Dell Turnaround Strategy - Case Study Example

Dell Turnaround Strategy

Starting an organization is not hard but maintaining a profitability trend is quite difficult. The most important thing is to create new ways of maintaining such a trend. Many firms reach the middle and fail to retain their ability to generate additional revenue streams. They do not have a way of maintaining strategic delivery of services because that is not the art of their management process. Such companies eventually go bankrupt. As this happens, it is possible to harness change based on the current trends in the industry. Sometimes, the only way of attaining successful profits is by maintaining a vision that surpasses the hurdles that come in during the process. It is always important to establish a good strategy that can maintain the requisite pace of development needed to meet the goals of shareholders and stakeholders. The turnaround strategies used by companies such as Dell only show what can happen when a company starts to make losses. Not all companies can make a comeback when they start making losses, but Dell was able to institute change in its operations and make a huge change in its provision of services to remain profitable.

Turnaround Strategies

An important thing for the companies to realize in any part of the world is the ways in which they can get into trouble keep increasing by the day. A new competitor can come up with strategies that make clients happier, and they could change their references and abandon the company for the new one. This will force the older company to cut its prices or engage in something else just to maintain its clients. With such a feeling, it will only be time before the older company begins to make losses (Boyne & Meier, 2009). With such a feeling, companies have to be ready to make a turnaround that will allow them to use the resources available to regenerate their income and create a new image that will fit the needs of their clients in such situations. It is almost impossible to refuse any assistance because the company needs to stop its loss-making ways and start making profits. Clients have to be convinced that the company is making the needed changes before they can come back (Schmitt & Raisch, 2013).

Adapting to new technologies, for example, has made it easy to sell the idea of startups to many other areas, and older companies that do not shape up are bound to suffer a lot. The only way a turnaround can happen is if the company starts to gain more from the ability to resell its name amongst clients that were slowly warming up for the competitors (Schmitt & Raisch, 2013). The goal is to move from a point of weakness to that of strength so that the clients can review their allegiances before it is too late the global economy has made many companies rethink their strategies because they know everything has been made easy for them, and they can change their loyalties as fast as possible. To avoid such scenarios, it is always important to establish the cause of action needed to reestablish the needed successes as well as makes profits that will reflect on the company’s ability to rally its resources to meet the needed values it seeks to espouse (Yandava, 2012).

Dell’s Turnaround

Dell is a well-known manufacturer of personal computers across the world. In its years of existence, it realized that so many people wanted machines that were custom-made to fit into their desires (Min, 2015). They wanted machines that reflected on their daily lives to satisfy this clientele; there was a reason that would ensure that the changes and challenges the clients had when seeking such computers would end. Dell came up with a well-established sales model that would see clients request for the machines they wanted (Boyne & Meier, 2009). What Dell did not think about was what they would do when the requests were many and the team assigned could not deliver on time they also choose to have a single supply chain model that would see all its clients receive their products from them. With such a feeling, it was almost impossible to satisfy the demands because at least 500,000 configuration options were needed to satisfy a cluster of clients within a certain period, and that was cumbersome the company needed more personnel and a change of the supply chain model (Simchi-Levi, Clayton & Raven, 2013).

The direct sales model was economical to the company because unlike the competitors such as Compaq, who used distributors and resellers to reach its clientele (Simchi-Levi, Clayton & Raven, 2013). The direct sale method was making Dell the revenue it needed, but it was becoming almost impossible to meet its demands. The money was not flowing as intended, because of companies such as HP, which use a two-prong approach to meet these needs. The first was a direct sales method while the second one was a fixed configuration distribution of PCs to clients. These two methods allowed it to gain more clients because it also established different routes (Boyne & Meier, 2009). Demand would come, but they had various distributions and suppliers to reach to the clients in due time. Dell’s strategy was only successful at first, but things began to change.

In the mid-2000s, the competition that was keeping Dell on its feet was fading away. There was nothing left to compete for. Companies had emerged. For example, HP and Compaq and IBM had sold its businesses to Lenovo. Michael Dell, the founder, left the company in 2004, and Kevin Rollins was his replacement (Min, 2015). This era saw a brisk failure of the company’s products and a decline in the revenues. It was painful for Dell to watch the way his company was failing and he could not even retire in peace. Everything was going wrong, and clients were bitter about the company’s reaction to their orders. The slow pace made it difficult for clients to work even with the company again, and the decline was making it easier for people to think that a buyout would work best (Schmitt & Raisch, 2013). A recall of the Sony batteries the company was using for its laptop gave the media some fodder to work with, further downing the remaining success the company had accrued. The cost advantages were reducing by the way, and Dell was slowly ruining all the success it had had in the previous years (Simchi-Levi, Clayton & Raven, 2013). The model on direct sales was not working as much as the company hoped because other companies had made good improvements to their models, matching it. If it decided on getting to retailing sections, it would have to offer incentives to compete with brands such as HP, and this already seemed difficult due to the losses incurred. Apple, Inc. joined the list of competitors and Dell could not match the design that was on the market by that time (Yu, 2013). It needed to make drastic changes to its services because it knew of the dangers that were in the vicinity if it did not shape up as desired.

Dell’s Return and the Turnaround Plan

Given the failure and the drastic changes needed, Michael Dell had to come back in 2007 and provide reassurance that things were going to change for the better. He had to assure the shareholders that the company would be back on its feet before it was too late (Yandava, 2012). It was a chance to make the best of the company’s position and make a turnaround that would improve on the revenues earned. The plan that Dell came up with promised to yields at least $3 billion in annual savings within a period of three to four years. It was a chance to make plans that would be relevant when handling the changes within the consumer side, with the PCs being the point of major concern (Muthusamy & Dass, 2014). The company knew that the competition they faced was so high, but they needed to make the best of their resources and experience to turn things around. In the new plan, the goal was to create a line of defense that would apply across the system as a whole. It was a chance to meet the demands of the clients so that they could at least gain a good number eventually. The plan was also-also to include making changes in the models in use because the company knew that they were no longer meeting their targets using their direct sales model (Schmitt & Raisch, 2013).

Resellers and contract manufacturers were considered because the company saw this as the best way of cutting on costs as well as realize their intended goals. It was a chance to meet the main demands of the clients as well as grow the rate at which their PCs were purchased by 15%. The company knew that it needed to utilize its experience here and also work with its experienced CEO to change the current fortunes (Simchi-Levi, Clayton & Raven, 2013). The company also knew that it had to make changes that would assist in realizing the needed goals it was a chance to accept the market from a different point of view, and the company realized that companies such as HP were making bigger sales because they were using these manufacturers to gain their way in the market. They were making the needed headway and appreciating the response from the clients (Simchi-Levi, Clayton & Raven, 2013). Dell ought to try similar strategies, and the CEO knew that this was the best way possible. To cut on costs, the company sought to concentrate on supply chain and logistics rather than designs and manufacturing costs at the start. This would offer so much advantage to them then they could use the previous knowledge on the specifications from other clients in the past to come up with unique designs (Muthusamy & Dass, 2014).

The restructuring process would also include the logistics networks because they were significant when it came to reaching to the clients. There was a need to establish a better outcome that would assist in the management of the clients and their orders. The outlets across the world needed more products because other companies had their products already in different markets and the segmentation was not on Dell’s side (Parella, 2014). There was a need to establish a better working procedure that would increase the needed logistics as that would be imperative when dealing with the outsourcing of the raw materials (Yu, 2013). Logistics hubs would also be imperative when it came to handling the changes within the different markets as well as within the system because it was time to establish different cost cutting measures. It would establish hubs in African regions, Dubai and the Middle East too (Elrod, Murray & Bande, 2013).

Aftermath

Despite the changes, downsizing and a raft of responses that did not perform as intended, Dell had to make a painful decision it lost its market share in the world to companies such as Lenovo from Asia (Min, 2015). This was a first for the company, and the declining C market was not helping either. The Asian producers and manufacturers were coming up with more cost effective products that made the plan Michael Dell had to be relatively a little too late (Abebe & Alvarado, 2013). Despite using close to $13 billion to acquire and diversify its products, the market did not have the same reception. To cover it losses, the company contracted Silver Lake Partners to aid in a buyout that would delist its shares from various exchanges including the New York one so that the company would go private. This shows how much the shareholders suffered because the company’s shares were deteriorating then the company was delisted and became a private entity. Until it went public again through an IPO, they would be able to recover the amount of money they spent to improve its business in the past (Min, 2015).

Personal Opinion

The restructuring plan was planned out well, but it was a little too late to implement it. It came at a time when the recession in 2007/2008 was at its peak, and the amount of disposable income was reducing amongst a larger part of the clients (Min, 2015). The company had already been in the media for the wrong reasons because the clients were complaining overly about the services offered. More was needed to regain the trust of the clients because they felt that their time was wasted, and the employees were not motivated enough to use their time to serve clients (Simchi-Levi, Clayton & Raven, 2013). CRM was missing because the relationships created were not as strong. Even when the company began restructuring, few were optimistic. The main problem was that the addresses offered were not meeting the core demands of the clients, and the supply chain was not even working as intended. After restructuring this, the employees needed motivation. Though deductions were imperative for the company to reduce its expenditures, the employees were not motivated enough to make better use of their time (Schmitt & Raisch, 2013).

As a stakeholder, the company CEO during the time that Dell was going down was not interested in looking at the root problem. Problems began then, and the only remedy was a bailout. That changed the company’s fortune, and many employees lost their jobs during the downsizing period. More harm was done during this period, and the founder understood that drastic measures were needed to resuscitate the company before it sank deeper into debt and losses.