Dell started in 1983 assembling computers from a dorm room and grew to become the largest PC supplier worldwide by the early 2000s. However, by 2010 Dell had lost its position as global market leader to HP as its PC market share declined. Dell faced challenges maintaining profit margins against Asian competitors offering cheaper consumer PCs. Dell's business changes came too late as demand for PCs, which accounted for over half its revenue, began to wane.
Dell started in 1983 assembling computers from a dorm room and grew to become the largest PC supplier worldwide by the early 2000s. However, by 2010 Dell had lost its position as global market leader to HP as its PC market share declined. Dell faced challenges maintaining profit margins against Asian competitors offering cheaper consumer PCs. Dell's business changes came too late as demand for PCs, which accounted for over half its revenue, began to wane.
Dell started in 1983 assembling computers from a dorm room and grew to become the largest PC supplier worldwide by the early 2000s. However, by 2010 Dell had lost its position as global market leader to HP as its PC market share declined. Dell faced challenges maintaining profit margins against Asian competitors offering cheaper consumer PCs. Dell's business changes came too late as demand for PCs, which accounted for over half its revenue, began to wane.
Dell started in 1983 assembling computers from a dorm room and grew to become the largest PC supplier worldwide by the early 2000s. However, by 2010 Dell had lost its position as global market leader to HP as its PC market share declined. Dell faced challenges maintaining profit margins against Asian competitors offering cheaper consumer PCs. Dell's business changes came too late as demand for PCs, which accounted for over half its revenue, began to wane.
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Strategic Management
Case Study:
Dell Inc.-2005
Dell Inc. History:
Dell started from Michael Dells dorm room at University of Texas in 1983.
He used to assemble computer systems on order and within a year his sales reached approximately $80000 a month.
He founded the company in 1984 with the name PCs Ltd, which was changed to Dell Computer Corporation in 1988.
The company adopted the built-to-order concept in order to improve the profit margins and to reduce the costs and risks of holding inventories.
From 1990 to 1994, due to large scale operations, the company started retailing as well but discontinued the practice in 1994 due to reduced profit margins associated with retailing their products.
Initially, Dell used to sell through mail and phone orders. In 1988, they added a sales force to enhance their partnerships with corporate and government customers. In 1994, they started selling through their website and by 1999 they were the largest internet retailer.
Due to cost implications, Dell focused more on the corporate and government customers and ignored household consumers.
Within 20 years, Dell had grown to be the largest PC supplier in the World with a global market share of 18%.
Vision Statement: Its the way we do business. It's the way we interact with the community. It's the way we interpret the world around us-- our customers needs, the future of technology, and the global business climate. Whatever changes the future may bring our vision -- Dell Vision -- will be our guiding force.
Mission Statement: Dell's mission is to be the most successful Computer Company in the world at delivering the best customer experience in markets we serve. In doing so, Dell will meet customer expectations of:
Highest quality
Leading technology
Competitive pricing
Individual and company accountability
Best-in-class service and support
Flexible customization capability
Superior corporate citizenship
Financial stability
Organization:
Michael Dell assumed the position of the chairman of the board of directors and Kevin Rollins was the president and the C.E.O.
Dells operations are divided into three Geographic regions; the Americas, Europe, Africa and Middle East, and Asia Pacific.
The Americas segment included North America, Central America, and South America. The segment was based in Round Rock, Texas and accounted for 67% of the total revenue and 70% of the total operating income. Dell was the market leader in Americas with 29% market share.
The European segment accounted for 19% of total operating income and Dell had captured 11.7% market share.
The Asia-pacific segment accounted for 11% of the total operating income and Dell enjoyed 8.3% market share in the region.
Manufacturing:
Dell had 6 manufacturing facilities worldwide; 3 in the Americas region, 2 in the Asia-Pacific region, and 1 in the European region.
These facilities are used for assembly, testing, and quality control of the computer systems.
Marketing:
Dell used varying sales and marketing approaches across its customer groups.
The customers are categorized into: Relationship, Transactional, and Internet.
Relationship customers include corporations and government institutions. Dell maintains a
field sales force to maintain good relationships with this group.
Transactional customers are small scale enterprises and individuals. Dell communicates with them through print and electronic advertising as well as direct marketing publications.
Internet customers access Dell through their website and place their orders online.
Finance:
Dells revenues increased by 40% in 2 years from 2002 to 2004.
The growth in net income in the corresponding period was 43%.
Due to their low cost production methods, Dell enjoyed a substantially higher profit margin than its competitors, enabling it to grow at the expense of its competitors.
Competitors:
Hewlett-Packard, IBM, Gateway Computers, and Apple Computers are the main competitors for Dell in the global market.
Hewlett-Packard is their closest rival with 15.7% global market share. Hewlett-Packard maintains a leading position in the market for printers and printer inks. But the company resides on a very thin profit margin. IBMs PC division was acquired by Lenovo in 2004.
IBM generates huge revenues and has expertise in a number of related areas such as servers, technology consulting etc. Lenovo is the largest producer of PCs in Asia and enjoys a wage advantage over Dell.
Gateway Computers was once a formidable competitor but now they are losing their share very rapidly and are unlikely to pose major threat to Dell.
Apple Computers are known for their innovative products and designs. Although they hold less than 3% of the global market share, Apple has enjoyed phenomenal success in recent times and is likely to pose a threat in near future.
SWOT Analysis:
Dells strengths are their low cost production methods and reduced risks of holding inventory. It also enjoys the global market leader position. It has higher profit margins than any of its competitors. Its flexible manufacturing procedures enable it to quickly incorporate new technologies and components into its products.
Dells weaknesses are lack of retail sales and its inefficiency in the market for complementary products. Dell also has low research and development budget compared to their competitors, which hampers its ability to compete in the latest technology.
Dell has huge opportunities in the emerging markets of the developing world where standard of living are on the lower side and people are more price-conscious. Computer sales in these regions are growing at a high pace and Dell can capitalize on that
Dell faces a major threat in the form of latest technology offerings from its competitors and their expertise in the complimentary goods market. People in the developed regions are now more quality- conscious than ever which poses a threat for Dell who focuses on low-cost, lowresearch approach.
Dells Current Strategies:
Dell currently pursues a cost leadership strategy by producing low-cost computers and selling them directly to the end user, thereby bypassing distributors and retailers and improving their profit margins.
Dell is also now entering in the complimentary markets such as printers and servers in order to dent the competitors market share in such markets.
It also uses built-to-order manufacturing to achieve rapid inventory turn over and reduce inventory levels.
Dell uses different marketing and sales strategies according to the needs of specific customer groups.
Recommendations:
Dell should start retailing its products in order to penetrate deeper into the emerging markets. Because in the developing world most buyers will be first time users and they would need proper support and services.
Dell should expand the span of its sales force operations to individual customers in order to better address their support and services needs.
Dell should increase its research and development activities in order to keep up to the pace of innovations.
Dell should shift towards production of high quality systems especially in the developed World in order to defend its market share from competitors high-tech offerings.
In order to better compete with its competitors in the related markets, Dell must follow the strategy of mergers and acquisitions. This way they would hit the ground running in such markets.
Dell Inc.-2010: As of 2010, the company employs about 96,000 people worldwide. Dells facilities are located in Austin, Texas; Nashville, Tennessee; Oklahoma City, Oklahoma; Winston-Salem, North Carolina; Miami, Florida; Penang, Malaysia; Xiamen, China; Bangalore, India; Hyderabad, India; Chandigarh,
India; Delhi,
India; Chennai,
India;
Philippines; Hortolandia, Brazil; d, Poland and Limerick, Ireland.
Bracknell, UK; Manila,
(http://en.wikipedia.org)
Financial Highlights for fiscal year 2010
Revenue $52902 million
Operating income $2172 million
Net income $1433 million
(Dell Inc., Form 10-K, 2010, p: 51)
Five years on, Dell Inc. is no more the global leader in PC market.
Dell's PC market share shrank from 12.7 percent to 12.1 percent in fiscal year ending January 2010.
Hewlett-Packard is now the biggest PC seller in a global market with an 18.2 percent market share.
No. 2 Acer saw its market share grow from 11.7 percent last year to 14.2 percent this year.
Other Asian companies posting strong shipment gains were No. 4 Lenovo with 8.3 percent of the market, and No. 5 Asus which holds 5.5 percent of the market.
In the U.S., HP is now the leader with 25 percent of the market followed by Dell with 23.4 percent, Acer (15.6 percent), Toshiba (8.6 percent) and Apple with 8 percent. (http://www.bizjournals.com)
So what happened to the company who once had a share price, and a market share, that were the envy of the business world?
Poor product support led the way due to poor products
Holiday sales of cheap consumer PCs weighed on profit as it cut prices to compete with larger rivals Hewlett- Packard and Acer and higher costs of some components, specifically memory chips, also pressured profitability and pushed profit margins lower
Michael Dell resumed the post of CEO in 2007. Since then, Dell has made more than 10 acquisitions, cut more than 10,000 jobs, outsourced 53 percent of production to partners as he closed PC factories, and entered the Smartphone market.
Dell also faces challenges in buying components at favorable pricing, something that may be easier for Hewlett- Packard. No longer being the market leader affects both their ability to set prices and to get access to commodities.
Dells business changes came after demand for PCs, which account for more than half of Dells revenue, waned during the recession. PC sales have recovered, with U.S. consumers leading a holiday buying frenzy for low-cost notebooks. Yet Dell has struggled to win over shoppers since its focus has been on serving business customers.
Dell has signed up retailers to help sell its PCs to consumers and revamped its products to offer new designs that stores can promote. (http://www.businessweek.com/news/2010-02-18)
