How Dell Computer Corporation Grew - Case Study Example

Table of Contents Introduction 2 Background analysis 2 Family and socio-cultural aspects 2 How Dell Computer Corporation grew 3 Dell Computer Corporation’s competitive advantage 4 Where Dell can develop different types of businesses 5 Future avenues and possibilities 5 Bibliography 6 Introduction Michael Dell was born in Texas in the year 1965, and he was a student in the University of Texas, located in Austin, Texas. In the University, Michael Dell was intending to become a doctor. At the same time, Michael Dell had a passion for computers and therefore his hobby was playing and working with computers, both at software level and hardware level. With time, his hobby won as he realized that he could make a living out of his hobby. While at the University of Texas, Michael Dell started selling computers from his dormitory room. As he continually grew his venture, Dell came up with an innovative way of meeting the needs of his customers: he decided to be having close ties with his customers in terms of getting desired specifications and ensuring that he did not need retailers to deliver his products to his customers. Therefore, he ensured that customers gave him the specifications they wanted for their computers and then he would design and deliver the computers to them in person without the need to use middlemen. In the year 1984, at a tender age of nineteen (19) years, Michael started PCs Limited with a paltry $ 1,000. In twenty-one (21) years, the company has been able to grow into a $30-plus Billion enterprise. Today, the company has average earnings of more than $ 40 million daily, and it remains one of the largest commercial sellers of computers on the internet all over the world. Background analysis Family and socio-cultural aspects Michael Dell is married to Susan Dell and together they have three daughters and one son. Dell has had a relatively normal family life, with his family supporting his investment decisions. Notably however, his parents Alexander Dell and Lorraine Dell wanted him to pursue medicine with a view to become a doctor. However, Dell developed a passion for computers and became hooked on them since junior high. To please his parents, Dell chose to enroll at the University of Texas as a premed student. However, his real interest was computers and therefore, as mentioned above, he bought outmoded and remaindered computers from retailers, upgraded them and sold them from his dormitory room at the University. Dell became so successful at selling computers off his dorm room that he eventually moved the business from the campus. Dell’s parents were angered by his decision to drop out of University so he promised to go back if summer sales were disappointing. In the first month of business, Dell made sales amounting to $ 180,000. He never went back for his sophomore year. How Dell Computer Corporation grew After starting PCs Limited due to the success of his college venture, dell realized that the world would soon come to appreciate computers as one of the most prestigious and invaluable commodities and as with other commodities, what matters most is the price at which the commodity is sold and the method and timeliness of delivery. As explained above, Dell had already devised a way to achieve both goals while at the University; and he did it by cutting the need to involve a middleman in selling his computers. Dell bought computer parts and assembled personal computers himself in order to cut production costs and delivered final products to the customer himself. As mentioned above, the assembling was done based on the specifications that the customer desired and thus PCs Limited became very popular with customers. The low cost of production that PCs Limited incurred enabled it to sell computers to its customers at a 15 percent discount based on the prices of established brands like IBM. The technique employed by Michael Dell, which is known as the direct mode of selling soon revolutionized the computer industry and made Michael Dell a multibillionaire in the process. PCs Limited soon joined the fastest-growing US enterprises. This was due to the above-mentioned style of selling. Instead of filling the market with many computers, the company focused on its stronghold; creating and selling customized machines based on customer order. The strategy worked and the first year of operation saw PCs Limited making over $ 6 million in sales. This made Michael Dell famous as a ‘boy wonder’. In order to cash in on the fame, Dell changed the name of his company to Dell Computer Corporation in the year 1987. With the name change, there was an increase in sales, which reached $ 159 million as the year 1988 ended. In the same year, Dell Computer Corporation gave an Initial Public Offering (IPO) that raised an estimated $ 30 million, with an estimated $ 18 million going into Michael Dell’s pocket. Many start-up entrepreneurs would have viewed the IPO as the acme of their success, and moved on to another venture, but for Dell, he was just starting. Dell set his sights on reducing the industry leader’s influence. He rallied his employees telling them that his daughter had told him to kill IBM as her first words since birth. With this technique, the company’s sales passed the $ 800 million by the year 1991. In the year 1992, the company set a target of surpassing $ 1.5 billion in sales by the year end. Dell has always been an overachiever and thus he realized his goal and even surpassed it with sales by the company skyrocketing to $ 2 billion. However, in the midst of all this success, the company was facing a serious storm. The company’s pace of growth was too fast for Dell to handle. By June 1993, the company was seemingly spiraling out of control. After the IPO, stock prices were relatively constant but by mid-1993, they had fallen from $ 49 to $ 16. The CFO resigned and worst of all, the company had scrapped notebook production as a result of poor quality and thus the company was not enjoying the benefits of the industry’s fastest growing line for more than a year. Dell solved this issue by recruiting more experienced managers who helped him to manage the company, which had existed for nine (9) years, bringing in Mort Topfer from Motorola and Kevin Rollins from Bain and Co. The most important recruitment was perhaps that of John Medica, the then Apple Powerbook designer. The company was righted within a year with profits reaching $ 149 million in the following year. Dell also made decisions that proved profitable to the business, including putting a focus on high-margin customers and employing his strategy of direct sales, especially to second-time home computer buyers in a bid to compete with HP’s low pricing which was associated with poor quality. The new strategy saw sales reaching $5.5 billion in the year 1996. He then launched a direct computer sales website which increased sales to $6 million a day by the year. This, together with the direct sales by fax and phones saw the company making $7.7 billion by the second month of 1997. Dell is yet to silence his critics completely but over the years he has proven that he possesses the stamina, flexibility and vision to stay relevant in the technology industry. As his internet sales continue to go up, Dell has astounded analysts, enthralled stockholders and baffled competitors. Dell Computer Corporation’s competitive advantage Dell Computer Corporation was not the only company founded by a young entrepreneur to profit from the computer boom of the early nineties and late eighties. There was Steve Jobs of Apple and Rod Canion of Compaq. However, unlike his counterparts who lost control of their empires with time, Michael Dell has managed to keep the reins of his company and therefore he has acquired the distinction of being the CEO who has served the longest within the computing industry. Dell’s vision for the company and his abilities notwithstanding, the best decision that Dell made, and which gave the company unrivalled competitive advantage was his decision to sell directly to its customers. The strategy helped the company because in the computing industry, customers are enthusiastic about specifications and therefore, without making customized computers based on the specifications of the customer, meeting a customer’s needs in terms of specifications may prove to be an uphill task. In addition to the customization of its products, the company also had a competitive advantage as compared to other players within the industry because it was able to eliminate unnecessary costs by eliminating the need for retailers. To date, the company sells customized computers to customers worldwide through the internet and it has on several occasions been voted as the best online seller of computers. Dell’s competitors were at first adamant that Dell would only command a niche market for direct sales but with Dell’s increasing success, they soon adopted the same strategy, although they have never changed their sales numbers as substantially as Dell. In 1998, the PC industry grew by five (5) percent. Dell grew with a pace of more than fifty (50) percent having achieved sales of $12.3 billion. By the first month of 1999, Dell outsold both IBM and HP and was almost outselling Compaq. Where Dell can develop different types of businesses Dell Computer Corporation has one major weakness as compared to its competitors: its software capabilities are not as strong as its hardware capabilities. Companies like Windows are famous for their software capabilities and although they do not sell as much computers as Dell Computers Corporation, their products like the Windows Operating System are famous. In addition, companies competing with Dell like Apple Inc. also have their own operating system, which is the Macintosh operating system. From this discussion, it is clear that Dell can probably make more profits if it invests highly in software in order to provide its customers with a ‘full package’ as far as computing is concerned. It would be interesting to have a Dell Operating System and other Dell-based software. Future avenues and possibilities Being the current Chairman of the Board of Directors at Dell Computer Corporation as well as its CEO, Dell has an opportunity to ensure that the company stays relevant in the computing world. That is, he has an opportunity to change the model of the company to ensure that the company meets current technological trends with a view to ensuring that the company maximizes its revenue. For instance, the company should ensure that it produces tablets en masse since the tablet market is unlike the market for personal computers where specifications were highly relevant. Dell Computer Corporation should come up with a strategy that can enable it to produce tablets that can be able to compete with Apple’s iPad. Bibliography “Michael Dell – Global Advocate for Entrepreneurship”. 2015. Available from http://www.dell.com/learn/us/en/uscorp1/corp-comm/advocating-worlds-entrepreneurs?c=us&l=en&s=corp “Michael Dell: Success story of the founder of Dell Inc”. n.d. Available from http://www.1000ventures.com/business_guide/cs_entrepreneurs_dell.html “Stories of Entrepreneurs: Michael Dell”. 2015. Available from http://www.zeromillion.com/entrepreneurship/stories/michael-dell.html Dell Inc. 2014. “5 Questions About Entrepreneurship for Michael Dell”. Available from http://ad-assets.nytimes.com/paidpost/dell/5-questions-about-entrepreneurship-for-michael-dell.html#.Vvel7eJ97IU Evan Smith. 1999. “Entrepreneur of the Century – Michael Dell”. Available from http://www.inc.com/michael-dell/rules-for-winning-startups.html Michael Dell. 2014. “Rules for Winning Start-Ups”. Available from http://www.inc.com/michael-dell/rules-for-winning-startups.html Michael Dell. 2014. “We can change the world through entrepreneurship”. Available from http://www.inc.com/michael-dell/change-world-with-entrepreneurship.html Michael Dell. 2015. “Innovator of the Personal Computer Industry”. Available from http://entrepreneurs.about.com/od/famousentrepreneurs/p/michaeldell.htm Michael Dell. 2016. “Taking the Direct Approach”. Available from http://www.entrepreneur.com/article/197566 Michael, J. 2015. “Dell is the Straw That Stirs Tech M&A”. Available from http://www.nytimes.com/2015/10/09/business/dealbook/dell-is-the-straw-that-stirs-tech-ma.html Read More