Critical Success Factors of Dell Inc - Case Study Example

 Critical Success Factors of Dell Inc 1. Introduction Dell is a large scale multinational tech firm which comes up with and sells a wide range of computer devices and services such as Dell desktop computers, laptops, data storage devices, network switches, software and other computer peripherals. Dell has nearly 79,000 employees (www.dell.com). This apart it manufactures consumer electronics and goods such as HD television sets, cameras, printers, MP3 players and so on. Its goals and objectives are concentrated upon satisfying the customer’s demand by coming up with novel pricing, product and marketing initiatives (www.ijazconsulting.com). 2. External Analysis 2.1. PESTLE Analysis PESTEL analyses have to be performed with regard to the current performances of Dell to analyze the future opportunities (www.cipd.co.uk). Environmental Influences: Dell is also actively involved in promoting corporate sustainability programs apart from its normal daily activities. These include improving energy efficiency of Dell products, ensuring that no greenhouse gases are emitted from Dell factories, introducing recycle Dell systems and so on. Social Influences: Public relations efforts and programs help to quicken bringing about the required outcomes in both corporate goals and competitive edge. Thus Dell has invested a lot in such public relations efforts. Since Dell consists of a multicultural staff, social factors such as religious behavior which may not be very essential to the situation at hand have to be accommodated. Technological Influences: It is innovative novel technology that has given Dell an edge over the rest of its competitors. Due to Dell’s recent acquisitions of such firms as Aienware and EqualLogic, its able to make use of their technologies too in manufacturing new products. Economic Influences: The prevailing financial crisis has had a very negative effect on the ICT industry. At existing firm level cost cutting practices were not very practical. By capturing emerging markets average and marginal costs could be brought down. Political Influences: The Dell computer systems & services market is very vulnerable to political influences such as global issues. Legal Influences: Regulatory environment has had a major impact on Dell activities even though such rules have the desirable effect of quality improvement and cost reduction too. There is a high possibility that Dell’s competitors could come up with duplicate products infringing on its copyrighted and patent material. 2.2. OT from SWOT Opportunities: There are many different opportunities that are available to Dell in the ICT market worldwide. In particular its acquisitions of other firms, outsourcing and e-commerce activities have played an influential role in determining its success. The current trends indicate the rapid pace at which the global ICT market has grown and will grow in the future. A low price leadership has helped Dell to benefit from both the global presence and upcoming global markets. This is the economic reality and Dell has much to gain from its expansion into this region. Customers of ICT related products in upcoming markets seem to be more sophisticated (www.ivythesis.typepad.com). Threats: One of the biggest threats is the rising competition against Dell because of the price wars and varying consumer needs. Lots of companies including Apple, HP, IBM and Samsung who are involved in computer products and services compete with Dell through such means as development of IT, strong brands and M&A. 2.3. Porter’s Five Forces Porter’s Five Forces are especially vital to realize Dell’s own strategic imperatives. Supplier power: Dell has had to come up with a number of different marketing methods to acquire supplies in order to meet its customer’s demand. Factors such as long term contracts, the degree of dependency on credit, supplier relationships determine the way Dell and rest of the industry would respond to this (www.quickmba.com). Competition: Rivalry or competition in the ICT market sector is very high due to the fact that existing scale economies of individual competitors would serve as the stepping stone to a price cutting war. Dell has to encounter stiff competition from many rivals of whom Apple, HP, IBM, Samsung, Toshiba, Acer and Asus are the major ones (Khan, 2006). Threat of substitutes: Fairly large scale companies in technology-centric sectors has a tendency to merge together to make quick profits. The acquisitions made by Dell in recent times is a testimony of this trend. Threat of new entrants: The already competitive ICT industry is further intensified by the threat of new entrants. Rather than new companies starting from scratch, there is always the threat of companies in the ICT field forming alliances and re-alliances. Buyer power: Buyer power is high due to the availability of a wide variety of computer products and services and substitute products in the market. Most of these products are similar and with low switching cost. 2.4. Critical Success Factors Dell has grown rapidly by adopting such means as e-commerce activities, global expansion and leadership style that are far ahead of its competitors. Dell’s critical success factors include competitive prices, efficient service and repair, customer service, quality control and so on. Dell products are reliable, user friendly and are built consisting of the very latest features of computer products and related services such as high speed and large storage capacity. Dell is all the time looking at ways and means of improving its existing products so as to meet the requirements of its customers and to have a competitive edge over its competitors. 3. Internal Analysis 3.1. Resource Audit A vital aim of a resource audit is to make sure that the business portfolio is strong and that business units needing investment and management attention are emphasized upon. This is an important aspect and Dell should regularly look for markets which are most attractive and which business units have the capability to achieve advantage in most attractive markets. In this regard Dell’s corporate strategy is the primary strategy that looks to reorient its strategic completion policy while at the same time maximizing the synergy related benefits arising from an acquisition or a merger (Porter, 2008). This is an integral part of the whole corporate strategy of ensuring the growth of its market share and profit margins. This is the very factor behind Dell’s performance success. 3.2. Competitive Advantage Dell’s strategic approach on the aftermath of recent competitive explosion can be seen in respect of its diversification of the product portfolio. For instance its current level of competitive reorientation and product orientation is determined by its marketing strategies’ directional thrust in reorienting itself to meeting the diverse service needs of the customer. Dell’s capacity to reorient itself in product portfolio management and competitor related environments is limited and therefore it must adopt a totally different approach in its current niche markets rather than compete aggressively in mass markets. In other wards defending its current niche market turf is much better than spend millions of dollars on mass marketing, because the latter strategy is much less likely to benefit the company due to stiffer completion there (http://falcon.jmu.edu/) . 3.3. Value Chain Links (Appendix I) Porter’s value chain analysis is concerning primary activities such as inbound logistics, marketing, sales and service, operations and outbound logistics. Support activities are inclusive of procurement, Human Resource Management (HRM), technology development and the firm’s infrastructure. Dell adopts a supply chain management in which suppliers are sought from within the proximity so as to minimize costs. Dell has been successfully getting quality supplies at a much lower cost for a long time (Ahmed, & Sharma, 2006). However their rivals are also not lagging much far behind. Dell’s HRM aspect occupies a very vital place in the whole value chain management process. The technology edge that Dell has over its competitors is its advantage and the firm has gained a good reputation for it. As such market outcomes such as constant rise in sales volume would give a chance for Dell to add incremental values to its different product portfolios (Dekker, 2003). 3.4. VRIO VRIO - value, rarity, inimitability and organization – framework enables the organization to build up its resource base in a unique manner so that its rivals might not be able to copy those resources. Dell has been able to strategically push its product portfolio in the internet search engine market at a very competitive level. Competitive strength of the organization is determined by its business strategies including the marketing strategy. For example Dell as a service provider would have to initiate its business strategy of satisfying the consumer with a range of services so that competitors would be compelled to match its own strength or adopt a different policy approach such as lower prices to attract customers. How best Dell would be able to match its competitors in this environment of stiffer competition depends on the inner organizational strengths such as leadership style and motivation of staff (Hodgetts, 1999). Are you an author? Learn about Author Central 3.5. Finance When compared to the performances of competitors, Dell’s financial metrics have been particularly good. However in the midst of the financial crisis these figures have very little value. In order to achieve growth related synergies, Dell has been introducing its products across a broader market spectrum (www.moneycentral.msn.com ). Key Ratios Gross Profit Margin – Dell’s gross profit margin has decreased from 20.1% in 2008 to 19.2% in 2009. Return on Equity- The ROE of Dell has reduced from 73.1% in 2008 to 61.9% in 2009. Return on Assets- The Return on Assets of Dell has reduced from 11.25% in 2008 to 9.51% in 2009. The P/E Ratio-The P/E Ratio has reduced from 13.12% in 2008 to 7.52% in 2009. Going by Dell Annual Reports and above ratios for 2009 and 2008, it can be seen that the firm’s revenue stands at $ 61.101 billion and $ 61.133 billion respectively. Owing to the varying economic environment, the revenue has remained flat over the years. The global commercial business has decreased by 2% during 2009 with the impact of decrease in average selling price. The net income came to around $2.478 billion in 2009 and $2.947 billion in 2008. As a result its net income also reduced by 16% in year-over-year keeping with the 7% drop in operating income, 65% decline in investments and from 23.0% to 25.4% increase in effective tax rates. Despite the fact that the rising costs have deprived its global operations and those of the US domestic market operations somewhat, Dell had the capability to add numerous additional services to the existing consumer packages and as a result adding value for its customers. 3.6. SWOT – SW Strengths: Dell has numerous strengths. Its wide array of user friendly and reliable computer products and services are its major strength. Its friendly and skillful staff, financial ratios and international HR and marketing practices are some of its other strengths. As a result Dell can be considered as the second largest PC supplier globally for its ability to attract and retain a large customer base, strong brand equity and product portfolio (http://strategic-business-planning.suite101.com/). Weaknesses: Dell’s major weakness is that it does not have a large range of products when compared to some of its major competitors. Increasing manufacturing costs and cost cutting initiatives through compensation reduction, laying off employees and closing down of factories could adversely affect the company in time to come. This is because their major competitors have been able to able to diversify their products and improve their repertoire of products very successfully. 4. Current ‘problem’ Diagnosis Dell has been subjected to the same degree of pressure arising from the current global economic recession, especially in its strategic competitive environment where other rivals like Sony, Samsung, Hp and soon have targeted Dell’s weak strategic market orientation policies. During the last few months Dell’s competition strategy has come under mounting pressure due to its inability to focus on regulatory environment related dynamics such as legal, battles concerning service standards (Barney, & Hesterly, 2005). This is particularly so with regard different elastics of demand such as price, income and cost. Invariable price elasticity of demand has affected Dell’s market penetration pricing strategy against the unfolding price wars initiated by stronger rivals. In fact Dell has lost some of its niche markets in North America and Asia to its rivals. This strategic failure may ultimately transform in to a corporate incapacity centered outcome. Market analysts have suggested that Dell restructure its corporate strategy to achieve long term goals rather than fighting for mass market revenue shares against equally or more formidable rivals. Dells marketing strategy was constructed on the lines of a paradigm shift away from its competitors such as HP’s exclusive focus on aggregated synergies coming from gross revenues. Globalization has prompted HP to do away with some of its expansion plans in China. Secondly its IT related costs in factories abroad have been increasing as a result of increasing equipment cost and labor cost (Cage, 2004). It has also been found that the leadership style at Dell is not very affective. Successful HRM practices should be aligned with company outcomes such as internal value chain enhancement and motivation parameters. 5. Generation of Strategic Options 5.1. TOWS Matrix (Appendix II) Strategic options of the company should involve all management functions and corporate decisions. According to the SWOT analysis, Dell would have to start its strategic functional processes and systems in keeping with its own strategic environment. For example such aspects as quality management, HRM function, internal value chain management and budgetary controls should be in line with the goals of the company (Vasilash, 2002). At the same time Dell would have to think about the competitive environment and available choices. Dell is having these abilities right now. 6. Evaluation of Strategic Options (Appendix III) According to Ansoff’s growth matrix product/market mix, the success of a company’s business depends on whether the firm is operating in novel or existing markets, and selling existing or new products. The relevance of Ansoff’s growth matrix to Dell Inc is evident in its marketing efforts to raise sales to new customers who would like to purchase a novel product. It’s is also a tactic to penetrate the market and defeat competition in the midst of rising costs (Smith, & Flanagan, 2006). 7. Description of Selected Strategy (Appendix III) In order to grow the market share by 5% over the next 3 years a entering to the emerging markets strategy should be followed. In order to utilize brand image product reliability strategy should be used. An e-commerce strategy should be used to optimize distribution channels. For costs within the budget a low price strategy could be used initially. In order to match current skill set International HRM policy should be used. In order to payback within minimum days, controlling creditors is the best strategy that can be used. Increasing return on equity is the best strategy that can be followed to improve ROCE in 3 years. In order to improve Positive stakeholder support Supply chain management should be used. 8. Conclusion The strategic environment of Dell has been converted to a more complicated and varied approach to managing an internally diverse strategic operational environment. As it can be observed in this analysis, Dell has been affected by a number of internal and external operational environmental influences. Dell has been encountering numerous constraints. They include competition strategy, growth strategy, and marketing strategy and so on. In spite of these constraints Dell has successfully started some far reaching policy related outcomes. For example Dell’s product and marketing strategy has been directed towards achieving a number of M&As. It can be seen that Dell’s competition strategy is basically related to its product and marketing strategies. For instance the firm has been oriented to meet the contingency requirements of an expanding market coming up from the highly complex industry culture. A number of Dell’s competitors such as HP, IBM, Samsung and so many others have been looking at introducing their products in diverse market segments across a wide repertoire of products. In the meantime Dell has been focusing on placing its products in mass market segments while strategically concentrating on M&A related strategies. 9. References 1. Ahmed, NU & Sharma, SK 2006, ‘Porter's value chain model for assessing the impact of the internet for environmental gains’, International Journal of Management and Enterprise Development, vol. 3, no. 3, pp. 278-295. 2. Barney, JB & Hesterly, WS 2005, Strategic Management and Competitive Advantage: Concepts, Pearson Education, Inc., New Jersey. 3. Dekker, HC 2003, Value chain analysis in inter-firm relationships: a field study, Management Accounting Research, vol. 14, no. 1, pp. 1-23. 4. Dell Strategic Management, Retrieved from http://ivythesis.typepad.com/term_paper_topics/2008/02/dell-strategic.html on April 26, 2010. 5. Hodgetts, RM 1999, ‘Direct from dell: Strategies that revolutionized an industry : By Michael Dell and Catherine Fredman Harper Business’, Organizational Dynamics, vol. 28, no. 2, pp. 89-90. 6. Porter, ME 2008, ‘The Five Competitive Forces that Shape Strategy’, Harvard Business Review, p.86. 7. PESTLE analysis 2008, retrieved from http://www.cipd.co.uk/subjects/corpstrtgy/general/pestle-analysis.htm, on April 26, 2010. 8. Porter’s Five Forces, Retrieved from http://www.quickmba.com/strategy/porter.shtml, on April 26, 2010. 9. Qureshi, I & Muffich, J Case Analysis: Dell Corporation, Argosy Business School, Argosy University, San Francisco. Retrieved from http://www.ijazconsulting.com/uploads/Dell-Strategic_Case Analysis_by_Ijaz_and_Muffich.pdf, on April 26, 2010. 10. SWOT Analysis of Dell Computers, retrieved from http://strategic-business-planning.suite101.com/article.cfm/swot_analysis_of_dell_computers on April 19, 2010. 11. Dell Annual Report 2009, retrieved from www.dell.com on April 20, 2010. 12. Dell Inc: Financial Statement (2006-2010), retrieved from http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?symbol=dell on April 26, 2010. 13. Vasilash, GS 2002, ‘Leveraging the supply chain for competitive advantage: Cisco does it. Dell does it. Garrett is starting to. Your company can, too. "It" is leveraging supplier ...’, Automotive Design & Production, vol. 114, no. 4, pp. 50-52.  14. Smith, JL & Flanagan, WG 2006, Creating Competitive Advantage: Give Customers a Reason to Choose You Over Your Competitors, Broadway Business, New York. 15. Cage, M 2004, Dell Marketing Strategies, retrieved from http://www.entrepreneurslife.com/thoughts/entry/dell-marketing-strategies/ on April 26, 2010. 10. Appendices Appendix 1 Porter’s Value Chain Model Appendix II TOWS Matrix Opportunities i. product diversification ii. huge demand for PCs iii. internet usage Threats i. competitive rivalry ii. world currency fluctuations iii. changing consumer needs Strengths i. World’s largest PC maker ii. Product customization & reliability iii. Direct relationship with customers. iv. Strong financial performance Product customization Direct relationship with customers. Weaknesses i. huge range of products will reduce the product reliability ii. comparatively high prices iii. attracting college student segment product diversification Gaining brand recognition by using modern technology and innovations Appendix III Evaluating the Best Strategy CRITERIA Strategy 1 Strategy 2 Strategy 3 Strategy 4 Suitability Grows market share by X% over next 3 years Entering to the new markets Low price leadership Outsourcing M & A strategy Utilizes Brand image Direct relationship with Customers Using modern technology Product reliability Worldwide expansion Optimizes distribution channels Entering to the new markets M&A Using modern technology Outsourcing from outside suppliers Feasibility Costs within X budget Cost cutting Low price Cost controlling Maximize productivity Matches current skill set Democratic leadership style SHRM policy T&D IT development Acceptability Payback within X months/years Minimize cost Controlling creditors Strong financial ratios Strong cash flow ROCE Improved to Y% in 3 years Increase operating income Reduce operating cost Cost cutting Increase return on equity Positive stakeholder support Supply chain mgt Customer service Dividend policy SHRM Read More