Dell as the World's Business Leaders - Essay Example

Organisational Strategic Management Introduction No industry in human history can claim to have the speed of development and the level of impact on the modern civilisation as the computer industry. The industry itself is a growing one with sales in developing countries that are expected to go nowhere but up in the coming years. Even in countries where the industry has achieved a semblance of maturity, continued sales in the home sector as well as the enterprise markets are expected the drive the companies to ever higher positions. One such company is Dell, which went from a company formed in a dorm room with just $1,000, to being one of the most admired and richest companies in the world (Fortune, 2006). Early on in its history it managed to give the image of being a giant while it was running as a small firm (Chozich, 2005). As a company it has managed to give IBM, HP, Compaq, and many others stiff competition by selling individual computers that are assembled from custom ordered components. Its business philosophy was to sell directly to the customers, which enabled the company to directly interact with the clients and helped in understanding their requirements. The strategy enabled the organization to serve the needs of their customers with some very effective solutions. Dell custom assembled each computer according to the selection of options by the clients, which lead to lower prices than competitors but enhanced convenience to customers and to the company (Wikipedia, 2007). Over the past twenty three years, Dell worked hard and overtook industry giants following their own business model of direct selling instead of going through retailers and reseller (Lee, 2006). Since the development of the industry as well as the business of selling computers comes with the need of having computers as an essential element of life today, the growth of industry happened more or less simultaneously with the growth of the internet. As the internet developed, people started buying and selling goods on the internet and even computers came to be sold on the internet as well as over the phone as in the case of Dell. However, in the last ten years, the industry has gone through several revolutions which have made it highly competitive and drastically shrunk the margins available to sellers. Critical Changes in the Industry over the Last Decade While the computer industry has gone through many changes in terms of how it uses technology and how it governs the assembly of computer components into functioning systems. The basic elements which form a computer such as memory, hard disks, CPUs and other peripherals have not changed much in their form or function. They may have become more powerful and more optimized for efficiency but the nature of the devices has not been altered in any real way. Therefore, the changes which have cause the industry to change have been political, economical and social in nature since the technological changes are often created by the industry itself. In terms of politics, computer equipment and especially used computer equipment which has been discarded is quite an issue. It is commonly known that computer equipment and allied hardware are often considered hazardous waste once they have to be discarded or replaced altogether. For many companies, the recycling plans which they offer to their customers are sufficient enough to match the needs and standards of the industry (Walsh, 2007). However, new and more stringent requirements can be created by the industry or the government which is likely to be a cost burden for many players in the market. Similarly, legal issues such as those surrounding SEC probes or financial scandals have also caused concerns for companies such as Dell, Apple and other giants in the computer industry (Burt, 2006). When it comes to competition from outside sources, events and companies which can strongly affect the global market are very likely to shake up other players’ plans of global leaders in computer sales (Olenick, 2006). For example, another Asian crisis could negatively affect exchange rates and force the computer industry to change their strategy in developing countries such as China or India where the marker for computers is expanding rapidly. On the other hand, economic improvements in these countries could lead to more sales in computers which would be good for manufacturers such as Dell. At the same time, the competition in these countries would also be stiffer when the economies of developing nations are able to provide companies that can give local competition to companies such as Dell. Computer sellers in both India and china can have their products compete directly with the offerings made by Dell and unless a good marketing and sales campaign can be used to add perceived quality as well as support services image. Since local manufacturers might have the advantage in terms of cost, companies such as Dell and Apple would have a tough time in outselling local sellers. Additionally, Dell’s model of selling computers online may not be very feasible in countries where the penetration of the internet is not that high which means that a large segment of the market is cut off from the reach of the company. The global social situation has changed in the past decade to make it more upbeat for the computer industry because they have been given access to vast growing markets such as India and China along with several manufacturing and research facilities along the Pacific Rim. As these countries improve in social terms, the industry is likely to reap the benefits not only in terms of better human resource availability but also due to the increasing social awareness about home and business computers as well as the value derived from using information technology tools. Being a technology related industry; the computer industry has fully come to terms in the last ten years with regard to being a part of the technological spectrum that changes very rapidly with time. Dell certainly held out from selling AMD based computers for a long period of time while it was pushing relatively inferior Intel based machines. However, the situation has changed in recent years and Dell has started selling AMD based machines. Very recently, Intel’s new chip architecture has taken over AMD in terms of performance and Dell should be ideally placed to take advantage of that with their long standing relationship with Intel (Lee, 2007). Finally, as new technology emerges in the field of personal computers, there is no reason why the computer industry should not be able to offer the same technology to home and enterprise users as it has done in the past. Dell’s Last Five Years Dells mission is simple enough for both the customer and for all other stakeholders in the company. They wish to be the most successful computer company in the world at delivering the best customer experience in markets they serve. However recently the company has faced multiple challenges and has missed their sales forecast figures in six consecutive quarters, surprising for a company which consistently produced results beyond expectations. In the third quarter of 2006, Hewlett Packard dislodged Dell from its leadership position and sold more notebooks (Olenick, 2006). Ten years ago, Dell was standing in a position of leadership due to its system but it seems that the recent management behaviour has not been very successful in keeping the lead established by the company especially in the last five years. This weak position is summarized by Barfield (2006) when he says: “The Dell model began to crack in mid-2005. Rivals, in particular Hewlett-Packard, caught on. Customers began demanding cutting-edge products and better service. As sales growth rates and margins took a dive and the stock fell 18% through the first 10 months of the year, Dell stuck to the Way (Berfield, 2006, p. 74).” The last five years for Dell have been very troublesome since the biggest strength that Dell had was its direct business model. Dell was not the first company to try the direct sales model, but was the first one to make it a success in the technology industry (Wikipedia, 2007). The business model helped accurately identify customer’s needs and made the computer assembly model one of the leanest in the industry. The focus on the model helped company develop their supply chain where components are delivered just in time for assembly (Margulius, 2006). The company ordered the required components only after the customer places the order for the system. It facilitated in not only identifying the customer’s requirements but also the component requirements for the company. However, as with other industries in the world, customisation and the need for specialised components in various computers was something that Dell could not provide to all customers. Additionally, the music players and other accessories launched by Dell as complimentary goods to their computer systems failed to take off as expected by the company. It is not because those components were not good or that the idea of selling them as complimentary goods in an integrated supply chain was not acceptable to the market, it was the management of the sales process which did not work out for the company (Margulius, 2006). The biggest weakness that Dell has been facing is the lack of competent international management which has kept it from gaining considerable market share in foreign markets and have not been able to replicate success similar to that at home Recently James Schnieder, CFO of Dell, left the company to join a Texas start-up banking firm (Fajt, 2006). It lost its top two executives in China, which is perhaps the most important growth market, within ten months of each other. In a lengthy turn around and efforts to fill in more than a hundred open executive positions, Dell has brought in people in key positions from different companies yet it remains to be seen how successful this approach would be. It seems that Dell’s competitive edge was based on its efficient supply chain and excellent customer service (Margulius, 2006). However with the burst of dot com bubble, market growth rate shrank considerably and Dell immediately cut on its labour cost and outsourced a major portion if its customer services. The Dell brand that was once considered trade mark of customer service is now looking at customer satisfaction as its weakness and in a competitive environment where margins are very low, low volumes of shipments can mean the collapse of company such as Dell. However, industry wide recognition of the fact is present that simple and cheap PC systems still make the bulk of PC sales and Dell made moves to diversify its product portfolio by including printers and PDAs. However since the market dynamics have changed, Dell needs to focus again on their ideology of servicing client’s requirements. Apple, and its innovative trend of changing how people use computers in general, has successfully transformed common and often inferior computer products into entertainment systems. The successful turn around of Apple is a testament to the growing market of PCs as home entertainment centres (Beckman and Hirsch, 2001). Dell could certainly use a page from Apple’s book and try to come up with innovative products to save the company. This idea has been picked up by competitors such as HP which supplied Apple made iPods for a while by using its JIT systems. Even though Dell is not an introducer in this category but can still capture market share based on their core competency of JIT supply chain and direct contact with customers (Margulius, 2006). In competition, Apple offers a well integrated home entertainment solution while products based on ‘wintel’ computers are still along the lines of ‘assemble your own’ by buying components (PC Magazine, 2006). Being in the position the company is, Dell can target this small but growing market by providing complete digital home entertainment system. Clearly, even at this moment, there are several threats to Dell coming from various competitive players in the market of which HP is the primary source of competition. Dell has already lost the position of being the world’s biggest computer manufacturer and has been unable to answer the questions being tabled by investors or the competition. Declining customer satisfaction levels have also hurt the business of the company while SEC probes into the accounting processes at Dell have also raised some eyebrows (Burt, 2006). Stretch or Fit The plain fact of the matter is that Dell has used both stretch and fit strategies to gain control of the falling situation but it remains to be seen what effect these strategies will have on the company. One of the largest PC sales segments is the corporate segment which require standard configuration PCs in high volume. This decreases the production cost and raises volume orders thereby increasing profitability. Dell has started focusing on this segment and since the returns from this sector are significantly higher. In future, if Dell can increase its market share in this segment it could outperform its competitors in an overall standing. Secondly, a part of the home entertainment segment includes the gaming community, which is increasingly demanding latest technology and better performance. Dell has only recently focused on this segment since many of the latest games push normal PC systems to their limits and the gaming consumer is always demanding top end computer systems. It seems that Dell acknowledges this development and has from time to time produced computers which have high end components such as the XPS range (Lee, 2007). Dell also acquired a specific game computer manufacturing company i.e. Alienware. This was a made to order computer selling company based on similar model to Dell’s but Alienware was primarily servicing high end gaming customers. Dell needs to leverage the company as it has already made a place for itself and given the global exposure and distribution network which Dell has, the Alienware brand can capture a considerably large gaming based market share for its parent company (Lee, 2007). With the release of Windows Vista, demand for upgrades and newer systems is expected to grow considerably. The question remains however how soon will the upgrades will be required, especially since consumer sentiment is to avoid upgrading until feedback about the software’s performance and stability are obtained. Corporate clients have also shown hesitation towards upgrading since Windows XP is proving to be good enough for the business requirements and an upgrade may not be necessary (LaGesse, 2007). Nonetheless, Windows Vista is expected to drive the future hardware sales later on in 2007 and early next year. In this situation, Dell has integrated the Vista operating system into its new computer models; media centre related releases as well as gaming machines. It also has plans for the customers who wish to upgrade to Vista by offering them easy to take upgrade paths which should also include a method for trading in their old machines (LaGesse, 2007). In conclusion, as a company and an industry leader, Dell is well placed to regain its positions as the number one company in the computer industry but the strategies implemented by Dell may need a significant gestation period before it can uproot other companies from their spots on the ladder. I feel that in time, Dell will certainly regain its lost crown and it certainly has the ability to turn the computer world upside down as it has successfully done in the past. Works Cited Beckman, D. and Hirsch, D. 2001, ‘Mac Is Back in Town’, ABA Journal, vol. 87, no. 8, pp. 70-72. Berfield, S. 2006, ‘The Worst Leaders’, Business Week, 4014(1), pg 74–79. Burt, J. 2006, ‘Hits & Misses’, eWeek, 23(50), p. 20-22. Chozich, A. 2005, ‘Managing Technology; Appearances Are Deceiving’, Wall Street Journal. 19 Sep, p. R7. Fajt, M. 2006, ‘Dell CFO joining Texas startup’, American Banker, 121(245), p. 7. Fortune, 2006, ‘Fortune Global 500’, Fortune Magazine, [Online] Available at: http://money.cnn.com/magazines/fortune/global500/2006/full_list/ LaGesse, D. 2007, ‘Tech to Ride an Upgrade Cycle’, US News and World Report, 142(2), p. 9. Lee, L. 2006, ‘It’s Dell vs. the Dell Way’, Business Week, [Online] Available at: http://www.businessweek.com/technology/content/feb2006/tc20060223_710372.htm?chan=search Lee, L. 2007, ‘Dell’s New Lineup May Not Be Enough’, Business Week, 4014(1), p. 13. Margulius, D. 2006, ‘Fine-Tuning Your Supply Chain’, InfoWorld, 28(17), p. 18-19. Olenick, D. 2006, ‘Hewlett-Packard Outsells Dell In Notebooks’, This Week in Consumer Electronics, 21(27), p. 106. PC Magazine. 2006, ‘Low-Cost Apple laptop is very enticing’, PC Magazine, vol. 25, no. 13, pp. 31-32. Walsh, B. 2007, ‘10 Questions for Michael Dell’, Times, 169(4), p. 8. Wikipedia, 2007, ‘Dell’, [Online] Available at: http://en.wikipedia.org/wiki/Dell Read More