Dell Business Strategy - Case Study Example

Dell Business Strategy Name Class Unit Table of Contents Table of Contents 2 1. Executive Summary 2 2. Dell strategic direction 4 2.1 Dell corporate strategy 5 2.2 Dell business strategy 5 2.3 Dell direct model strategy 6 2.4 Exchange inventory for information 6 2.6 Build to order 8 3. Suitability of the organisation’s current strategy 9 3.1 Recommendations 12 4. Conclusion 13 References 15 Appendix 17 1. Executive Summary This report is based on Dell P.C strategy evaluation. The report starts by giving a brief Dell background based on its humble begging’s and strategies. Dell was formed by Michael Dell in 1984. The company was able to grow fast and went public in 1990. The company started by targeting the small businesses and individual customers. The company corporate strategy is based on diversification. Dell engages in servers, printers, softwares and consumer electronic as well as related services. The report analyses the direct model strategy used by Dell. The model involves selling direct from the manufacture to the corporate customers and consumers. The strategy allowed dell to have high speed of execution and minimum inventory. The strategy eliminated the need for middle men. Through the strategy, inventory is exchanged for information. Dell also utilises the customer experience strategy to complement direct model. Build to order model implies that a computer is only manufactured after the order has been placed. This helps to keep the inventory at minimum. The report shows that the current strategies used by Dell PC are appropriate. The company should maintain these strategies and reinvent them when necessary. Dell should also continue diversifying their portfolio with related products. Lastly the report recommends that Dell should invest more in smartphones and tablets while at the same time investing in sales force. 2. Dell background Michael Dell started upgrading IBM compatible PCs as a college freshman. He later started assembling the entire PC more cheaply through buying the components. He would later sell the assembled PC at a lower price than the established brands. On May 3 1984, Dell founded Dell Computer Corporation (Dell). The company efficient and low cost operations made it possible to attract customers who were looking for cheaper and quality products. Through the cost leadership strategy, dell was able to grow from $6 million during 1985 to $70 million by the end of the year. Businesses started coming to Dell and later, corporations and government agencies. In 1988, Dell went public and by 1990, the company sales had grown to over $500. This time, the company had already started implementing an expansion strategy (Dell computers, 2015). This report is based on Dell strategic direction. This is through analysing the company current strategy, its suitability and giving recommendations. 2. Dell strategic direction In 1991, Dell came up with a strategy to reach out to the small business and individual customers. This is a segment that preferred physical access to sale process. This made Dell to make retail channel agreements with several companies. The companies sold the computers for Dell and also offered after sale services. This strategy led to the company sales growing from $890 million in 1991 to over $2 billion in 1992. The company was able to become among the top five PC makers globally. The rapid growth caught Dell by surprise and the company made its first loss in 1993. The company shares dropped value by $7. The firm was lacking proper guidance in its maturity stage. The main problem was use of indirect channels where the company model did not match well. The company pulled out of the retail market in the mid-1994 (Dell & Fredman, 1999). 2.1 Dell corporate strategy Organisation is able to grow through adding value to individual businesses. Through corporate strategy, an organisation is able to determine means of enhancing the customer value. This is through deciding on what to add to the organisation portfolio and the diversification strategy to follow. Corporate strategy aims at giving an organisation a competitive advantage through managing the company business. The firm is able to select the corporate strategy that will help in increasing their value. Corporate strategy helps in increasing the business value through growth of revenue and profits (Johnson, Scholes & Whittington, 2008). By 2006, Dell had already diversified their operations from purely computers. The company was engaging in servers, printers, softwares and consumer electronic as well as related services. The company have been able to generate more than 30% of their revenue outside the dominant business. The company utilises the related constrained diversification strategy. This is due to fact that most of the products are related. The strategy allows the company to share activities and explore the economies between the businesses (Dell & Fredman, 1999). 2.2 Dell business strategy Dell business strategy is based on cost leadership. The company has been able to succeed through use of unique customisation, proposition of cost and delivery. In reacting to changing market conditions, Dell have utilised a dual strategic approach. This is through integrating the cost leadership skills and differentiated products. This has led to an integrated cost leadership/differentiation strategy. The company is also diversified in IT where it deals with related businesses. This helps a lot in creating synergy. 2.3 Dell direct model strategy Direct model is based on the direct sales. This is through selling direct from the manufacture to the corporate customers and consumers. The strategy allowed Dell to have high speed of execution and minimum inventory (Anderson, 2004). The company was able to eliminate the dealers from the channel where the products would be sold directly to the customers through the phone. The reseller mark-up, costs and risks of large inventory were eliminated. The model led to high velocity and reduced costs of distribution. It became possible to create direct relationships with the customers (Kumar & Craig, 2007). Through eliminating the intermediaries, Dell was able to reduce its channel costs. The customers were able to get what they exactly wanted. The company was able to use the experience gained from the model to tailor its services and customer support. Since there was low inventory, it was easier to introduce new technology fast (Cravens, Piercy & Prentice, 2000). At the moment, Dell relies highly on its IT to control value chain and ensure coordination. The company have set quality measures and links which monitors how the materials are flowing in the chain. The suppliers are monitored and told what is required. The company manages the information to enhance velocity. There are weekly updates on the inventory level and through working with customers and suppliers it becomes easy to determine the right inventory levels (Pollard, Chuo & Lee, 2011). 2.4 Exchange inventory for information The exchange of inventory for information was at the heart of success for Dell. This implied that instead of keeping inventory, Dell kept the information for customer orders, needs and market forecasts. The manufacturing department helped in predicting the expected orders and alerted the suppliers on the needs (Anderson, 2004). The staffs were always ready for the demands. This gave the company an advantage in the market. It is easier to store information than inventory. Information is also cheaper than inventory. Combined with the build to order philosophy, Dell was able to keep the inventory at the minimum. The more Dell was able to exchange inventory for information, the closer they were able to gain a strategic advantage based on cost and service (Pollard, Chuo & Lee, 2011). When implementing a strategy, coordination is very vital. The company top management team met regularly. This helped in discussing the strategy, product development, optimisation and empowerment. Dell had high coordination between the individuals, business units and all segments. Dell managed to keep coordination at maximum through ensuring that the business model was in the minds of their employees (Anderson, 2004). The company through use of intranets enabled heavy communication in the organisation. Through aggressive communication, it became possible for Dell to keep the employees aligned. Through good communication and dedicated management, the organisation was able to take actions and directions that were highly beneficial to the stakeholders (Cravens, Piercy & Prentice, 2000). 2.5 Customer experience This is a strategy that was launched in 1998. The main aim of the strategy was to assist the direct model in delivering the best to the customers. The model aimed at looking at business from the customer perspective. The customer experience looks at every contact that the customer has with Dell and sums them up. The company encouraged their employees to take a customer centric view as part of owning the customer experience. The company had realised that the customer was the most important part of the company success. This is one of the most important initiatives that are carried out at Dell. The strategy has helped Dell to come up with a customer centric business (Kumar & Craig, 2007). 2.6 Build to order This is a strategy that is based on building the computer only after the consumer has placed an order. The process depends on lean manufacturing and just in time production. Once the customer places an order, the details are sent to the manufacturing sector which starts the assembly (Gunasekaran & Ngai, 2005). Once the computer has been build based on the customer request and specifications, the software is installed and the latter the computer is shipped. The strategy of build to order has helped Dell to lower their inventory which has led to low costs. It has also enabled the company to respond fast to changes in technology since there is no excess inventory. It is also common for the consumers to pay when making an order. This allows the company to operate on a negative cash conversion cycle. The company is able to know what the consumers want instead of guessing (Holweg & Pil, 2001). Dell treats their suppliers as partners. This is due to fact that suppliers have been the core to build to order model. Suppliers form an integral part in the business. The suppliers are evaluated on a regular basis to ensure that they meet the pre agreed measures (Gunasekaran & Ngai, 2005). The company have also been offering training to well performing suppliers with an aim of improving their services. The company also makes order on a fast basis. This requires suppliers who can be able to cope with quick deadlines. This requires the suppliers to have their inventories near Dell plants. This has led to creation of mutual trust and collaboration among the suppliers. This has been highly supported by the use of internet (Holweg & Pil, 2001). 3. Suitability of the organisation’s current strategy Knowing the customers is the most vital step in creating value. This is due to fact that the strategy has helped Dell to meet the customer expectations and offer delight. This has also helped the company to add value constantly. The company is able to design new products, services and come up with pricing schemes that meets the customer needs. The company information system is able to create, attract and store information on customers. The information is used in responding to market needs and responding to the competitors (Kumar & Craig, 2007). Through these strategies, Dell has been able to get more intimate with the customers perspective. The strategies have enabled the company to increase the company position with each customer. Dell is thus able to address the need for every customer segment offering solutions that match them. On the other hand, the strategies have made it possible for Dell to lower their prices (Anderson, 2004). Customers in the PC markets have high expectations on low priced and differentiated products. This has made dell to support activities that has enabled them to have low cost and differentiated products. This is through use of an integrated strategy on cost leadership and differentiation. This has enabled the company to come up with products of high quality in an efficient manner. Through efficient production, it becomes possible to maintain low costs. Differentiation leads to unique products (Cravens, Piercy & Prentice, 2000). Through use of integrated cost leadership/differentiation strategy, dell has been able to adapt quickly to new technologies and changes in the environment. This has allowed the company to concentrate on sources of competitive advantage through cost and differentiation. Dell has also been able to attain high level of flexibility and become more competent. Economies of scope are attained through sharing resources and capabilities or transferring core corporate capabilities among businesses hence saving costs. Both tangible and intangible resources at dell are shared among the businesses. The strategy have also helped dell in creating value. A core competency used in one business can be transferred to the other without need to use resources to develop it. There is corporate relatedness which can be shared in different business. Being an intangible resource, corporate resources are hard to imitate by the competitors (Venkatraman & Henderson, 1998). Through the company strategies, dell has been able to move from physical to virtue. An organisation is able to create barrier to entry and increase the switching costs when they are operating in a virtual environment (Venkatraman & Henderson, 1998). A non-physical business has higher barriers of entry, high switching costs and more competitive advantage. The non-physical world created by Dell is made through speed, intangibles and connectivity. The main advantage is due to fact that the components making the non-physical world are easily manipulated (Kraemer, Dedrick & Yamashiro, 2000). Through compression of time, all stakeholders at dell have benefited through value creation. Virtual connection between the customers and suppliers has helped in creating a competitive advantage that cannot be easily duplicated (Rivkin, 2000). Customers have invested a lot in connection with Dell IT infrastructure making it hard for them to switch. The cost of leaving Dell IT infrastructure is high than the gains from joining the competitors. Through tight coordination in the virtual integration, it becomes possible for the customers to gain advantages similar to those gained through physical connection (Kraemer, Dedrick & Yamashiro, 2000). Dell strategies have made the company to grow at very fast rates. This has led to challenge of attending to the customers fast enough. At a given point, strategies and goals becomes out dated. Dell has been able to realise when a strategy becomes out dated and replaces it. This was evidenced through Dell adopting internet model to offer services (Kraemer, Dedrick & Yamashiro, 2000). The Dell direct model helped the customers to directly contact the support staff. The company have also reinvented themselves again through integrating their business. The company is now acting as a system solution provider and hardware vendor. Dell customers can use the internet to place, configure and obtain technical information (Cravens, Piercy & Prentice, 2000). Dell seems to have mastered the strategy of building and selling products cheaper and efficiently than the competitors (Anderson, 2004). This is based on the company enterprise strategy. Through a vision called the scalable enterprise, the company has been able to sell its vision to the customers. Scalable vision also enables the company to speak with the customers on its overall value proposition. Dell has been working to leverage its professional services with an aim of driving the scalable enterprise vision (Kumar & Craig, 2007). Through the business strategy, dell has been able to segment their customers. The company has been able to target customers in segments where they can get fast revenues. Segmentation makes it easier for dell to know the customer needs and identify unique opportunities. Use of finer segments has made it easy to manage and give the company a better focus. The company close relationship with customers has made it easy to make demand forecasts (Mathieu, 2001). The company use of internet to make sales was made successful due to its wide range of computer literate customers. The customers who are willing to make purchases over the phone were easily adopted into the internet model (Lumpkin & Dess, 2004). Dell did not have an indirect sales model hence the direct sales through the internet was not a threat. The campaigns that the company had utilised in their telephone sales were also applicable in internet sales (Kraemer, Dedrick & Yamashiro, 2000). 3.1 Recommendations For the Dell strategies to be sustainable, the company must ensure they reinvent themselves. The company must continue identifying new strategies early enough and utilising them. The company must continue reducing their inventory. This will make it possible for the company to receive and work on orders in shorter times. The company have the ability to continue reducing their inventory through the build to order strategy (Cravens, Piercy & Prentice, 2000). The company should also continue diversifying their products. This will make it possible to diversify the risks and increase their revenue. As the company customer experience grows, the company may become the service provider to big multinationals. The company can continue using the direct model to deliver more products to the customers. This will give Dell a sustainable competitive advantage. Dell will continue growing through adding value to individual businesses. This will also involve making decisions on which business to add to the portfolio (Tang, 2006). Related diversification is very vital for Dell as they increase their market share. This will enable the company to gain advantage through economies of scope, tangible resources and organisational capabilities and intangible resources (Cravens, Piercy & Prentice, 2000). Another strategy that dell should use if investing more on their mobile phones and tablets section. The company have not been doing well in this sector. The strategy would involve investing more in research and development in the smart phones and tablets. The company has a great opportunity to compete with Apple iPad. This is due to fact that dell has experience in the enterprise business. This can help them in coming up with products fit for the enterprise business. iPad have been in use in the enterprise business since there is no alternative. The company can compete well in this sector through a strategy based on developing high end tablets and smartphones. Lastly, another strategy for dell is to invest heavily on the sales force. Through investing heavily on the sales group, Dell will be able to take the commercial customers market from HP and Lenovo. The sales people help a lot in reaching the customers. Currently, the company has lost a lot of commercial customers to the competitors. The two strategies will complement the current strategies at (Kumar & Craig, 2007). 4. Conclusion Dell PC is one of the top 5 computers manufacturing companies. From its humble beginnings, the company has been able to rise in the global market. The company have been ranked among the best in customer satisfaction. The company strategies are based on Dell direct model, exchanging inventory for information, build to order and customer experience. The company strategies have made it possible to gain a competitive market in the PC industry. Dell corporate strategy is based on diversification of its portfolio to increase value to shareholders. The diversification strategy is based on related products and services which has enabled Dell to benefit from economies of scope. Through involvement in virtual business Dell has been able to raise the barriers to entry and enhance their competitive advantage. Dell is also a cost leader through offering high quality products at lower prices than the competitors. By combining cost leadership with differentiation, Dell has managed to stay ahead of most competitors. It is vital for dell to continue diversifying their products. The company should increase their investment in smartphones and tablets in order to recapture the enterprise business customers. There is also need to invest more in the sales force. To sum up, Dell strategies have been a major source of their success. The company should continue reinventing their strategies in order to remain relevant in the industry. References Anderson, D. M. (2004). Build-to-Order & Mass Customization: the ultimate supply chain management and lean manufacturing strategy for low-cost on-demand production without forecasts or inventory. CIM Press. Cravens, D. W., Piercy, N. F., & Prentice, A. (2000). Developing market-driven product strategies. Journal of Product & Brand Management, 9(6), 369-388. Dell Computers, (2015), Company Information, Retrieved 12th October 2015 from, http://www.dell.com/learn/us/en/uscorp1/about-dell?c=us&l=en&s=corp&cs=uscorp1 Dell, M., & Fredman, C. (1999). Direct from Dell: Strategies that revolutionized an industry (pp. 9-10). New York, NY: HarperBusiness. Gunasekaran, A., & Ngai, E. W. (2005). Build-to-order supply chain management: a literature review and framework for development. Journal of operations management, 23(5), 423- 451. Holweg, M., & Pil, F. K. (2001). Successful build-to-order strategies start with the customer. MIT Sloan Management Review, 43(1), 74. Johnson, G., Scholes, K., & Whittington, R. (2008). Exploring corporate strategy: Text and cases. Pearson Education. Kraemer, K. L., Dedrick, J., & Yamashiro, S. (2000). Refining and extending the business model with information technology: Dell Computer Corporation. The Information Society, 16(1), 5-21. Kraemer, K. L., Dedrick, J., & Yamashiro, S. (2000). Refining and extending the business model with information technology: Dell Computer Corporation. The Information Society, 16(1), 5-21. Kumar, S., & Craig, S. (2007). Dell, Inc.'s closed loop supply chain for computer assembly plants. Information-Knowledge-Systems Management, 6(3), 197-214. Lumpkin, G. T., & Dess, G. G. (2004). E-Business Strategies and Internet Business Models: How the Internet Adds Value. Organizational Dynamics, 33(2), 161-173. Mathieu, V. (2001). Service strategies within the manufacturing sector: benefits, costs and partnership. International Journal of Service Industry Management, 12(5), 451-475. Pollard, D., Chuo, S., & Lee, B. (2011). Strategies for mass customization. Journal of Business & Economics Research (JBER), 6(7). Rivkin, J. W. (2000). Imitation of complex strategies. Management science, 46(6), 824-844. Tang, C. S. (2006). Robust strategies for mitigating supply chain disruptions. International Journal of Logistics: Research and Applications, 9(1), 33-45. Venkatraman, N., & Henderson, J. C. (1998). Real strategies for virtual organizing. MIT Sloan Management Review, 40(1), 33. Appendix Fig.1, Dell Direct Model (web) Read More