Dell Inc. in 2008: Can it Overtake Hewlett-Packard as the Worldwide Leader in Personal Computers - Case Study Example

Dell Inc. in 2008: Can it overtake Hewlett-Packard as the Worldwide Leader in Personal Computers? Dell is a global company that delivers products and services in more than 190 countries and over 40000 employees who live and work on six continents. The company deals in enterprise computing products, desktops, monitors, printers, notebooks, handhelds, software and peripherals with a focus on fully integrated improved environmental performance into business. The company had gone through many ups and down from its inception in 1984 and has to face many challenges and competitions to stay ahead in the market (Kolter and Lee, 2008). This paper strategically discusses the fall and rise of Dell Inc from 2007 to 2008 and to compare Dells strategy with that of Hewlett Packard with due reference from the case study “Dell Inc in 2008: Can it overtake Hewlett Packard as the worldwide leader in personal computers.” A) Dell’s Strategy to overcome HP in Personal Computers Michael Dell founded the company with simple vision and business concept that the personal computers could be built and sold directly to the consumers which would eliminate the additional costs of intermediaries between the company and consumer and thus reducing the overall cost of the PCs making it cheaper than other PCs in the market. The other advantage was that it reduces the costs and risks associated with carrying large stocks of parts, components and finished goods (Thompson and Gamble, 2006). The company later became a public limited company and raised $34.2 million in its first offering of common stock and achieved sales of $388 million in 1990. During 1986 to 1993, Dell refined strategy, build an adequate infrastructure and established market credibility against better known rivals like IBM and Hewlett Packard. Dells computer strategy clicked into full gear in the late 1990s and the sell direct strategy provided the company with most efficient procurement, manufacturing and distribution capabilities in the global PC industry and gave a substantial profit margin advantage over rival PC vendors. It is further stated that Dell’s operating cost ran about 10 percent of revenues in 2002 as compared to 21 percent of revenues at Hewlett Packard, 25 percent at Gateway, and 46 percent at Cisco Systems (Thompson and Gamble, 2008). Dell Inc was the undisputed leader in the United States for sales in personal computer dominating the market. In 1998, the market share of Dell was 13.2% as compared to Hewlett Packard’s 7.8%. However it should be noted that Compaq was ahead of Dell during 1998 with 16.7%. This was the only period when any other vendors were ahead of Dell as the company occupied top position in 2000 with 19.7% as compared to Compaq’s 15.9% and HP’s 11.5%. The table below shows that Dell Inc has been ranked first since 2003 showing its dominance in the market for personal computer since 2000 in comparison to other companies. But, according to table 2, Hewlett Packard dominates the world market with 18.8% in the year 2007 as compared to 14.9% of Dell Inc. Though Dell Inc was dominated the market in United States and all over the world throughout 2000s, Dell Inc’s market share fell down from 16.6% in 2006 to 14.9% in 2007 whereas Hewlett Packard’s market share increased from 16.5% in 2006 to 18.8% in 2007 thus becoming the market leader in the industry. Table 1: U.S. Market Share of the Leading PC Vendors, 1998-2007 2003 Rank Vendor 2007 2006 2005 2004 2002 2000 1998 Shipments (in 000s) Market Share Shipments (in 000s) Market Share Shipments (in 000s) Market Share Shipments (in 000s) Market Share Shipments (in 000s) Market Share Shipments (in 000s) Market Share Shipments (in 000s) Market Share 1 Dell 19645 28% 20472 31.2% 21466 33.6% 19296 33.7% 13324 27.9% 9645 19.7% 4799 13.2% 2 HP 16759 23.9 11600 21.5 12456 19.5 11600 20.3 8052 16.8 5630 11.5 2832 7.8 3 Compaq - - - - - - - - - - 7761 15.9 6052 16.7 Source: Thompson and Gamble (2008) Table 2: Worldwide Market Shares of the Leading PCs, 1998-2007 2003 Rank Vendor 2007 2006 2005 2004 2002 2000 1998 Shipments (in 000s) Market Share Shipments (in 000s) Market Share Shipments (in 000s) Market Share Shipments (in 000s) Market Share Shipments (in 000s) Market Share Shipments (in 000s) Market Share Shipments (in 000s) Market Share 1 HP 50526 18.8% 38838 16.5% 32575 15.7% 28063 15.8% 18432 13.6% 10327 7.4% 5743 6.3% 2 Dell 39993 14.9 39094 16.6 37755 18.2 31771 17.9 20672 15.2% 14801 10.6 7770 8.5 3 Compaq 17399 12.5 13266 14.5 Source: Thompson and Gamble (2008) Table 3: Dell’s Revenue by Product Category, 2006-2008 Product Category 2008 2007 2006 Revenues (in billions) % of total revenues Revenues (in billions) % of total revenues Revenues (in billions) % of total revenues Desktop PCs $19.6 32.1% $19.8 34.5% $21.6 38.7% Mobility Products 17.4 28.5 15.5 27 14.4 25.8 Software and Peripherals 9.9 16.2 9 15.7 8.3 14.9 Servers & Networking Hardware 6.5 10.6 5.8 10.1 5.4 9.8 Consulting and enhanced services 5.3 8.8 5.1 8.9 4.2 7.5 Storage Products 2.4 3.9 2.3 4.0 1.9 3.4 Source: Thompson and Gamble (2008) The figures in Table 3 show the product wise revenue generation for the year 2006 to 2008. Dell products received over 400 awards relating to design, quality and innovation in 2007 while generating revenues of $61.1 billion with profits of $3 billion, majority of being generated through sales of personal computers at $19.6 billion. Resource Based View Approach Dell’s strategy constitutes of four tenets to delivering superior customer value by selling direct to customers eliminating wholesale and retail dealer, allowing customer to built custom built product to meet the consumer’s need, highly efficient supply chain and manufacturing organization, and by delivering added value to customers. Dell Inc follows resource based view (RBV) strategy as it tries to achieve a competitive advantage over its rivals by using the available resources and capabilities. According to Barney (qtd. in Kirsch, 2007) “firms in different industries as well as within one industry differ in their supply with resources --- to achieve a competitive advantage – which can be sustained if those resources are valuable, rare, imperfectly imitable and substitutable”. Future Recommendations Dell Inc has a change to overtake Hewlett Packard and become global leader in personal computers; the company will have to implement its strategy in line with the changing market. Dell’s strategy is strong enough to compete with its rivals but needs small improvisation by differentiating its products and services from other. Strategically, it can also improve its position in the current market by expanding its operations in more countries, manufacturing and supplying more products. The strategy which already focuses on cost reduction should focus on capturing new markets which would help in regaining the market. B.3) Michael Dell – Founder and CEO Michael Dell, a student at the University of Texas at the age of 18 years set up PCs Limited as a part time business in dorm room selling IBM compatible computers which were built from stock components (Hitt et al, 2009). Magretta (1999) questions that how could one create $12 billion in just 13 years as Dell has done since he started selling computers. Dell’s main strategy was to sell the computer directly to consumer and eliminating the reseller’s markup and the costs and risks associated with carrying large inventories of finished goods. Daft and Marcic (2005) mentioned that leadership promotes vision, creativity and change taking the company to new horizons. Michael Dell has done similarly for so many years, inculcating new ideas into the business, envisioning to provide better service to customer and introducing new products and services along with expanding the horizon of Dell Inc. For so many years, Dell has been working hard for 18 hours per day with only 40 employees which achieved him tremendous success in the recent past. Dell, in an interview with Harvard Business Review, described that his company was using technology and information to blur the traditional boundaries in the value chain among suppliers, manufacturers and end users calling the direction as virtual integration. According to Reinert (1992) marketing was the key to Dell’s success unlike Gates and Jobs, who made their mark with operating systems. Dell identified an undiscovered market in the 1980’s preparing computers for individuals and this strategy applied to his business principles as well. Thompson and Gamble (2008) describe Dell as an aggressive personality, extremely competitive risk taker and a role model for young executive who was always accessible. According to Thomas et al (2006) Michael Dell knows that quality of service and products are key and are proud of its statement “Soul of Dell” of corporate philosophy which focuses on maintaining direct relationship with customers. Dell led the company through turbulent times and handled the negative feedback about the company’s style. During crisis Dell and Rollins met with the top 20 managers and dealt with the gripes, each offering their own frank and honest self critique. During these past years, Michael Dell had learnt that sustained success cannot come without the top leaders facing themselves and to change, often with great pain. Success was evident from the hard works of Dell and his leaders as the prices of stock were valued higher than that of Microsoft, GE or Wal-Mart (Daft and Marcic, 2005). Dell developed a new style of management which was based on marketing as well as technical knowhow. He had a lot of good marketing ideas that allowed the company to conquer the majority of US market share as well as world market share competing with Hewlett Packard, Gateway and Apple Inc. According to Dell’s executives, Michael Dell was a very involved and well rounded CEO, focusing on implementing the strategy making / strategy executing tasks (www.cyberessays.com). Dell strategized four tenets to deliver superior customer value which included having direct relationship with customer, allowing customer to purchase custom built product and custom tailored services so as to meet consumer needs in efficient way, creating highly efficient supply chain and manufacturing organizations, grounded in the use of standardized technologies, and selling directly to the customers creates an opportunity to low cost structure and delivering added value to customer by researching all options about technology, and being accountable to customers for helping them obtain the highest return on their investment (Thompson and Gamble, 2008). Dell was an innovative leader with propensity of taking risks to overcome substitution. According to Thompson and Gamble (2008) Dell’s strategy has seven core elements; a) making build to order manufacturing progressively more efficient, b) partnering closely with suppliers, c) using direct sales technique to gain customers, d) expansion into additional products and services, e) providing good customer service, f) focusing on research and development activities and g) offering products with standardized technologies. The strategy constantly strived to reduce operational costs and was successful in doing so in 2008 by reducing costs by $3 billion. Dell identified the challenge of company much before which is evident in his statement that “No (competitive) advantage and no success is ever permanent. The winners are those who keep moving. The only constant in our business is that everything is changing---”. Most of the companies in the industry tried to copy the unique strategy of Dell Inc but didn’t achieve significant success. Though Dell Inc. had been making good sales in United States, its market shares had fallen down drastically in 2007, the reason why Dell is struggling now to regain the top spot in PC sales in world market (Hoskisson et al, 2007). Michael Dell has not been let down by the criticism and underdog statements from CEO’s of other companies. It was long before when Dell Inc faced innovation dilemma only dealing in PCs, HP CEO, Carleton said “Dell is a great company, but they are a one trick pony” while IBM Server chief William Zeitler said “They’re the best in the world at what they do, the question is, will they be best at Next Big Thing?” (Business Week, 2007). Today, Dell expanded itself from only PCs to servers, data storage devices, networking switches, printer and catridges, and customer service receiving tough competition from its rivals like Cisco Systems, IBM, HP, Apple and others, which shows that Michael Dell’s strategy were innovative enough to compete with the best in the industry providing range of products and services to its customers (Thompson and Gamble, 2008). Michael Dell’s leadership and strategy were essential in taking the company to the top position for all these years gaining huge market not only in US but all over the world. Reference 1. Business Week (2007) Strategy Power Plays, Tata McGraw-Hill Education, India 2. Daft. .L.R. and Marcic, D (2005) Understanding Management, Cengage Learning, US 3. Hoskisson, R.E., Hitt, M.E. and Ireland, R.D. (2007) Competing for Advantage, Cengage Learning, US 4. Hoskisson, R.E., Hitt, M.E. and Ireland, R.D. (2009) Strategic management: competitiveness and globalization : concepts & cases, Cengage Learning, US 5. Kirsch, K (2007). Critically Review how the Resource-based View Has Developed Our Understanding of Strategy, GRIN Verlag, Germany 6. Kotler, P. and Lee, N (2008) Corporate Social Responsibility: Doing the Most Good For Your Company And Your Cause, Wiley-India, Delhi 7. Magretta, J (1999) Managing in the new economy, Harvard Business Press, US 8. Reinert, Al (1992) Revenge of the Nerd, Texas Monthly, Vol. 20, No. 9, Emmis Communications, US 9. Thomas, M, Miles, G and Fisk P (2006) The Complete CEO: the executives guide to consistent peak performance, John Wiley and Sons, US 10. Thompson, A and Gamble, J (2008) in Essentials of Strategic Management: the Quest for Competitive Advantage, 2nd Edition, McGraw Hill. 11. Thompson, A., Strickland, A.J, Gamble, J.E. and Jain, A.K. (2006) Crafting and Executing Strategy: The Quest for Competitive Advantage, Concepts and Cases, 14th Ed., Tata McGraw Hill, India Read More