests that there are times when the sales volume of a company falls and the company fails to achieve its financial goals. During these times companies launch innovative products mainly by producing high priced products which could provide the company with a better profit margin of (Kalakota and Robinson, 2004). Dell has followed a similar policy, when it had experienced the challenge of translating high sales volume to high sales revenue. As a result, the company had ventured into creation of new products from PCs to plasma screen and mp3 players (Emerald Group Publishing, 2005). Introduction of a variety of products helped the company to target new customers. Also Dell has a very flexible supply chain as most of its plants are located in the close vicinity of the suppliers which allows it to shift its supplier base when new products are to be launched (Dell Inc, 2007). Following this type of a business model had provided Dell with multiple advantages like, increase in market share, greater satisfaction of clients, minimized costs of inventory and increased revenue from direct selling. Dell has improved its operational efficiency by not only focusing on customer management and value chain integration, but also on management of cash flow process. Key success factors of Dell The success of Dell can be chiefly attributed to powerful business model that it has created by identifying key processes to be undertaken directly and persuading partners and business associates to undertake the processes that it would not undertake (Morris, Schindehutte and Allen, 2005). This has allowed Dell to effectively manage the inventory as it deals directly with the end-users. Dealing directly with end users allows the company to access the necessary information. Dell has also incorporated process innovation in its business model by establishing strategic relationships with suppliers (Walters and Rainbird, 2007). Dealing directly with the customers was only a part that had led to the success of Dell. This implies that the products that need to be produced by the company in order to remain popular among its customers had to be decided by the management itself. This shows that even though the direct business model of Dell acted as a framework for its strategy but it never became a means to an end and the company constantly reinvented its products to lure customers. The key success factors of Dell can be summarized below (Magretta, 2002): Firstly, selling of products directly to the customers and not by taking the help of middlemen (like resellers) enhanced efficient management of the inventory and reduced the cost of business operation. Secondly, this model was almost inimitable for the other companies to follow because selling directly to the end users would have destroyed their already established value chain and by not doing so their costs of inventory management remained high. Thirdly, Dell did not copy most of its rivals when they had primarily targeted the small budget buyers. It had continued to serve the high-end corporate market as the returns from them were considerably higher. Fourthly, even though other competitors started copying Dell on its direct customer selling approach yet Dell could maintain its competitive edge by being the lowest cost producer. Finally, Dell has derived its strength from its core business of hardware and latter expanded to other products like servers relying on this strength. . Considering that competition in the PC industry is very high, Dell is likely to lose its market position if the competitors come up with better quality products at a lesser price. Also, the hardware industry is dependent on after sales service, which is provided to customers (DellEra and Verganti, 2010). If the after service sales of a company is poor, then its future prospects may be jeopardized. Conclusions and Recommendations This paper has analyzed the business model innovation that has been applied by Dell for remaining competitive in the market. It has been observed that Dell has effectively altered its business model according to changing times, when other companies like, IBM, were facing difficulties. This has been mainly achieved by reducing participants in the value chain to a mere minimum as well as establishing strong communication with them. The effective management of the inventory by management of Dell has also contributed towards its competitive advantage. The first recommendation suggested by this paper for Dell is that it should be focused on providing quality product at a reasonable price for retaining market position. Complementary services can also be provided by the company for the purpose of improving customer experience. This can enhance sales of the company as customers will be able to resolve their issues in a timely manner. The second recommendation that is suggested by this paper is that maintaining effective relationship with the buyers will be an integral part of organisational development. Any conflict with the suppliers will prove to be harmful for the business. Reference List Dell Inc, 2007. Simplify it: The Dell path to more innovation. [pdf] Dell Inc. Available at: [Accessed 2 May 2014]. Dell, 2014. Our history. [pdf] Dell. Available at: [Accessed 2 May 2014]. DellEra, C., and Verganti, R., 2010. Collaborative strategies in design-intensive industries: knowledge diversity and innovation. Long Range Planning, 43(1), pp. 123-141. Emerald Group Publishing, 2005. There’s something about Dell. [pdf] Emerald Group Publishing. Available at: [Accessed 2 May 2014]. Hoovers, 2008. Dell Inc. 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