The Success Story of Dell - Essay Example

 The Success Story of Dell The success story of Dell has become synonymous with innovation; innovation not about creation of new products, but of customization of products, sales, support and services, to generate ‘a whole new customer experience’ thus earning indomitable brand loyalty in an increasingly globalized and competitive market. According to me nothing could more succinctly sum up the Dell success story than these words of its chairman Michael Dell: We were not the biggest computer company, we were not the most capitalized computer company, we were not the most famous computer company. So, we had to prove that what we had was better. And that forced us to invent a lot of new ways of doing things that delivered a lot better value. And so we looked all across the supply chain and the demand chain for innovations that would drive success for our customers (Michael Dell quoted at Holzner, 2005, 29). Introduction Dell, the world’s premier and most profitable computer hardware technology company, is engaged in manufacture and sale of a vast variety of IT related products including personal computers, servers, data storage devices, computer peripherals, laptops, notebooks, net books, network switches, displays, projectors, monitors, and televisions. The consumer class notebooks and desktops are sold under the brand names of Dimension, Studio, Inspiron, and XPS, while the commercial class desktops and notebooks under the brand names of Vostro, OptiPlex, and nSeries. Commercial class notebooks are sold under the longest selling brand of Latitude. The product portfolio of Dell also includes software, managed services, professional services, and training and certification services. Besides, Dell provides services such as systems integration and infrastructure consulting. Dell Financial Services, a wholly-owned subsidiary of Dell provides financial services to business and individual customers. Company Profile and History The company was founded by Michael Dell, with a start up capital of $1000, while he was a student at the University of Texas, at Austin, in 1984. Its original name was PC’s Limited. Four years after its inception, the company went public in 1989, raising $30 million in its IPO, thus increasing its market capitalisation to $85 million. By 1989, the US sales of Dell had touched $257.8 million. By 1990, the company had set up subsidiaries in Italy and France to cater to the markets of Europe, Middle East, and Africa. Dell has successfully implemented Just-in-time manufacturing to effectively curtail inventory overheads. In 1997, the company was placed at the fourth position after IBM, Hewlett-Packard, and Compaq, in the manufacture and sales of computers and related products. By the year 2000, the company sales through the Internet had reached $50 million. Headquartered at Round Rock in Texas, Dell, today, is worth more than $100 billion. In sales, the company is only second to the world leader, Hewlett-Packard. Turbo PC with Intel 8088 processor, running at eight Megahertz was the first system of Dell built to its home design. In 1985, the company added to customer experience by offering risk-free returns next-day, at home, product assistance. The first notebook 316LT was released by the company in 1989. In 1991, Dell introduced its first notebook with colour display. The 325 NC offered battery life up to 3 hours using an application specific integrated circuit (ASIC) for power management. Since 1996, the company has been selling computers and providing customer support online. The same year Dell introduced network servers to become the fastest growing company in the sector. In 1997, Dell delivered its 10 millionth system. Dell Today With offices in 34 countries around the world, Dell, today, operates in more than 170 countries. In 2005, it topped the Fortune Magazine’s list of ‘America’s Most Admired Companies’. Meanwhile its revenue rose from $0.3 billion in 1989, to pass $ 30 billion in 2001, and $50 billion in 2005. In 2000, the company sales via the Internet touched the figure of $50 million and in 2001, Dell achieved No.1 ranking in the global market share for the first time. By 1998, the profits of Dell had soared to $944 million. with its share in the worldwide market of PCs rising to 6% worldwide and 12% in the US market. The online superstore of the company was inaugurated in 1999. Despite an economic downturn, in 2001, the company gained the top slot in PC sales capturing 13 percent of the world market. The Board of Dell Computers Corporation is served by nine people including the Chairman and CEO, Michael Dell. The Corporate Governance of the Board consists of the Governance and Nominating Committee, the Audit Committee and the Finance Committee. The manufacturing facilities of Dell are located at Austin, USA, Chennai, India, Xiamen, China, Penang, Malaysia, Eldorado do Sul, Brazil and Lodz, Poland. Besides, plants at Lebanon, TN, Nashville TN, Winston-Salem, NC and Miami, Fl assemble desktops exclusively for the North American market. This year Dell decided for the closure of the Limerick, Ireland and shifting it to production to Poland. According to CNN.com, Dell was ranked eighth in the list of 20 most admired companies of the US. Dell is the principal PC supplier to the small and medium business enterprises for the last 10 years in a row. In 2008, the company ranked 34 in the Fortune 500 list. 10 largest companies of the US and 5 top US banks are powered by Dell systems. The story of Dell’s growth in the international market began in 1987, when it opened its first international subsidiary in the UK. The Limerick, Ireland manufacturing facility was set up in 1990 to cater to the European, Middle-eastern, and African markets. The company forayed into the Asia-Pacific by first setting-up subsidiaries in Australia and Japan in 1993 and later starting a manufacturing facility at Penang, Malaysia. The capacity of integrated, sales, manufacturing, and support center set up in Xiamen, China in 1997 was doubled in 1998. Headquartered at Singapore, the Asia-Pacific division of the company today, employs 32,100 people. The division has regional offices in 13 countries and the combined position of the company is 3rd. The Europe, Middle-east, and Africa division employs 17, 500 people and has regional offices in 30 countries. The market position of the company is 2nd. In the Americas division, the company employs 39,500 people and has regional offices in 10 countries and its market position is 1st. Dell has strategically segmented its customer base into: Home and Home office, Small businesses, Medium and Large Businesses, Internet Service Providers, Healthcare businesses, Governments, and Educational institutes. Two-Pronged Strategy By successfully exploiting the novel business model to capture markets at home and abroad, Dell has proved itself to be a market oriented organization. Behind the phenomenal success of Dell, lies Michael Dell’s simple philosophy of working directly with the customers (Waters, & Walters, 2006). The Direct model is characterized by low cost, high speed distribution and procurement system, built to order manufacture, and establishment of direct relationship with the customer. According to Burke, 2002 cited at Kumar (2004), by creating Direct to customer strategy, Dell created a channel that never existed before. Mass customization achieved through flexible and efficient operations script the other half of Dell’s success (Waters, & Walters, 2006). Dell orders for components, and starts the manufacture of computer, only after an order has been booked. Since every system is custom built to order, it eliminates the stocks of finished goods. Dell operates on eight day inventory pulling through the components just as ‘where’ and ‘when’ they are needed. The company is, thus, able to save on the inventory and costs related to maintenance of stores. Dell employs the modular design of supplies that makes its procurement flexible. Stocks turn over every four days, allowing Dell to implement new ideas immediately without waiting for the old stock to work its way through supply chains (Waters, & Walters, 2006). Dell, thus, delivers reliable customer service and innovation at the same time (Kumar, 2004). The two-pronged approach of helping by pass distributors and retailers and building to customized order helps reduce costs of carrying large stocks of components and parts. Through this strategy, the company is able to blend into its customers’ day to day operations and culture. The unique customer knowledge has helped Dell to create barriers to entry that others have not yet been able to penetrate (Kumar, 2004, 194). For example, Dell helped develop highly tailored intranet websites for a customer by specifying a particular set of product configurations that work best in the customer’s network (Kumar, 2004). At the same time Dell generates real-time insights into uncovered customer needs and identifies new generation of products and services. Other highlights of Dell strategy are real time customer feedback and market insights, shorter product life cycles, elimination of excess dealer stock, and the ability to control pricing on real time basis. Besides, Dell vigorously advertises and capitalises on its ability to produce products with longer life cycles, reliability, and serviceability. According to Kumar (2004), Dell works with a deep rooted operations strategy with powerful technical capabilities, deep consumer knowledge and the ability to fit into the customer’s organization and work processes. In the absence of wholesalers, distributors, and retailers, the only overheads incurred by Dell are that of customer support costs. Telephonic customer support and next day technician support are hallmarks of the policy of risk-free returns. Another salient feature of Dell strategy is its 24x7 telephonic trouble-shooting support followed by 4-hour on-site support. Technical support uses a Service tag alpha-numeric identification number that resembles a serial number. Through ProSupport business customers can tailor their services needs. The customers are given the option of choosing from a variety of tiered service levels as platinum, gold, or silver. Virtual Integration—A Strategic Innovation Virtual integration is the way Dell’s customers and its suppliers interact uniquely with the company. The high point of Dell’s functioning is the way, in which suppliers and customers are linked together using information. The virtual integration is a hybrid of information technology and vertical integration. Dell considers time and information as its chief resources and tries to replace the value of inventory by value of information. As an order is received at Dell, it is depicted in a list of components that make up the product. The component wise list along with the required time frame is passed on to the relevant supplier. The suppliers then feed the company with components of required specifications. Some components of the computers and peripherals are shipped directly by the supplier to the customer. The shipment arrives alongside of the shipment of the PCs. Dell customer can receive the feedback on the status of their order online. Replacing inventory with information has helped Dell emerge as the fastest and the most hyper efficient organization in the world (Breen, 2007). Green Dell In 2007, Dell became the first major computer manufacturer to commit to neutralizing the carbon impact of its worldwide operations, a significant extension of its global climate policy and environmental stewardship. This announcement came in addition to Dell’s commitment to emerge as the ‘greenest technology company on the planet.’ Under its green initiatives, the company is increasing sustainable content in cushioning and corrugate packaging by 40 percent and ensure that 75 percent of packaging component are curbside recyclable by 2012. In 2007, the company could reduce its outbound packaging by 10 million pounds by nearly 10 percent. Dell is integrating air-filled cushion technology and renewable materials including molded pulp cushions and 100 percent recycled High-Density Polyethylene (HDPE) thermal-formed cushions. The company’s desktop and laptop packaging goal will help preserve 150, 000 trees. With milk jugs and laundry detergent bottles being typical materials that comprise the HDPE recycled waste stream, Dell estimates that 33 million recycled milk jugs would be integrated into desktop and laptop packaging in 2009. Dell has set up new online Greenprint Advisor Resource designed to help businesses and organizational customer go green. In 2009, Dell reached its goal to recycle 275 million pounds of equipment ahead of schedule (Dell.com, 2009). The company, according to Dell.com (2009), was the first to launch product recovery goals in 2004, and completed the rollout of its global recycling program in 2006, and now offers a free worldwide recycling program for consumers. Dell sources 25% of its electricity needs from renewable power sources. Dell has committed itself to remove the use of all brominated flame retardants and polyvinyl chloride from its products by 2009. Conclusion A fledgling entrepreneurial venture like PC’s Limited, could one day take on giants of IT like IBM, HP and Compaq is nothing less than a modern day miracle. Dell is literally driving industry standards in the IT world today. Business acumen, scientific temper, and an eye for opportunity together can script a success story like Dell. Dell has traversed many a milestone in business achievements and has rightly responded to the need of the hour by showing concern for decreasing its carbon footprint. Michael Dell’s call: “As a company, we work to minimize the impact our operations and products have on the planet, and we’re very deliberate in those efforts… This is a chance to come together as one global community around something that’s vital to all of us,” may, also, ring in an era of sustainable and responsible business. References Waters, C.D.J., & Waters, D. (2006) Operations strategy, London, UK: Cengage Learning Publishers Breen, B. (2007) Living in dell time. Retrieved June, 12, 2009, from http://www.fastcompany.com/magazine/88/dell.html Holzner, S. (2005) How dell does it, New York, US: McGraw-Hill Professional Kumar, S. (2004) Parts management models and applications, New York, US: Springer Publishers. Dell Computer Corporation (2009) Dell expands global green-packaging strategy to drive cost and environmental savings. Retrieved June, 12, 2009 from http://content.dell.com/us/en/corp/d/press-releases/2008-12-16-green-packaging- strategy.aspx Read More