Business Model Interrogation and Development: Dell In - Case Study Example

Business Model Interrogation & Development: Dell Inc. Table of Contents Background 3 Product market and strategies 3 Capital market and strategies 3 Internal organizational structure 4 Current business model 4 Business strategies affecting the organizational structure 4 Evaluation of the current organizational structure 5 Technological Impact 5 Capital structure of Dell 5 Risks of the company 6 Merger and Acquisition 6 Three legged tool (capacity, technology and people) 7 Product market 7 Revenue 7 BCG matrix 8 Porter’s five forces 8 Product life cycle 10 Reviewing of Product Life cycle 12 Recommendation 12 Reference List 13 Background Dell Inc. is a technology company which is headquartered in Texas, USA. It manufactures and markets a wide range of information technology products such as personal computers including desktops and laptops and other technology solutions like data storage solutions, networking and mobility products and it also provides cyber security services. The company is best known for its personal computers, which is the primary revenue generator of the firm. Dell operates in several overseas location which includes American, European, Asian and Middle East countries. The company owns four business subsidiaries, Enterprise Solutions Group (ESG), End User computing (EUC), Dell Services and Dell Software. The EUC unit caters to the end users with laptops, notebooks, tablets and third party software applications along with other computer equipments and peripherals (Marketline, 2014). Product market and strategies The rapid growth of technology over the past two decades has opened up prospective business opportunities for the company. The usage of computer devises in the global perspective has increased exponentially over the years and is likely to increase further in the coming five years (Census Bureau, 2013).The global revenue generated from the personal computer industry has increased to $427.12billion as of 2013 from $410.04 billion in 2012 (Morningstar, 2014). This indicates that the overall personal computer market is likely to grow in the near future. Over the years, the computing devices have evolved and the advent of mobile computing devices has changed the global usage of computers. Therefore, Dell has changed its product development strategies and has focused on laptops and tablets. Capital market and strategies The stock prices of Dell over the last 10 years suggest that the company has been quite profitable till 2008. However, the decline of stock prices started to accelerate after 2008. The stock price took a deep down turn in the first quarter of 2009 and again in the last quarter of 2012 (Google, 2015). After the last decline in the share prices, Dell has managed to restore its business, thereby increasing its share prices. The decline in the stock prices was mostly due to the increasing competition in the personal computer market. The growing usage of computing devices has attracted a lot of player in the market like Lenovo, Asus, HP, etc. This as a result had drastically increased the challenge for Dell, thereby degrading its sales volume which in turn decreased its share prices (Statista, 2014a; Myers, 1977). Internal organizational structure The organizational structure is characterized by a vertical as well as horizontal flow of command and all major decisions are taken by the Board of Directors and the CEO. The board of directors oversees the business operations of the company and represent interests of the shareholders (Marketline, 2014). The different business activity of the company is operated by individual departments, which perform a particular allocated task. There is a seamless flow of information between the departments which as a result creates a robust knowledge management system of the company. The departments are categorized based on their activities, such as department of marketing, services, human resource, finance, general counsel, enterprise and commercial activities (Daifu, 2011). Current business model The current business model of Dell has been designed to cater to a broad customer base. Previously, the company only catered with the business customers. Eventually it has broadened it product spectrum which has allowed it to operate in both business and commercial markets. The company has also increased its product portfolio which targets different customer segments based on their IT needs. This as a result allowed the company to offer a need based value proposition to the customers. In order to achieve competitive advantage over its rivals Dell has focused its business to gain more market share by. The company extensively invests in its research and development activities, which allows it to constantly develop new product features that attracts new customers and helps to retain to existing ones. Business strategies affecting the organizational structure The organizational structure of Dell has been designed in such a way that it complements its business strategies. Starting from new product development to marketing and promotional activities, all the business strategies are controlled and monitored by respective departments (Marketline, 2014). Any major financial decisions are authorized by the CEO and the Board of Directors. The company has successfully redesigned its organizational structure so that it can be harmoniously compatible with its business strategies. Evaluation of the current organizational structure The current organizational structure is centralized in nature and the chain of command flows down stream in the hierarchical ladder. This as a result leads to strict control by the higher management (Marketline, 2014). Although this structure ensures that all the activities are in line with the organizational mission, but it also narrows down the decision making prospect. Being a centralized organization, it hardly allows the lower management to participate in any decision making process. This as a result, narrows down the prospect of idea generation and the motivational level of the employees is lowered. Technological Impact The rapid growth of technological development has enabled Dell to introduce new product lines and new product features, thereby adding more value for the customers. Since it is a technology based company, the global technological advancement largely influences the business activities of the company. Moreover, the rapid growth of internet over the past decade has also allowed the company to nurture new opportunities. The rise of internet usage and its dependability has compelled the customers to buy new laptops and other computing devices that can serve their technological needs (Census Bureau, 2013). The increasing dependability on computer usage of the global business firms has lead to the adoption of using laptops by its employees, which as a result has increased the worldwide sales of laptop computers. Capital structure of Dell The company earns its revenue from the sale of its products and service offerings to their target customers. Moreover, the company also earns its revenue from its outstanding shares. As of 2013, the company recorded a market capitalization of $24.35 billion (Nasdaq, 2013). The debt to equity ratio of the company is 0.49 (Morningstar, 2014). This suggests that the earnings for the equity are more than the earnings from the debt. Therefore the company’s earnings are mostly reliant on its stock prices (Modigliani and Miller, 1958; Morton, 1954). Risks of the company The risk management of the company is mostly overseen by the risk management team and Board of Directors (BOD). All the major decisions regarding the risk mitigation of the company are taken by the BOD (SEC, 2013). The board is categorized into several segments which oversee different aspects of the operational and financial risks. The Audit committee takes care of the risks of the company’s financial reports and the reporting process. The risks are mostly on the grounds of policies and processes. In order to mitigate the risks which the company is exposed to, the committee suggests necessary steps to the board in order. The risks involving the planning of succession is overseen by the Leadership Development and Compensation Committee. It also evaluates the effects on the company’s financials due to the compensatory measures. The risk of the corporate governance structure is taken care by the Governance and Nominating Committee. The Finance Committee responsible for mitigating the financial risks of the company. It also oversees the approval and reviewing of the organizational strategies on the ground of corporate financing (SEC, 2013). Merger and Acquisition Dell expanded its business operations by making several business partnerships and strategic acquisitions. In 2006, the company acquired the gaming personal computer company Alienware and entered into the gaming hardware business. As a result it has increased its customer base. Acquisition of Alienware not only enabled the company to target a niche segment but it has also increased its brand valuation of the company (Krazit, 2006). In 2009, the company took over the Allin’s Microsoft IT consulting and solutions unit. In that year, Dell also went into business collaboration with the networking company Cisco to provide IT solutions in the field of data centre infrastructure. In 2010, Dell acquired KACE and Scalent which allowed the company to enter into the systems management appliance business and software for data centre applications respectively. The company entered into the cloud computing business by acquiring Enstratius (Marketline, 2014). Thus it can be stated that Dell has successfully expanded its business and financial structure by strategic acquisitions and partnerships. Three legged tool (capacity, technology and people) Capacity of the company is characterized by its product manufacturing capacity, financial and distribution capacity. Dell owns production plants in all the major countries of the world. Its advanced production facility equipped with skilled workers has the ability to manufacture computers and equipments much efficiently. The company has the capacity of producing a computer system in every 2 to 5 seconds (Daifu, 2011; Zimmerman, 2013). The company uses its own distribution networks and it also uses other third party distribution channels, which as a result enables the company to widen its target markets. The extensive research and development allows the company to develop new features to its products thereby making it an innovative company. Introducing latest technologies in the market gives the company a first mover advantage which allows it to attract new customers. Dell has collaborated with several other technological companies, which enables it to gain dominance in respective technological fields. Although developing new technologies increases the operating cost of the company, but the highly competitive market environment compels Dell to constantly innovate in order to stay ahead of its competitors (McArthur and Sachs, 2001). The skilled human resources and overseas cheap labour market allows the company to meet the market demand and produce innovative products. Product market Revenue As of 2013, the company has recorded revenue of $56,940 million which is a 9% decrease from the previous year’s revenue which was recorded to be $62,071 million (Morningstar, 2014). The fall in the revenue is mostly because of the increase in competitiveness in the market. BCG matrix The overview of a company’s position in terms of its relative market share and market growth rate is highlighted by the BCG matrix. Figure 1: BCG Matrix Source: (Kotler and Keller, 2011) Dell operates in a market that is rapidly growing and its market share is also quite high, relative to the rest of competitors. This suggests that the company is positioned as a Star in the BCG matrix. Being a Star, although the company generates sufficient revenue but it also required a steady flow of investment to cope up with the high market growth rate. Porter’s five forces Buyers’ Power: The buyers’ power is stated by their influence on the price of the company and also their switching costs. The availability of lot of options in the market reduces the switching cost for the customers. This as a result compels the company to reduce the product prices in order to attract customers. Thus the Buyer’s power is assessed to be high (Marketline, 2014a). Suppliers’ power: Dell is highly dependent on its suppliers for raw materials. The production process cannot continue if sufficient raw materials are not available. Owing to the presence of large number of suppliers in the industry, the switching cost of Dell is low. Thus the overall power of suppliers is moderate (Marketline, 2014a). Threat of substitutes: Although there are not direct substitute of the products offered by Dell, but the latest smartphones can act as replacement for a device that can perform basic computing activities, like accessing the internet and editing documents. Thus the overall threat of substitutes is moderate (Marketline, 2014a). Threat of new entrant: The personal computer industry is expanding quite rapidly, which as a result has attracted a lot of new firms to enter in this industry. However the company owing to its high brand recognition and financial strength creates a high barrier to entry, which makes it difficult for the entrants to enter into the industry. Moreover, entering into PC manufacturing industry requires huge capital investments which may not be a viable option for the new entrants. Therefore, the threat of new entrants is assessed to be low (Marketline, 2014a). Rivalry among existing firms: The PC manufacturing industry is highly saturated and competitive in nature (Bajarin, 2014). The firms often go for price wars when the product differentiation becomes less. Owing to the lack of product differentiation, Dell tries to attract customers, by aggressive promotional activities and competitive pricing. Thus the rivalry among existing firms is quite high (Marketline, 2014a). Product life cycle Figure 1: Product Life Cycle Source: (Kotler and Keller, 2011) The product life cycle of a company gives a clear insight regarding its current sales position. It assesses the direction of progress of the company in the industry. The product life cycle is divided in to four stages, introduction, growth, maturity and decline (Saxena, 2009). Figure 2: Revenue Structure of Dell and its rivals indicating their position in the product life cycle. Source: (Morningstar, 2014) From the above figure, it can be stated that the product life of Dell dwells in the maturity stage. This is increasing saturation of the consumer market and high competitiveness. The company needs to develop new products to increase its revenue and maintain a sustainable growth. Moreover, the revenue figures of Dell clearly indicate that the company’s revenue generation has stagnated over the past five years. In contrast, its rival Lenovo is still at the growth phase, as its revenue is growing steadily. Hewlett Packard on the other hand also seems to be in the maturity stage, as its revenue does not show any increasing trend. Based on the statistical data provided by Statista (2015), growth a rate of desktops is slowing declining while the growth of laptops has been stabilized. However, the sale of tablet computers has seen a significant rise over the past years. This suggests that HP needs to focus more on the tablet market to ensure a sustainable growth. The company’s over dependence on the laptops and desktop computers has flat lined its growth in the industry. Reviewing of Product Life cycle The competitor firms like Asus, Lenovo, Apple and HP are also trying to keep up with the growing market trend, which as a result compels them to constantly develop innovative products to survive in the rapidly growing industry (Statista, 2014). The products of the rival firms also belong to the growth stage as the global usage of computing devices is like to grow further in the near future. Recommendation Dell operates in the computing devices industry which is already saturated with the presence of a lot of well established firms. Owing to its several years of expertise in the technology industry, it has prospective opportunities in the smart phone industry. The rapid growth of the popularity of smart phones will help the company to make a lucrative business in this sector. Moving into smart phone industry can be done by acquiring smart phone company and marking its products by rebranding with the brand image of Dell. This will help the company to enter into a horizontal acquisition, thereby increasing its customer base and revenue structure. Reference List 1. Bajarin, T., 2014. Silicon Insights: Competitors in the PC Wars. [online] Available at: [Accessed on 14 February 2015] 2. Census Bureau, 2013. Computer and Internet Use in the United States. [Online] Available at: [Accessed on 14 February 2015] 3. Daifu, 2011. Dell Inc. WS-1. [online] Available at: [Accessed on 14 February 2015] 4. Google, 2015. Dell Inc. [online] Available at: [Accessed on 14 February 2015] 5. Kotler, P. and Keller, K.L., 2011. Marketing Management. 14th ed. New Jersey: London 6. Krazit, 2006. Dell to acquire Alienware. [online] Available at: [Accessed on 14 February 2015] 7. Marketline, 2014. Dell Inc. [pdf] London: Market line. Available at: [Accessed on 14 February 2015] 8. Marketline, 2014a. Global Technology Distributors. [pdf] London: Market line. Available at: [Accessed on 14 February 2015] 9. Myers, S. C., 1977. Determinants of corporate borrowing. Journal of financial economics, 5(2), pp. 147-175. 10. McArthur, J. W. and Sachs, J. D., 2001. The growth competitiveness index: Measuring technological advancement and the stages of development. The global competitiveness report, pp. 28-51. 11. Modigliani, F. and Miller, M. H., 1958. The Cost of Capital, Corporation Finance and the Theory of Investment. The American Economic Review. 48(3), pp. 261-297 12. Morningstar, 2014. Dell Inc. [online] Available at: > [Accessed on 14 February 2015] 13. Morton, W.A., 1954. The Structure of the Capital Market and the Price of Money. 14. The American Economic Review, 44(2), pp. 440-454. 15. Nasdaq, 2013. Weekly CEO Sells Highlight: Dell Inc., Springleaf Holdings Inc., Delta Air Lines Inc., eBay Inc. [online] Available at: [Accessed on 14 February 2015] 16. Saxena, R., 2009. Marketing Management. 4th ed. New Delhi: McGraw Hill Education 17. SEC, 2013. Dell Inc. [online] Available at: [Accessed on 14 February 2015] 18. Statista, 2014. Statistics and facts about PCs. [online] Available at: [Accessed on 14 February 2015] 19. Statista, 2014a. Market share of PC vendors of PC shipments* worldwide from 2011 to 2014, by quarter. [online] Available at: [Accessed on 14 February 2015] 20. Statista, 2015. Forecast for global shipments of tablets, laptops and desktop PCs from 2010 to 2017. [online] Available at: [Accessed on 14 February 2015] 21. Zimmerman, J.L., 2013. Accounting for Decision Making and Control. 8th ed. New York: McGraw-Hill. Read More