Strategic Management - Dell Inc Strategic Audit - Case Study Example

STRATEGIC MANAGEMENT - DELL INC. STRATEGIC AUDIT Lecturer: Contents 0 Introduction 3 2.0 Industry situation 3 2 History, Development, Issues 3 2.11 Industry history 3 2.12 Past issues/problems 4 2.13 Current industry issues 5 3.0 Company situation 6 3.1 History, development, problems 6 3.11 Milestones 6 3.12 Current company problems 7 3.2 Present strategic posture 8 3.21 Current vision/mission 8 3.22 Current objectives 8 3.23 Current strategies 9 3.24 Current corporate structure and culture 9 4.0 SWOT Analysis 10 4.1 External environment analysis 10 4.11 Societal environment 10 4.12 Industry environment 14 References 18 1.0 Introduction Dell Inc finds itself in a competitive global environment where the need to identifying the right competitive advantage that puts the company ahead of its key competitors is very important. But to know the right competitive advantage to adopt, it is important to have a better understanding of the external environment in which the company operates. This need is what informed the current study to make use of a SWOT analysis to find the company’s comparative position. This is done in line with the company’s historic and current strategic position as well as its industrial history and current position. As part of the SWOT analysis, societal and industrial environments are both investigated. The societal environmental analysis of the company is performed to help understand the country-wide opportunities and threats which prevail for Dell as a company. Because the societal environment focuses on country-wide factors, U.S, which is the country of origin of Dell, is put at the centre of the analysis. At the industry level also, there are various competitive factors that directly affects Dell’s global competition. These factors are discussed under the Porter’s five forces. They five forces generally represent industry level competition that the company has to be wary about and put strategies in place against if it wants to succeed as a global competitor. 2.0 Industry situation 2.1 History, Development, Issues 2.11 Industry history The personal computer industry has a relatively young but fast growing and well matured history. This is because the introduction of microprocessor can only be traced to 1971 when Faggin, Hoff and Mazor invented Intel 4004 Computer Microprocessor. In 1975, the microprocessor was built into an actual computer, forming a microcomputer named Altair. This was a computer that was smaller than most other computers already in the system due to the use of microprocessor. Just around that time, the attention of manufacturers of computers shifted to the need to having computers that could be considered more powerful in terms of functionality. In line with this, the first supercomputer was built and called Cray-1. The power behind this computer was its powerful processor with a cooling system, which was faster than any other computer (Dell Inc., 2007). In 1977, Steve Jobs and Steve Wozniak took the ambition of computers to a new level when they focused on having more portable and cuter computers. This ambition resulted in the birth of Apple Computer in that very year. Other computer makers followed suit with similar portable computers. For example the IBM PC was introduced by IBM in 1981 and Michael Dell formed PC’s limited in 1984 as Apple introduced Macintosh in that same year (Dell & Fredman, 1999). In the late 1980s, the attention of industry players became focused on software and operating systems rather than hardware. It was in the light of this that the initiation for the standardisation of C++ was done in 1988 and introduction of Windows by Microsoft Corporation came into being in 1989. 2.12 Past issues/problems Like any other industry, the personal computer industry has had its own issues, challenges and problems in the past. These lines of issues are considered past issues because most of them have been perfectly addressed by the key players in the industry, whiles improving on those they can do very little to change. The first issue that faced the issue was financial crisis in the sector, which emanated as a result of the subprime crisis that occurred in the United States and Europe. Since the financial sector invests heavily in the computer industry, growth in the industry became stagnant as a result of this (Werner, 1984). There was also the issue of paradox of infinite wealth. It would be noted that the computer industry has an infinite dependence on other industries. The growth of other industries therefore affects the computer industry positively. This notwithstanding, Parasuraman & Zinkhan (2002) observed that resources are not infinite in nature. This thus created sustainability issues for the industry. Where there is high-priced energy, the computer industry suffers as the industry depends on low-priced energy (Dell Inc., 2007). Meanwhile, there have been times past, and even presently when there has been severe scarcity of fossil fuel, which is a major source of cheap energy. Getting energy that would power computers at lower prices has thus been a major challenge within the industry in times past. Lastly, there have been environmental issues, which have to do with pollution. There continues to be criticism against the computer industry for targeting developing countries as dumping sites. The huge amount of waste dumped in these sites has thus brought about several criticisms against the industry as not being environmentally concerned. 2.13 Current industry issues Today, most forms of issues or problems faced by the industry are customer and organisational management related. This is because pressure from the public and the media has led to most forms of environmental and country-wide problems that have been solved through pragmatic actions from the industry players. Currently, there is the issue of maintenance of confidentiality with identities and personal information of users. Ernst & Kamrad (2000) lamented that the privacy of users continue to be a major issue that the industry becomes confronted with especially as activities of hackers and hijackers continue. There is also the problem of insufficient technical support provided to customers. This problem has come about as industry players seem to be overly concerned with manufacturing and selling off computer sets than giving excellent customer service. Then also, an imbalance in the rapid technological growth to the usability of technology continues to become a very worrying situation. This is because most forms of technology become obsolete too quickly even before new forms are introduced. This situation increases the cost of using computers by most customers because they have to advance at a cost at the rapidly changing technological growth. Another current issue facing the industry is increased legal regulations that guide the operations and activities of companies in the industry. Chou, Tan & Yen (2004) lamented about a situation where most companies have become guilty of existing government regulations and interventions, which has led to most of them being sued for various offences. For most leaders in the industry, fighting imitation is a problem they are yet to overcome. This is because most innovative ideas of industry leaders and some newcomers are often imitated and sometimes faked by underground operators. Once such imitated products come onto the market, they sell at relatively cheaper prices, giving the original patent holders an unfair competition. Lastly, the industry is confronted with the issue of lack of skilled manpower. This is because Ernst & Kamrad (2000) noted that the number of students taking advanced courses in computer science has been going down since 2006. 3.0 Company situation 3.1 History, development, problems 3.11 Milestones With only a market capitalisation of $1,000, Dell completed its initial public offer (IPO) in 1988, which earned the company $30 million and raised its market capitalisation to $85 million. Growth was so fast for the company that by 1992, it had already been listed on the Fortune 500 with Michael Dell as the youngest CEO. As e-commerce became an important part of globalisation in 1996, Dell Inc took the advantage to launch its website in that year. Dell was named as the world’s leading computer systems developer and provider in 2001 when competition from competitors like Apple and Microsoft was still very intensive. 2003 saw the company experience a major rise in its earnings per share, revenue and shipments as the company focused on the expansion of production of other hardware related products. The 2001 leading supplier of computer systems acclamation repeated itself in 2004, followed in 2005 with an enviable topmost position in Fortune Magazine’s “America’s Most Admired Companies”. Meanwhile, (Werner, 1984) takes note of how important this topmost position is to doing business as it helps in consolidating the brand equity of companies and promoting overall global confidence in companies. This means that in 2005, global branding became a major competitive advantage for Dell Inc. In 2006, Dell Inc focused on new manufacturing plants and customer service as a way of intensifying internal rivalry for the company. This is because such expansions ensured that Dell even more customers across the globe and meet demand on time (Chesbrough, 2002). 3.12 Current company problems Regardless of its enviable market share and performance, Dell is not wholly free from any problems at all. This is because there are some problems and major issues that confront the company currently. First, Dell has been criticised as leaving out on most of its manufacturing plants and customer service expansion programmes which were started in 2006. As a result of this, the company currently suffers ineffective supply chain. This has made Dell loss out on supply chain as a competitive advantage as other competitors have been seen to take over in this. Dell has also been criticised as using outdated research and development (R&D) programmes that makes it difficult for the company to unearth the real dynamics of the computer industry market that exists today. The R&D technique of the company is regarded as outdated as the company continue to rely on traditional methods of market research, which hardly centralise on technological advancement (Chou, Tan & Yen, 2004). For example, since the introduction of the Fabrication, Assembly and Test (FAT) model, the company has failed to redefine this to meet modern industrial changes. Agility and portability of computer products have certainly become modalities on which computer companies have competed these days (Chesbrough, 2002). Regrettably though, Dell continues to produce products that have been criticised as lacking innovative agility. It is not surprising that customers of the company have often complained about products that fail to perform in a manner that they expected. 3.2 Present strategic posture 3.21 Current vision/mission Dell’s operating vision is “to be the most successful computer company in the world at delivering the best customer experience in markets we serve”. In line with this vision, the company has been seeking a mission of “meeting customer expectations of highest quality, leading technology, company accountability and support as well as flexible customisation capability, and financial stability”. 3.22 Current objectives Hoovers (2008) identifies four major objectives that Dell has sought to achieve and continue to aspire to achieve as part of its business operations. These four objectives are listed below: 1. To maintain its brand name by continuing innovative business development and operations that creates competition advantage. 2. To promote focus strategic option by promoting customised design and built in products that satisfy customer’s requirements and get customers exactly what their specifications are. 3. To increase sales of the company, so as to ensure that the company is in a financial position to stay competitive even in times of economic downturns. 4. Dell has an aspiration to maintain and improve its strong brand image. 3.23 Current strategies Knowing how much the role of middlemen take away from the sales revenue of the company, Dell currently has a strategy that seeks to eliminate the activities of middlemen. By so doing, the company is able to connect itself directly with consumers. As a result of this strategy, the company has been able to retain most of its sales revenue, making it a very successful company. Dell also has a strategy that focuses on the provision of exceptional quality and adjusting to the changing business climate of the industry (Kotler, 1997). To do this, the company has a design strategy that brings about economical and financial environmental evolution in any nation in which it operates. There is also a current strategy that focuses on the promotion of customer satisfaction. There are a number of ways in which the company does this. One of this is the setting up of technology parks in New York and Washington D.C which was mobile in nature. 3.24 Current corporate structure and culture Dell uses a corporate structure that is not typically bureaucratic but also extensive with strict processing. As a result, the company’s corporate structure includes both board of directors and various stakeholders. The top section of the structure is made up of the Executive Management who directs the global corporate affairs of the company. The company has offices in 34 countries with 40,000 employees. In each of these countries, there is a separate organisational structure which is mostly in a functional organisational structure. The company’s culture is largely structured around the philosophies and ideologies of Michael Dell who is the CEO of the company. 4.0 SWOT Analysis 4.1 External environment analysis 4.11 Societal environment 4.111 Political factors Opportunities: Because the U.S government acknowledges the important role that the computer industry plays to the economic growth of the country, there continues to be high governmental support for pioneer and premium computer companies in the country, including Dell. From the history of the country, it would be noted that Dell has a longstanding history of high-class corporate service. It is part of this that government has continued to support Dell as a credible multinational competitor in the computer industry. What is more, the U.S has very flexible tax policies which give a moderate opportunity to the company. Flexible tax policies are considered important opportunities because tax forms a huge component of the expenditure of most companies. Threats: There is a high rate of imitation of copyrighted and patent products in U.S and the global computer industry at large. Because of this, it is very difficult for the company to champion its focus strategic option which could help set the company apart from competitors in terms of marketing strategy (Coyne and Sujit, 1996). In an industry where competition is very high, using focus strategy helps companies to develop competitive advantage against their key competitors. Because of this, the imitation of copyright and patents is considered a high threat. Another high threat that faces Dell is the rate of legal restrictions that come with the opening of new divisions for the company. This is a situation that has affected the company’s market expansion projects and limited its rate of growth. 4.112 Economic factors Opportunity: Dell’s success with consumer purchasing power depends directly on the economic outlook of its consumers. Even though personal computers are regarded as necessities for most people, how much a person earns determines the type and grade of computers they will use. Meanwhile, Dell is among the few computer companies considered to be at the elite level and thus producing differentiated products at expensive prices. Meanwhile, there continutes to be rise in the disposable income of consumers, making it possible for consumers to have increased purchasing power with which they are able to buy these differentiated products from Dell. The rise in disposable income of consumers is therefore considered a high opportunity. Threat: The opportunity discussed above notwithstanding, Dell continues to be faced with the threat of exchange rate fluctuation. This is a high threat as exchange rate fluctuation is directly related with currency risk (Ireland, 2009). Meanwhile, Dell depends heavily on external suppliers with who the company engages in outsourcing of raw materials. With such form of outsourcing, having a stable and robust currency would be very advantageous to ensure that the company does not spend so much on its raw materials. Because of this exchange rate fluctuation, there has been volatility in exchange rates which have continued to increase the cost of production and thus minimise profitability indirectly (Porter, 2008). 4.113 Social factors Opportunity: From a social perspective, it would be noted that Dell benefits immensely from product integration, which has come about as a result of advancement in the manufacturing of computer systems, which makes it possible for these systems to be supported on several platforms and have multi-variant functionality at the same time. Consequently, most social and personal needs of consumers are met by just purchasing a personal computer. What is more, Rainer and Turban (2009) noticed a high product demand in the computer industry. As a leader in the industry, Dell has taken its fair place with this form of high demand for product. The reason this situation has come about is largely because personal computers have now been considered as basic necessity with which most office and home tasks are performed. Threat: There is a continuing social lifestyle and activity, which focuses on using computers to perform various acts of fraud and crime. This social lifestyle has led to what has come to be known as cybercrime. Meanwhile, Coyne and Sujit, 1996) stressed that cyber crime is a major issue that pushes most people away from endorsing the usage of computers and computer systems in performing some office, home and business tasks. Typical of areas where there is apathy with the use of computers and computer systems is when it comes to payment related transactions. This is because the risk that these transactions may end up in the hands of criminals through hacking, tracking and hijacking are high. This is a situation that has affected patronage for certain lines of products and software from the company, particularly those that are perceived to be with high user risk. 4.114 Technological factors Opportunity: The technology industry itself depends on technological advancement to survive. For example, consumers have constantly had high expectation of advancement and innovative changes within the industry. To meet this line of demand, it is important that Dell has a very formidable and strong technological infrastructure with which it can undertake its manufacturing. Meanwhile, there is product innovation in the industry, which is a high opportunity for the company to meet the demand of consumers. What is more, there is technological and communication integration, which forms an all new industry of telecommunication. Meanwhile, this integrated industry continues to be one of the fasting growing and highly sought after. As those in the communication industry now have to depend on the technology industry such as Dell, there is that assurance of constant flow and presence of market for the company. Threat: One technological threat that Dell is faced with is that those who are into cybercrime and cyber terrorism also continue to advance in their operations and ways of dealings. Because of this, those in the computer industry find it very difficult to catch up with those who use sophisticated technology for all the wrong purposes. At times, even at the production levels, there is the possibility of technological sabotage that is faced by the computer industries such as Dell. This means that cyber terrorists can launch or hack into the company’s systems and steal its innovative ideas or cause total systematic breakdown. 4.12 Industry environment 4.121 Industry rivalry factors Opportunities: A major opportunity that exists for Dell at the industry rivalry level of competition is the fact that some brands continue to offer expensive products. Even though it will be appreciated that the expensive products are offered amidst the delivery of product differentiation, Porter (1980) noted that the market size for consumers who prefer, can afford and patronage cheaper computer products are more. As Dell does not belong to the group of companies such as Apple and Samsung which uses differentiation, Dell stands to benefit from an opportunity of having very large market base where it can be assured of selling out its products. Threat: One industry rivalry threat that Dell is faced with is the presence of many similar brands within the industry. Because of this, the company finds it very difficult to live up to its objective of offering customised service and products to consumers. This is said because in an industry with several similar brands, consumers find it very difficult to identify customised distinctions that come with the brands of focused companies such as Dell. Currently, IBM, HP and Lenovo, all of who are giant market players have very similar brands as what Dell offers. 4.122 Bargaining power of buyers Opportunities: Very few opportunities exist for Dell as far as purchasing power of buyers is concerned. This is because the availability of substitute products and brands make consumers have several other options to fall on when prices are high with a particular company. On the whole, consumers have the power to influence prices against the company. When seen from another perspective, this can be seen to create opportunity because it forces Dell to control its production cost, whereby the company it faced with the responsibility of minimising all forms of waste that hinder continuous process improvement (Ireland, 2009). It is not surprising therefore that Dell has constantly survived on ever decreasing operation cost, which has a positive impact on profitability. Threat: As it was stressed above, there is a high bargaining power among buyers in the computer industry. The major cause of the threat is due to the fact that there are several product providers who use the cost leadership strategic option. This practice has given consumers much bargaining power to determine or demand for price reduction from other industry leaders like Dell who do not use cost leadership. What is more worrying about this situation is that the smaller companies who offer cheaper products do not produce guaranteed high quality products like Dell does. Because of this, when Dell is forced to reduce prices unduly, the company becomes negatively affected. 4.123 Bargaining power of suppliers Opportunity: Whenever there are limited numbers of suppliers, bargaining power of suppliers goes up. Meanwhile, the computer industry is one that has a very high number of suppliers, creating a multiple supplier base. This opportunity is however considered only to be a low opportunity because availability of suppliers does not always guarantee that company’s supply needs will be met on time (Rainer and Turban, 2009). But the mere fact that there are multiple suppliers mean that competition will be created among suppliers, causing the need for suppliers to reduce prices of raw materials and other services they provide to the companies (Porter, 1980). Indeed the presence of multiple suppliers also guarantees that there will be good relation with companies, which lead to the provision of excellent customer satisfaction for the companies. Threat: The presence of multiple suppliers notwithstanding, there is a relating low threat with bargaining power of suppliers which affect Dell negatively. This threat has to do with the fact that most trusted suppliers of the company are outside the U.S. Because of this, cost of logistics and transportation has always been high with services rendered by these suppliers. As deal is the company outsourcing the raw materials, it has always been faced with the need to bearing supplier bargaining cost for additional cost in logistics and transportation. 4.124 Threat of substitute products Opportunity: A major opportunity that Dell carries when it comes to threat of substitute products is that even though there may be products that serve the very purposes and functions that computers produced by the company does, most of these products come as isolated products instead of integrated products. This is to say that apart from computers, there are very few other products that can offer a single platform having functions like music, radio, camera, video, calculator, calendar, mailing, internet, and the rest. The only substitutes which are tablets and some smart phones however come at relatively higher prices, making the personal computer the most preferred choice to get such form of integrated technological platform Threat: Referring to personal computers themselves, there are several similar companies whose computer systems offer similar services as would be found with a typical Dell computer. This means that even though Dell enjoys the opportunity that computers will be selected for the integrated technology they offer, when it comes to the main selection of the computers, there are several companies that offer products and systems with the very forms of specifications that Dell offers on its computer platforms. 4.125 Threat of new entrants into the industry Opportunity: Internally, the awareness that there is an open market structure that enables new entrants to come on board at any time at all causes Dell to be particularly concerned about the need to protecting its brand equity. This is because Porter (2008) observed that in markets with perfect market structure where new entrants come and go, it is important that older companies will have brand equity with which they stay competitive against the new entrants. Threat: A major threat, which is actually a higher threat for Dell with the threat of new entrants, is that the presence of most market entrants comes to cause or create waves of high intensity of competitive rivalry. According to Kotler (1997), it is sometimes worrying that the competitive rivalry that is created is not a fair one as some of these new entrants come with inferior products which are sold at very cheap prices, causing high quality companies to also revise their prices downwards. Meanwhile, because of the expense that go into the production of high quality products, reducing prices downward cause unfavourable competition for the high quality companies such as Dell. References Chesbrough, H. W. (2002). Making sense of corporate venture capital. Harvard business review, 80(3), 90-99. Chou, D. C., Tan, X., & Yen, D. C. (2004). Web technology and supply chain management. Information Management & Computer Security, 12(4), 338-349. Coyne, K.P. and Sujit B. (1996). 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