Paraphrasing of Discussion and Analysis of Dell Strategy - Essay Example

? Discussion and Analysis of Dell Strategy Dell is a leader in its market sector because of its advanced products that owe their superiority to a few factors. One of these factors is innovation which uplifts the quality of their products. The second factor is internal capabilities such as exemplary leadership and customer service which gives Dell competitive advantage over their rivals. However, recent times have seen the increase in competition against Dell and its winning strategies. As such, Dell seeks new strategies so as to gain and maintain competitive advantage. One such strategy Dell zeroed in on is “dynamic capabilities” (Magretta 1998, p.4). The trick is to go beyond utilizing resources in an ordinary way. Instead, the company employs strategies that configure and thereby create competitive advantage of these resources. “Dynamic”, on the other hand, stands for the ability to transform these resources with ease in light of the flux environment within which Dell competes. The ability to adapt to external and internal change is also a significant way of maintaining competitive advantage. In light of this analysis, Michael Dell states that: “The goal is to stay a few steps ahead of change. That means the company can create and even shape change to some extent. The best way to beat change is to spend adequate time with the customers (Magretta 1998, p.83)”. This approach reflects not only on the nature of the strategies Dell upholds but also on the nature of their operating models. That is, adjusting and improving the models capabilities over time in light of changing market needs. Critical Overview: Focusing on Relationships within a Supply Chain. Dell attributes its key successes on a unique value chain. This chain owes its uniqueness to the nature of relationships of the various stakeholders within the supply chain. These relationships create leverage for the company in view of its customers’ appreciation. Secondly, Dell is one of the company’s that heavily relies on web technology to differentiating itself from other players in the market. One advantage of utilising web technology is the ability to select direct market routes, as opposed to other companies. Direct market routes are cost efficient as they facilitate quick delivery of goods and services. Also, the company can adapt and respond to the market environment needs with flexibility. Source: Magretta, 1998. In regard to the stakeholders in the supply chain, Dell focuses on the customer’s interests more than any other stakeholder. Granted, distributors and retailers contribute significantly to the value chain. However, in maintaining the differentiation strategy Dell prefers to target the customer directly. This approach provides convenience for the customer through superior customer service and the company by building a customer oriented brand name. Secondly, a direct approach to customers’ business model vouchsafes lower operating costs. This enables customers to enjoy Dell products at relatively affordable prices. Lower operating costs are an advantage for the company as they can invest other capital to improve the value of their products through research and development and also, enables them to invest in other ventures. The ever changing external factors over the years have led to the need to expand some previous strategies. Therefore, Dell outsources some logistic and distribution elements of its strategy. While exploiting the internet to create effective distribution channels, Dell does not ignore traditional channels such as direct mail. Through outsourcing primary activities, Dell creates a virtual value chain because suppliers and distributers alike qualify to be partners hence “integrated in their value adding activities” (Magretta 1998, p.7). This strategy further differentiates Dell from competitors offering the same services. The partnerships created also allow for competitive advantage for Dell. These partnerships facilitate innovation through injection of “new blood” into the company. “New blood” dictates knowledge transfer through collaboration hence improving efficiency in the operation of the entity. To date, these partnerships contribute to a chunk of the success Dell enjoys. A recent analysis has proven that the structures created through partnerships have improved the flexibility of Dell. As such, the company can efficiently reconfigure resources and strategies when the need arises. Adopting to change depends on the ability of an organisation to move as one. Hence Dell’s organisational culture creates synergy with its partners both externally and internally that enables success in adapting to change through oneness. Another strategy to reckon with is the ability to focus on core competencies, unlike its equal competitor HP, for instance. Choosing not to diversify ensures that an entity gets the maximum possible best out of its area of experience. This strategy enables Dell to maintain its market position. Collaboration along the value chain in regard to technology enables Dell to remain a relevant player in the market. Also, collaboration increases the internal and external resources of an entity. Outsourced primary activities are responsible for the success collaboration has afforded Dell. As such, future collaboration is inevitable. Notably, Dell prefers collaborations where it identifies internal weaknesses that can be averted through collaboration. Such collaborations focus on acquiring value added capabilities. In contrast with Dell, competitors such as HP opt to use strategies such as acquisition thereby expanding their focus field. On the other hand, Dell prefers to retain a narrow focus field and thus avoids acquisitions. Currently, all players in this market are “Jockeying for positions”. Players need to have a strategy that outlives the flux and the huddles in competitive markets. As such, Dell chose specificity as its core strategy and with noted success (Magretta 1998, p.6). Birkinshaw and Hagstrom (2002) propose a network-like strategy for the improvement of the organisational form. In light of this, Dell combines internal competencies with external opportunities along its value chain to create competitive advantage. Grant (2005) views markets and their resulting industries as dynamic and unpredictable. As such, he suggests that, for an entity to survive, it needs to utilize dynamic capabilities in the form of internally existing resources (Magretta 1998, p.4). Dynamic capabilities describe a firm’s ability to reconfigure its available competencies both internally and externally. Reconfiguration enables integration which allows the firm to build its competencies to adapt to the rapidly changing environment. This is the core strategy that Dell utilises to date. For instance, Dell broadens and utilises its competitive advantage through integration of resources such as the internet. This integration targets the entire business process from sales to customer relations (Magretta 1998, p.5). Competencies and their Significance in Sales and Service Strategies: Granted, Dell has an abundance of both tangible and intangible resources. This makes reconfiguration and integration relatively easy. Dell does not sit on these resources while waiting for a miracle to happen. The company is continuously striving to improve its resources and not necessarily in light of change. Dell also ensures its resources are rare, non substitutable and inimitable in order to maintain their value (Magretta 1998, p.47). This also applies to intangible resources such as skills, human capital and strategic competencies. The company ensures a constant pool of continuously improving skills is available at all times. As such, skills and competencies need to evolve in order to become dynamic capabilities. This improves market positioning through reduction of imitation (Magretta 1998, p.52). Intangible and tangible resources are crucial in managing a valuable supply chain. However, Dell sees its main capabilities in the internal structure and culture created over the years. One such structure is the virtual networks within the supply chain. These virtual structures primarily stem from the Dell’s unique position in relation to other competitors. An example of a culture, on the other hand, is a web based technology approach to marketing supply and customer relation management. Combining virtual networks and web-based technology in an innovative manner vouchsafes Dell’s competitive advantage through differentiation from other players. Limitations of Strategic Positioning: Strategic management sees organisational capabilities as critical success factors. However, some organizational capabilities may become irrelevant over time due to factors such as change in technology and a shift in the market demands. As such, they seize being success factors and turn into burdens. While Dell enjoys reputable success to date, critics view many of their strategies as limiting and sector specific. Strategies such as focusing on key capabilities reflect on its rigid portfolio. This is more so in comparison with other players for instance Apple and HP. Thee two entities have diverse product portfolios. This fact increases their appeal in the market from two main fronts. First, Apple and HP are risk takers and are, therefore, at the forefront of innovation. Secondly, they target a wider market seeing as they are not sector specific. The threat increases day by day especially with the emergence of new entities such China that is raising havoc in the technology sector with their daring innovations. China not only threatens Dell, it is beating other pioneers such as HP in their own game. Dell’s strategy in light of the actions of its competitors is an insistent external threat to the success of Dell. As such, the company has set out to curb this discrepancy. Critical overview: HP’s Competitive Positioning. Unlike Dell, HP has a diverse portfolio. As such, HP strives to allocate its resources to its many business entities while maintaining healthy competition with its rivals who like Dell, focus on a specified sector line (HP, SEC Filing, 2011). Source: HP SEC Filings, 2011. A 2011 survey revealed that HP has 7 separate business segments. The beauty of these segments is that they complement each other. Therefore, the survival of one segment is not strained or subject to the fall of the other. This strategy gives HP specific competitive advantage over Dell. One such advantage is the ability to offset the decline of a segment through employing the resources of the other segments. However, in comparison to Dell, HP is more vulnerable when it comes to external dynamics such as change in consumer tastes and financial instability. Secondly, in view of research and development, the segments face difficult times. This is because the company resources remain thinly spread out; therefore, few resources remain to facilitate improvement of internal resources and competencies. As such, Dell scores way above HP in regard to their ability to allocate resources to improve resources competencies. HP Product Portfolio: Source: HP, SEC Filings, 2011. HP has a wide, global distribution and hence enormous market capabilities. This enables the company to develop economies of scale across its value chain. While Dell is consumer focused, HP takes a business-to-business approach. From this difference, one can tell that HP is a more reputable brand. This is subject to its diverse portfolio which enables HP to produce diverse products to satisfy an equally wide customer base. HP’s customer base, for instance, ranges from SME’s and roots itself firmly in the large corporate market. One may hold on to the hope that Dell has adequate business collaborations. However, HP’s supply chain is all collaborations and partnerships. Compared to Dell, HP has more collaboration, more partnerships and deep rooted relationships with established players in the industry. Therefore, HP has a better value chain than Dell. On the other hand, HP lacks the synergy that enables a business entity to cope with change efficiently. Dell has a lean structure that facilitates easier cross-collaboration, therefore, better synergy. HP’s broad structure, anatomically speaking, reduces cohesion which brings about reduced synergy in the organization. Form a historical perspective, HP has lower margins compared to players such as IBM and even Dell. The greatest challenge HP faces in light of these factors is creating shareholder value while satisfying its numerous stakeholders. The future does not promise greener pastures as these challenges may further cripple the company’s ability to invest in research and development. The acquisition strategy the HP Company prefers further aggravates the situation. Also, HP, over the years has been subject to consistent change in leadership strategies and organisational structures. This has dealt a blow on the morale of the workforce as there is an environment of uncertainty in relation to job security and viability of strategies. Conclusion: Strategic fit is extremely crucial in surviving in the ever changing market environments as it creates sustainable competitive advantage. The past few centuries have seen an increase in the rate at which companies build fresh, competitive advantage while destroying competitor advantages. Innovation fuels this situation as it pervades the values chain. As such, strategic fit is the ability of a business entity to adapt new competitive positions in relation to their competitors efficiently and quickly. In view of this, market analysis highlights the challenges businesses undergo in order to create and maintain competitive advantage. For a while, Dell succeeded through inventing an operational model that sought a direct route to markets. The key element was to move as fast as the internet was changing. The relationship between the company and the customers grew as the services Dell offered enhanced. This created a noted differentiation in relation to other key players. However, this competitive position faces peril in light of the activities of competitors such as Apple and other dynamic factors in the operating environment. Despite the numerous changes in the markets, Dell remains loyal to most of its traditional strategies and this may spell doom for the company in the future. Sustaining competitive advantage requires a three level survey. First the company should monitor the macro and micro levels of the external market environment. Secondly, the company should continuously review its internal environment. Review of the internal environment encompasses analysis of the structures in relation to available expertise, resources and competences and, therefore, a remodelling of the culture of the organization. As such, many companies break under the pressure of increasing competitive rivals and viability of their traditional strategies. These threats cause companies to either change strategies or give up a venture all together because their ability to compete effectively faces multiple huddles. For instance, HP, in light of Apples domination, buckled out of the PC business. Recommendations: Strategies such as mergers, acquisitions and strategic alliances scored highly in achieving competitive advantage. These strategies allowed for combining of resources hence a vertical and horizontal improvement in the value chain. Dell shuns these strategies preferring instead to hold on to its core traditional strategies (Magretta 1998, p.23). Today’s business environment requires innovation and creativity in large scale. However, this innovation should not only focus on products and services. Companies need innovation and creativity in order to configure internal structures and cultures to meet the scales set to achieve competitive advantage. In order to sustain its position, Dell needs to diversify its portfolio and increase its collaboration with others. This will succeed if the company employs creativity and innovation to configure its internal structure and culture, therefore, improving its competitive advantage form the inside going out. Bibliography: Magretta, J., 1998, The Power of Virtual Integration: An Interview with Dell Computer's Michael Dell, Harvard Business Review, 1 - 84. Read More