PESTLE and SWOT Analysis for Dell - Case Study Example

Contents Page 1. Introduction..................................................................................................................... 2 2. External Analysis............................................................................................................. 2 3.1. PESTLE Analysis....................................................................................................... 2 3.2. OT from SWOT......................................................................................................... 3 3.3. Porter’s Five Forces.................................................................................................... 4 3.4. Critical Success Factors............................................................................................. 5 2. Internal Analysis.............................................................................................................. 5 2.1. Resource Audit........................................................................................................... 5 2.2. Competitive Advantage............................................................................................. 6 2.3. Value Chain Links...................................................................................................... 6 2.4. VRIO......................................................................................................................... 7 2.5. Finance....................................................................................................................... 7 2.6. SWOT – SW............................................................................................................... 7 3. Current ‘problem’ Diagnosis........................................................................................... 9 4. Generation of Strategic Options....................................................................................... 10 4.1. TOWS Matrix............................................................................................................. 10 5. Evaluation of Strategic Options....................................................................................... 10 6. Description of Selected Strategy..................................................................................... 10 7. Conclusion....................................................................................................................... 11 8. References....................................................................................................................... 12 9. Appendices..................................................................................................................... 14 Strategic Case Analysis of Dell Inc 1. Introduction Dell is a multinational technology company that designs, develops, produces and sells basically a wide array of computer systems and services such as, Dell desktop computers, laptops, data storage devices, network switches, software and other computer peripherals with employing approximately 79,000 workforce. Also it provides consumer electronics and electrical goods HD television sets, cameras, printers, MP3 players and so on. Thus its strategic vision and mission are focused on meeting the customer’s demand by innovating in pricing, product marketing and first initiative moves. 2. External Analysis 2.1. PESTLE Analysis PESTEL analyses have to be conducted against the current performances of Dell to determine the future possibilities. Political Influences: The Dell computer systems & services market is highly susceptible to political influences such as global issues. Economic Influences: The global economic downturn has taken a very high toll on the ICT industry, while cost cutting exercises were not feasible at the existing firm level, average and marginal costs could be reduced through expansion into the emerging markets. Social Influences: Dell has invested so much in public relations efforts and programs that act as catalysts in bringing about desirable outcomes in both corporate goals and competitive edge. Social factors like extraneous behaviors and religious/cultural tendencies have to be accommodated with multicultural staff. Technological Influences: The impact of technology on the strategic competitor environment has probably been the most obvious because it is technology that gave Dell its head start over the rest of competitors. Dell has the additional advantage of aggregated technologies coming from its recent spate of acquisitions such as Aienware and EqualLogic. Environmental Influences: Dell’s operational environment is also characterized by a greater degree of involvement in promoting corporate sustainability programs outside its day to day operations, such as improving energy efficiency of Dell products, eliminating greenhouse gas emissions from Dell operations, introducing recycle Dell systems and the energy star program, the green grid and so on (Dell, 2008). Legal Influences: Regulatory environment has had a telling impact on Dell operations though such regulations often have the desirable effect of quality improvement and cost reduction too. The possibility of competitor’s infringing on Dells’ copyrighted material and patents is so extensive. 2.2. OT from SWOT Opportunities: Opportunities that are literally available to Dell in the global ICT market and internet usage are many and varied. Especially its strategically important acquisitions outsourcing and e-commerce activities have played a very big role in determining its success. While the current trends illustrate the extent to which the global ICT market has grown exponentially and will grow in the future (Ozsomer, & Cavusgil, 2000). Dell has benefited from both the global presence and emerging global markets by maintaining low price leadership. This is the economic reality and Dell has much to gain from its expansion into this region. Consumers of ICT related products in these emerging markets tend to be more sophisticated. Threats: One of the greatest threats is the increasing competition against Dell due to the price wars and changing consumer needs. A number of companies including Apple, HP, IBM and Samsung involved in computer products and services compete with Dell through their own strategic initiatives such as IT advancement, strong brands, M&A. 2.3. Porter’s Five Forces Porter’s Five Forces are particular importance to understand Dell’s own strategic imperatives (Porter, 2008). Supplier power: Dell has to employ a variety of marketing techniques to procure supplies in order to meet its customers’ demand. How Dell would respond and how would the rest of the industry respond to all this, depend on a number of other variables such as the long term contracts, the degree of dependency on credit, supplier relationships. Buyer power: Due to the large number of alternative computer products and services suppliers and substitute products, it has created more power to the buyers because most of the products are undifferentiated and with low switching cost (Michael, 1994). Competition: Rivalry or competition in the ICT market segment is almost intense because existing scale economies of individual competitors would serve as the stepping stone to a price cutting war. Dell has to face off competition from many rivals of whom Apple, HP, IBM, Samsung, Toshiba, Acer and Asus (Zajas, & Crowley, 1995). Threat of substitutes: There is an ever increasing tendency among fairly big firms in technology-centric industries, to merge together to achieve quick returns. The recent spate of acquisitions by Dell shows this trend. Threat of new entrants: The existing level of competition is further exacerbated by the threat of new entrants. There is a persistent threat to existing ICT industry players coming from possible alliances and re-alliances within the industry rather than from outside (Herther, 2003). 2.4. Critical Success Factors Dell has been growing from strength to strength by adopting capability enhancement strategies through e-commerce activities, global expansion and leadership style that have little parallel in the organizational practice environment. Dells’ strategically impervious critical success factors including its competitive prices, efficient service and repair, customer service, quality control and so on have been built around this formula or framework of strengths and weaknesses (Lowther, 2006). Especially Dell consists of reliable, user friendly and the very latest features of computer products and related services with high speed, mass storage. Dell is constantly in the process of improvising its existing products to suit the needs of its customers and to stay ahead of its competitors. 3. Internal Analysis 3.1. Resource Audit An important objective of a resource audit is to ensure that the business portfolio is strong and that business units requiring investment and management attention are highlighted. This is a vital factor and Dell should always find out which markets are most attractive and which business units have the ability to achieve advantage in most attractive markets. In this sense Dell’s corporate strategy is the fundamental strategy that seeks to reorient its strategic completion policy while at the same time maximizing the synergy related benefits arising from an acquisition or a merger. This is part and parcel of the whole corporate strategy of ensuring the growth of its market share and profit margins. This is the very idea behind the Dell’s performance success. 3.2. Competitive Advantage Dell has been able to strategically push its product portfolio in the ICT 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 (Sengupta, Mohr, & Slater, 2006). 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. 3.3. Value Chain Links (Appendix I) Porter’s value chain analysis involves primary activities, such as inbound logistics, operations, outbound logistics, marketing and sales and service. As Support activities includes procurement, Human Resource Management (HRM), technology development and the firm’s infrastructure (Tan, Yu, & Arun, 2003). Dell has successfully adopted a supply chain management network in which supplies are sourced within a certain geographical limit to minimize costs. Dell has successfully been procuring quality supplies at much lower prices for a long time though rivals are not far behind. However, Dell’s HRM function which occupies a very important place in the whole value chain management process. The technology advantage of Dell lies in its strength and the company has acquired a good reputation for it (Savoie, & Raisinghani, 1999). Thus market outcomes such as a persistent rise in sales volume would enable Dell to add incremental values to its different product portfolios. 3.4. VRIO The resource-based view of the organization and the connected VRIO analytical framework depend on two assumptions – resource heterogeneity and resource immobility. Resource heterogeneity presupposes that each firm would possess a distinctly unique set of resources and connected capabilities thus giving it an advantage in cost over the rest of its rivals (Williamson et al, 2003). Dell has particularly invested in both the options by adopting a multi-prone strategy of Research & Development (R&D) and search applications thus effectively curtailing the degree of freedom enjoyed by rivals in copying its resources. This strategic initiative on internal resource base development along with its formidable management culture has enabled Dell to evenly balance itself on the VRIO framework thus equipping itself with additional capacity to compete.› Visit Amazon's Kathleen B. Hass PageFind all the books, read about the author, and morSee search results for this author Are you an author? Learn about Author Central 3.5. Finance Dell’s financial metrics have been impressive over the years in comparison to that of competitors though these metrics have little value against the backdrop an ongoing global economic recession. Thus Dell has been placing its products across a broader market spectrum to achieve growth related synergies. Key Ratios 2009 2008 Gross Profit margin 19.2% 20.1% Return on Equity 61.9% 73.1% Return on Assets 9.51% 11.25% P/E Ratio 7.52% 13.12% Source: www.dell.com With the examination of Dell Annual Reports and above ratios for 2009 and 2008 show the company’s revenue at $ 61.101 billion and $ 61.133 billion respectively. The revenue remained flat over the years basically due to the changing economic environment and global commercial business has decreased by 2% during 2009 with the impact of decrease in average selling price. The net income amounted to approximately $2.478 billion in 2009 and in $2.947 billion in 2008. Thus its net income also decreased by 16% in year-over-year keeping with the 7% decline of operating income, 65% decline in investments and from 23.0% to 25.4% increase in effective tax rates. Though the rising costs have denied its global operations and those of the US domestic market operations to a certain extent Dell was able to add a vast array of additional services to the existing consumer packages thus enhancing value for its customers. 3.6. SWOT – SW Strengths: Dell’s strengths, such as it’s a user friendly, reliable computer products and services with modern technology, diverse and quality product portfolios, friendly and well trained staff, financial ratios, international HR and marketing practices and so on have strengthened its operational capabilities well. Thus Dell can be regarded as the second largest PC supplier in the world and for the attraction and retention of loyal customers, strong brand equity and product portfolio can be utilized (Dell, & Fredman, 2006). Weaknesses: Dell has only little product diversification and no business diversification at all when it compared to the competitor diversified products. Rising operational costs and cost cutting measures through compensation reduction, restructuring of product design and distribution, staff reduction and shutting down factories might affect Dell in the long run because its competitors have been able to diversify their product portfolios with remarkable success. 4. Current ‘problem’ Diagnosis Strategic orientation of the firm is based on its immediate policy focus such as the firm’s concern for competition related issues, e.g. maintaining the market share. In other words Dell has been focused on the more pressing need to outdo rivals rather than being occupied with a strategic policy alternative to the unfolding other environmental pressures such as regulations. Thus according to the financial statements in 2008/09 of Dell it has experiencing sales and revenue downturn, especially of PCs. The global economic downturn has taken a very high toll on the Dell in particular and ICT industry in general, e.g. price war among PC companies. Economically, the depreciating US dollar was a positive influence on the computer products and services industry in the past (Brown, & Pattinson, 1995). But it’s not so anymore. Because the US dollar has begun to appreciate against other major currencies and the global economic outlook seems not to favor the computer companies and IT industry right now, though market expansion programs of these big firms continue unabated. For example its marketing strategy was developed on the lines of a paradigm shift away from its competitors’ especially HP’s exclusive focus on aggregated synergies arising from gross revenues. As for HP globalization has forced it to abandon some of its expansion plans in China. Secondly its IT related expenditures in overseas factories have been rising due to rising equipment cost and labor cost (Bahouth, 1994). Finally leadership style at Dell is poor and questionable. Effective HRM practices must be aligned with organizational outcomes such as internal value chain enhancement and motivation parameters. Dell didn’t have this kind of alignment either in strategy or policy. Thus cultural diversity of its workforce especially in Asia entails ancillary cost for highly expensive T&D programs at a variety of factories. 5. Generation of Strategic Options 5.1. TOWS Matrix (Appendix II) Strategic options of the organization should involve all management functions and corporate decisions. Dell would have to initiate its strategic functional processes and systems in keeping with its own strategic competitive environment as determined by SWOT analysis (Fine, 2009). For instance internal organizational arrangements for communication, quality management, internal value chain management, employee relations, HRM function, budgetary control, cash flow management, motivation and so on will have to be aligned with organizational goals. Also Dell would have to take into consideration the competitive environment and available choices. These capabilities have been noticed to exist at Dell right now. 6. Evaluation of Strategic Options (Appendix III) Ansoff’s growth matrix on product/market mix suggests that a business’s efforts to grow are determined by whether the company is operating in new or existing markets and selling new or existing products. The relevance of Ansoff’s growth matrix to Dell Inc. can be seen in respect of its strategic marketing efforts to increase sales to new customers who wish to buy a reliable and innovative product (Peters, 2006). It’s also a strategy to penetrate the market and defeat competition in the face of ever rising costs. 7. Description of Selected Strategy (Appendix III) Corporate strategies and policies have both a functional and a causative element in them while corporate strategies are goal-oriented plans that incorporate the former. Corporate strategy is an approach to future that involves “(1) examination of the current and anticipated factors associated with customers and competitors (external environment) and the firm itself (internal environment), (2) envisioning a new or effective role for the firm in a creative manner, and (3) aligning policies, practices, and resources to realize that vision”. Dell thus are faced with strategic internal, external and inter-firm factors that force them to adopt certain policies to position themselves in the market with strategic orientation towards the achievement of long term corporate goals (Aaker, 2001). Dell lays great emphasis on brand recognition. Dell is trying to be the most recognized and respected brand in the market. Their main motive is to expand quickly in existing and new markets. It is also keen on increasing its customer base by expanding on its repertoire of products. Apart from PC market Dell also have corporate servers, storage systems, accessories and customer support services. 8. Conclusion The strategic business environment of Dell has been transformed in to a more complex and diverse phenomenon with its independent approach to managing an internationally diverse strategic operational environment. As the strategic analysis shows Dell has been highly affected by a variety of internal and external operational environmental influences. However its strategic environment as divided in to product and marketing strategy, competition strategy, growth strategy and financial strategy indicates that the organization has been faced with many constraints. Despite these constraints in its organizational environment, Dell has successfully initiated some far reaching policy related outcomes. For instance Dell’s product and marketing strategy have been oriented towards achieving a series of positive M&A related synergies including growth and competitive capabilities. Thus Dell’s competition strategy is basically related to its product and marketing strategies. For example the company has been geared to meeting the contingency requirements of an expanding market arising from the very complex industry culture. HP, IBM, Samsung and a number of other competitors have been aggressively seeking to place their products in diverse market segments across a range of product categories while Dell has basically believed in placing its products in mass market segments with a strategic focus on M&A related synergies. 9. References 1. Aaker, DA 2001, Developing Business Strategies, 6th edn, Wiley & Sons inc., Massachusetts. 2. Bahouth, SB 1994, ‘Technology Readiness as a Business Strategy’, Industrial Management & Data Systems, vol. 94, no. 8. 3. Brown, L & Pattinson, H 1995, ‘Information technology and telecommunications: impacts on strategic alliance formation and management’, Management Decision, vol. 33, no. 4. 4. Dell, M & Fredman, C 2006, Direct from Dell: Strategies that Revolutionized an Industry (Collins Business Essentials), HarperCollins Publishers, New York. 5. Dell 2008, Values in Action: Dell Sustainability Report & Fiscal Year 2007 in Review, retrieved from www.dell.com on April 20, 2010. 6. Fine, LG 2009, The SWOT Analysis: Using your Strength to overcome Weaknesses, Using Opportunities to overcome Threats, CreateSpace, Washington. 7. Herther, NK 2003, ‘Today’s computer industry: facing major challenges’, The Electronic Library, vol. 21, no. 3, pp. 262 – 265. 8. Lowther, R 2006, ‘Embracing and managing diversity at Dell: Introducing flexible working and a women’s network to help retain key employees’, Strategic HR ReviewYear, vol. 5, no. 6, pp. 16 – 19. 9. Michael, S 1994, ‘Dell, Making the Right Choices for the New Consumer’, Managing Service Quality, vol. 4, no. 2, pp. 22 – 25. 10. Ozsomer, A & Cavusgil, ST 2000, ‘The effects of technology standards on the structure of the global PC industry’, European Journal of Marketing, vol. 34, no. 9/10. 11. Peters, R 2006, Maintenance Benchmarking and Best Practices, McGraw-Hill Professional, New York 12. Porter, M E 2008, On Competition, Updated and Expanded Edition, Michael E. Porter (Author) › Visit Amazon's Michael E. PorterFind all the books, read about the author, and moHarvard Business School Press, Massachusetts.See search results for this author Are you an author? Learn about Author Central 13. Savoie, MJ & Raisinghani, MS 1999, ‘Identifying future trends in information technology’, Industrial Management & Data Systems, vol. 99, no. 6. 14. Sengupta, S, Mohr, J & Slater, S 2006, ‘Strategic opportunities at the intersection of globalization, technology and lifestyles’, Handbook of Business Strategy, vol. 7, no. 1, pp. 43 – 50. 15. Dell Annual Report 2009, retrieved from www.dell.com on April 20, 2010. 16. Tan, AWK, Yu, WS & Arun, K 2003, ‘Improving the performance of a computer company in supporting its reverse logistics operations in the Asia-Pacific region’, International Journal of Physical Distribution & Logistics Management, vol. 33, no. 1, pp. 59 – 74. 17. Williamson, D, Cooke, P, Jenkins, W & Moreton, KM 2003, Strategic Management and Business Analysis, Butterworth-Heinemann, Oxford. 18. Zajas, J & Crowley, E 1995, ‘Commentary: brand emergence in the marketing of computers and high technology products’, Journal of Product & Brand Management; vol. 4, no. 1. 10. Appendices Appendix 1 Porter’s Value Chain Model Appendix II TOWS Matrix Opportunities 1) Global emerging markets 2)Mergers & Acquisitions, 3)e-commerce Threats 1)IT advancement 2)Price wars 3)changing consumer needs Strengths 1)Production adaptability 2)Product Reliability 3)Financial Ratio SO Strategies Product adaptability ST Strategies Product Reliability Weaknesses 1)Rapid IT advancement 2)comparatively high prices 3)comparatively less brand equity WO Strategies M&A Strategy WT Strategies Gaining brand recognition through expansions 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 Low price leadership outsourcing Entering to the emerging markets M & A strategy Utilizes Brand image Customer service High technology Global presence Product reliability Optimizes distribution channels Emerging markets outsourcing e-commerce M&A Feasibility Costs within X budget Low price Cost cutting Cost controlling Minimize waste Matches current skill set International HRM policy Leadership style IT usage T&D Acceptability Payback within X months/years Strong cash flow Strong financial ratios Controlling creditors Minimize cost ROCE Improved to Y% in 3 years Increase operating income Reduce operating cost Cost cutting Increase return on equity Positive stakeholder support Customer service Supply chain mgt SHRM Dividend policy Read More