A CASE STUDY ON

Submitted to:
Submitted by:
Dr. M.S. Verma Sumit Phougat
 FC10170

About Dell Inc.

1. Facts

Dell Inc. is a multinational information technology corporation based in

Round Rock, Texas, and United States, which develops, sells and supports
computers and related products and services. Bearing the name of its
founder, Michael Dell, the company is one of the largest technological
corporations in the world, employing more than 96,000 people worldwide.
Dell is listed at #38 on the Fortune 500 (2010). Fortune also lists Dell as the
#5 most admired company in its industry.

Dell has grown by both organic and inorganic means since its inception—
notable mergers and acquisitions including Alienware (2006) and Perot
Systems (2009). As of 2009, the company sold personal computers, servers,
data storage devices, network switches, software, and computer peripherals.
Dell also sells HDTVs, cameras, printers, MP3 players and other electronics
built by other manufacturers. The company is well known for its innovations
in supply chain management and electronic commerce.

On May 3, 2010, Fortune Magazine listed Dell as the 38th largest company in
the United States and the 5th largest company in Texas by total revenue.

2. History

While a student at the University of Texas at Austin in 1984, Michael Dell

founded the company as PCs Limited with capital of $1000. Operating from
Michael Dell's off-campus dormitory room at Dobie Center, the startup aimed
to sell IBM PC-compatible computers built from stock components. Michael
Dell started trading in the belief that by selling personal computer systems
directly to customers, PCs Limited could better understand customers' needs
and provide the most effective computing solutions to meet those needs.
Michael Dell dropped out of school in order to focus full-time on his fledgling
business, after getting about $300,000 in expansion-capital from his family.
In 1985, the company produced the first computer of its own design — the
"Turbo PC", sold for US$795 — containing an Intel 8088-compatible
processor running at a speed of 8 MHz. PCs Limited advertised the systems
in national computer magazines for sale directly to consumers, and custom
assembled each ordered unit according to a selection of options. This offered
buyer’s prices lower than those of retail brands, but with greater
convenience than assembling the components themselves. Although not the
first company to use this model, Limited became one of the first to succeed
with it. The company grossed more than $73 million in its first year of
trading.

The company changed its name to "Dell Computer Corporation" in 1988. In

1989, Dell Computer set up its first on-site service programs in order to
compensate for the lack of local retailers prepared to act as service centers.
Also in 1987, the company set up its first operations in Ireland; eleven more
international operations followed within the next four years. In June 1988,
Dell's market capitalization grew by $30 million to $80 million from its June
22 initial public offering of 3.5 million shares at $8.50 a share. In 1990, Dell
Computer Corporation tried selling its products indirectly through warehouse
clubs and computer superstores, but met with little success, and the
company re-focused on its more successful direct-to-consumer sales model.
In 1992, Fortune magazine included Dell Computer Corporation in its list of
the world's 500 largest companies. Michael Dell became the youngest CEO
of a Fortune 500 company.

In 1996, Dell began selling computers via its web site.

In 2002, Dell attempted to expand by tapping into the multimedia and home-
entertainment markets with the introduction of televisions, Dell Axim
handhelds, and Dell DJ digital audio players. Dell has also produced Dell-
brand printers for home and small-office use.

In 2003, at the annual company meeting, the stockholders approved

changing the company name to "Dell Inc." to recognize the company's
expansion beyond computers.

In 2004, the company announced that it would build a new assembly-plant

near Winston-Salem, North Carolina; the city and county provided Dell with
$37.2 million in incentive packages; the state provided approximately $250
million in incentives and tax breaks. In July, Michael Dell stepped aside as
Chief Executive Officer while retaining his position as Chairman of the Board.
Kevin Rollins, who had held a number of executive posts at Dell, became the
new CEO.

In 2005, the share of sales coming from international markets increased, as

revealed in the company's press releases for the first two quarters of its
fiscal 2005 year. In February 2005 Dell appeared in first place in a ranking of
the "Most Admired Companies" published by Fortune magazine. In November
2005 BusinessWeek magazine published an article titled "It's Bad to Worse
at Dell" about shortfalls in projected earnings and sales, with a worse-than-
predicted third-quarter financial performance — a bad omen for a company
that had routinely underestimated its earnings. Dell acknowledged that
faulty capacitors on the motherboards of the Optiplex GX270 and GX280 had
already cost the company $300 million. The CEO, Kevin Rollins, attributed
the bad performance partially to Dell's focus on low-end PCs.

In 2006, Dell purchased the computer hardware manufacturer Alienware.

Dell Inc.'s plan anticipated Alienware continuing to operate independently
under its existing management. Alienware expected to benefit from Dell's
efficient manufacturing system.

On January 31, 2007, Kevin B. Rollins, CEO of the company since 2004,
resigned as both CEO and as a director, and Michael Dell resumed his former
role as CEO. Investors and many shareholders had called for Rollins'
resignation because of poor company performance. At the same time, the
company announced that, for the fourth time in five quarters, earnings would
fail to reach consensus analyst estimates.

Lackluster performance, however, in its lower-end computer business

prompted Michael Dell to take on the role of CEO again. The founder
announced a change campaign called "Dell 2.0," reducing headcount and
diversifying the company's product offerings.

In 2009, Dell acquired Perot Systems, a technology services and outsourcing

company founded by H. Ross Perot.

On September 21, 2009, Dell announced its intent to acquire Perot Systems
(based in Plano, Texas) in a reported $3.9 billion deal. Perot Systems brought
applications development, systems integration, and strategic consulting
services through its operations in the U.S. and 10 other countries. In
addition, it provided a variety of business process outsourcing services,
including claims processing and call center operations.
On August 16, 2010, Dell announced its intent to acquire the data storage
company 3PAR. On September 2, 2010 Hewlett-Packard offered $33 a share,
which Dell declined to match.

Product Portfolio

Dell Inc. deals into a wide range of consumer goods ranging from Laptops,
Notebooks, LCD’s, Printers to Storage Devices, Servers, Workstations and
GPS equipments. Even in it’s every product it provides a wide range of
customization to meet the needs of wide section of consumers. As you can
see from the image below that shows a numbers of configurations are
provided for the Dell Inspiron model to satisfy the requirements of a larger
customer segments.

However, we don’t find each of the Dell’s products in every continent. As of

the Indian Market is concerned, Dell is more popular because of its Laptops,
Desktops and Workstations and Storage Devices rather than the other
products of it.
Problem Identification

Although Dell is seen to be a highly successful company, analysts worry that

the recent slumping economy and the market saturation in the technology
arena could prevent Dell from achieving its prior growth rates and profits.
Can it continue to maintain its stellar track record in light of the sudden
decrease in demand, especially with lower and lower profit margins resulting
from price wars in the industry? Should Dell continue forward with its highly
successful ‘direct model’ strategy to try and sustain its profitability or should
it change its expectations and react to the commodity nature of the
environment? Dell’s immediate challenge is to try and sustain its positive
growth rate, spike its stock prices, and conquer new markets. But how does
Dell choose its next product or service to offer the world? It must make the
right choices as to what is the next value proposition that really matters to
its customers. Another challenge for Dell is how to cope in a new world
where technology devices and components cost less and less (resulting in
shrinking profit margins) that become obsolete practically overnight.
Perhaps, Dell’s biggest challenge will be to have the discipline to know when
and how to change strategies that have worked so well up to now. If Dell
does not have the vision and adaptability, it will be just a matter of time
before another company does a Dell on Dell.

Analysis – Dell’s Competitive Position

Dell’s success is directly attributable to its “direct model.” Customers have

the ability to contact Dell directly and order technologically advanced
systems at competitive prices. This direct contact with consumers gives Dell
the unique opportunity to know exactly what its consumers want and offer
products that would satisfy their specific needs. Dell responded to market
slowdown indicators by pursuing an aggressive pricing strategy designed to
increase profits through volume. Management felt that they could still thrive
and dominate the highly competitive market even during the tough times,
functioning as the lowest cost producer. Continually trying to improve their
position in the PC marketplace, Dell pursued a multi-pronged growth strategy
looking to gain domestic market share in the storage/server and computer
service markets, as well as implementing a market penetration approach to
attract new international business. One of the most significant factors
contributing to Dell’s success was the fact that its corporate customers “not
only valued the ability to customize their PC configurations to meet the
unique needs of users but also liked being able to deal with the manufacturer
directly and to receive Dell’s attractive pricing that was the result of its
direct model.” This model was the engine of Dell’s success, which provided
additional value to customers with the ability to custom-configure products,
kept internal costs low, and provided lofty returns for shareholders. Dell’s
Direct Model was an efficient distribution system targeted at specific market
segments. It was also about direct and meaningful customer relationships
and virtual integration. Another initial success factor was timing, as the
company had been created as a result of the PC’s open architecture, unlike
Apple’s, and was able to take advantage of building and selling clones. Dell’s
highly successful customer service internet/phone model was another major
innovation in the PC industry, which resulted in satisfied customers, requiring
less service dispatches, resulting in lower cower costs and more sales. Well
before the internet explosion in 1995, Dell began integrating the internet and
delivering online technical support and order status information which
strengthened its efficiencies on both the transaction and relationship sides of
the business. As a result, external sales reps were able to devote more time
to face-to-face contact and less time dealing with administrative matters. In
fact, the internet model was so successful that by 2000, 50% of Dell’s
revenues were being generated through the internet resulting in increased
market share. Dell also excelled in virtual integration, choosing the best
providers for each component and leveraging their scale investments in
R&D.

Critical success Factors

Supply Chain
A key component of Dell's supply chain management was having materials in
close proximity to Dell factories; therefore suppliers are required to have
inventory hubs near the manufacturing plants. A huge benefit of this supply
chain solution is communicating with these hubs in real time to deliver the
required materials. Dell had reduced its inventory to an all-time low of a 5
day supply, which comparatively was 20 to 70 days for its major competitors,
thereby creating a competitive advantage. By operating on a just-in-time
basis, Dell was able to provide better service with a faster turnaround time.
Also by reducing the total vendor pool and choosing suppliers physically
close to Dell’s factories, supplier loyalty was increased, leading to further
economies of scale.

Customer Efficiency
Dell constantly monitored the customer’s shifting preferences, which helped
in pricing, inventory management, and cost accounting. Also, Dell’s factory
assembly process was highly organized (i.e. bar codes), efficient (i.e.
systems were “burned in”) and extremely fast (i.e. 36 hour turnaround) and
its customer service was exemplary for the industry.

Dell also had a superior ability

to execute its plans and objectives, which were always proactive and forward
thinking.

Market Sensing
Dell consistently sensed market changes before they happened and was able
to anticipate and identify product areas to maximize sustainable profits using
its Direct Model. As a result of this ability, Dell could pick and choose which
market they entered; making sure it was a market leader quickly upon
entering.

Channels

Dell used its Direct Model approach when entering major markets, but for
smaller markets it operated through its distributors. Dell was labeled as a
“mail order company”, but less than 5% of sales actually came from
individual consumers. Most sales were to business customers through its
direct sales force, with 50% of sales going to large corporate accounts and
the other 50% of sales going to medium and small businesses. Computers
were shipped directly to the customer, cutting out the middle man. (Dell
briefly altered this direct approach by selling computers in CompUSA and
Sam’s Club in 1992, but unfortunately, entry into retail channels was not
successful in broadening its penetration of the consumer market because
customers no longer had the option to custom configure their machines - a
previous leverage for Dell). Dell also sold servers through its direct sales
force to larger relationship clients and through telephone and online
channels to smaller business clients using a three-tiered architectural
system.

Sales Infrastructure
Orders for the factories came in from 2 different sources. Consumers and
small business customers responded to print ads calling toll free numbers,
while Dell’s inside sales representatives placed orders for their large
corporate customers.

Competitors

The computer industry is fragmented. New products are coming out all the
time, the competition is brutal, and customers are changeable. Dell’s main
competitors were Apple, IBM, Compaq, Gateway, and HP, but the ‘Others’
segment had the most percentage of vendors market share at 34%. Many of
these companies could not continue making profits operating in Dell’s “low-
margin sweet spot” as the gross margins of the industry consistently kept
dropping. Compaq had been the market leader in desktops and portables in
1997, but by 2001, Dell had overtaken them.

Customer Analysis

Customers valued Dell’s uniqueness of:

• Offering the ability to easily customize their PC’s,

• Dealing directly with the manufacturer, and

• The attractive pricing resulting from the ‘direct model’.

Dell understood the different needs of its large corporate, small business,
and governmental customers and attempted to optimize its 7,500 worldwide
sales and support reps for each particular segment. In order to do this, Dell
segmented its customer base into 9 US geographical regions. Dell also had
created 3 regions outside of the US: Americas International, EMEA, and APCC
(refer to appendix). Dell’s four main types of customers were differentiated
through the buying process as primarily relationship (consumers with
ongoing purchases) or transactional customers, (consumers making 1
purchase at a time) broken down into the following segments (refer to
appendix).

Global
Primarily relationship and transactional, then broken down into 3 core areas:
Relationship Business, Small/Medium Businesses, and Consumer Business

1. US Market (Relationship = 60%): Business-global, enterprise, large

corporate accounts, federal government, education, state & local
government

2. Small/Medium Businesses (Relationship = 30%): Preferred account

division, Business systems division

3. Consumer Business (Transactional = 10%): knowledgeable buyers.

Dell has combined and implemented a multi-segment target marketing

strategy with 90% of its business being relationship based.

SWOT Analysis

Strength
By offering superior telephone customer services such as Premier Access,
and outsourcing their shipping, Dell had the lowest operating cost in the
industry at 11.5%. It had a unique ability to predict which new high margin
technology product could be driven to scale w/lower priced products driven
by its direct model, which was continuously improving, making it hard to
copy. Dell set the industry standard for customer service/relations resulting
in satisfied customers and less downtime (Dell resolved 72% of problems
remotely, which was twice the industry average.)

Weakness
Dell was late getting into the Latin American market (5th place in overall
market share), resulting in lost sales. It also had weak international market
share in 2002 (Western Europe =3rd, Asia/Pacific = 7th, Japan = 8th, and 5th
place in the rest of the world). In addition, jumping into the laptop market
too soon, entering the workstation market late and signing unsuccessful
retail agreements all brought losses to the company. Dell doesn’t have
robust products to support mission critical environments and is shut-out of
big enterprise storage accounts.

Opportunities
Dell can further capitalize on the remaining build-out of the Internet
infrastructure and increase market share in the external storage market and
participate more in the midrange and high-end server markets. It can
develop itself into the premier Internet partner for customers around the
world by heavily targeting sales to first-time PC buyers and introducing new
product categories and services.

Threats
Computer industry consumers have traditionally been notoriously fickle in
their buying habits and trends, affected by the rapid pace of technology and
the bursting Dot.com Economy. While the growth of the Internet should
produce more demand for servers and storage, those markets will test Dell in
areas that haven't been its strong points: sophisticated product engineering
and labor-intensive services.

Current Strategy

“High Quality, More Powerful, Faster, Customized and Cheaper”. For

every new product or service it introduces to the market, Dell consistently
implements its startup mindset of “build-to-order computers” (referred to as
the direct model approach) from the very beginning of the development and
production process. Dell’s business was unique in that it was able to
consistently make significant profits in low margin product areas.
Its’ direct model approach evolves for every new product and service
achieving delivery of high quality PC’s in a very cost efficient manner; one of
continuous improvement. Dell is a continuous-growth model, constantly
adapting, changing and finding ways to master its environment, as opposed
to just responding to it. In addition, Dell has been able to take flexibility and
speed, and build it into the company’s DNA.

Positioning

Michael Dell portrays his company as “the good guy”, the Robin Hood of the
computer industry offering more for less. Their mantra is “better, faster,
cheaper” using brand name components, build to order manufacturing, and
customized customer service, which led to high quality and more powerful
computing power. Dell had a reputation for “effectively entering product
markets where core proprietary elements had become standardized and
undercutting existing players based on price.” Dell’s strategy was to choose
the best in class providers (like Intel and Microsoft) for each component and
leveraging their scale investment in R&D.

Target Market
Dell’s main focus is on large corporations with secondary efforts on small and
medium sized businesses. In addition, they also target the global consumer
directly, but with minimal effort. Dell mainly focuses on the segments that
are already knowledgeable about computers.

 Products - Dell currently has 6 main products: PC’s, laptops, customer

service, storage devices, workstations, and auxiliary services.

 Pricing - When Dell decides to enter a particular market, it consistently

uses the Direct Model approach, pricing their product below that of their
competitors. These low prices are the result of multi-level leveraging and
from achieving economies of scale.

 Promotion - On-line model, direct mail order, catalogues, Premier Pages,

special training and certifications, word-of-mouth, editorials, reviews,
sales reps, and awards

 Place - Direct from Dell: On-line, telephone, mail-order. (Dell does not use
any retailers or wholesalers to sell their products.)
In conclusion, Dell’s strategies do match the company’s 4 P’s, targeting, and
positioning and can be summarized as a low-cost, fast and efficient business
model, with superior customer value with virtual integration.

Strategic Options

Product Development
Pursue Mid-Range Server Growth: By 2001, Dell was the market leader
in entry level servers, but had no presence in the mid-range server market.
Pursuing this growth option result in increased market share and higher
profits due to the higher selling prices and markups of these units, but could
be risky if technology suddenly changes. Increased post sale costs are also a
concern, as server sales don’t just stop upon delivery; they require continued
service regarding reliability, serviceability, availability, and manageability.

Increase product line: By introducing new products like a PDA, Dell can
capture new markets and increase sales and awareness. However, Dell’s
R&D budgets are well below that of its primary competitors. This option
contains increased risk and high initial start-up costs.

Pursue Associated Services Growth: Within the US, 2000 service

revenues accounted for over 37% of $2 billion in total revenues. This
business unit was becoming an increasingly important part of Dell’s portfolio
with longevity, able to stand the test of time and market uncertainty, no
matter what turn technology took.

New International Market Development

Target new segments and enter new markets with existing products. The
Potential benefits of international expansion are increased market share,
revenues, profit, and buyer awareness. However, the successful Dell Model
might not work everywhere. The product chosen for expansion should be a
commodity where the demand is already in place and the country must also
value on-time delivery. In addition, terrorism, cultural barriers, political
systems, and longer ROI must be taken into consideration as well as limits on
foreign ownership and tariff barriers.
Recommendations &
Implementations

Server/Storage/Service Growth
The booming PC market seems to have bottomed out, with little signs of
improvement due to market saturation. Positive signs have come mainly in
the form of limited PC replacement programs at some large companies and
sales of notebook PCs. Any future PC market recovery will most likely be tied
to an improvement in the economy.

Therefore, Dell should ramp its efforts in three non-core areas as key for
future growth: servers, external storage and services. Meanwhile, it can
carry on with its aggressive price-cutting strategy for all of its products.
Hopefully, these moves will allow them to gain traction in some markets, and
even overtake some competitors in others. Once Dell has used its lowest
price strategy to increase its installed base of clients in hardware sales,
particularly in the enterprise market, the company can leverage its expertise
in customer support to keep those clients. Even though Dell has already
made some impressive progress in server and storage developments, it still
lags behind other server vendors in total shipments and sales. The company
needs to create a greater presence among enterprise and service-provider
customers.

Dell can quickly grow its storage business by providing simplified and
standardized storage solutions to customers ranging from small businesses
to large, global corporations with enterprise-class requirements. It can
leverage its ties to Microsoft, Intel and other prestige component vendors to
focus on providing Windows-based storage and server products. This move
will make its high-end storage products work with IBM, Hewlett-Packard and
Compaq Computer Windows servers, as well as Dell servers. This allows Dell
to widen its customer base by appealing to customers that don't have Dell
servers, or have a mixture of servers from different vendors. With
comprehensive support for multiple platforms, Dell can also offer customers
a storage solution that leverages their existing Windows server investments,
while scaling to accommodate their growing data requirements.
An expansion of the services group should also be pursued based on
customer needs, which will vary from country to country. While Dell
continues to partner with third-party services firms in some areas, it should
also bulk up on its own services capabilities so it can provide customers with
more complete services offerings. Dell should realize that it would need to
expand its services capability significantly in order to be taken seriously by
some global enterprise and service-provider customers. Dell can also
implement a fixed-price approach to services that will boost its presence in
that market. New services, such as migrating from Unix-based servers to
new ones based on Linux can be offered and combined with Dell's hardware.
A total of $2 billion to $3 billion in service revenue can be achieved if this
strategy is correctly implemented. Dell's three-pronged growth strategy by
no means guarantees a sure-fire path to future profitability, but Dell's
deliberate and measured steps to expand beyond its PC roots could result in
additional good news in the future.

International Expansion
As Dell looks at expanding into international markets, it needs to consider
entering the markets that are key to the region. For example, Germany in
Europe, China in Asia, and Brazil in South America. Dell needs to carefully
study these types of key markets and implement its Direct Model only after it
understands how these regions economically and politically function.
However, this expansionary growth will place extensive demands on Dell’s
information infrastructure needed to support such global operations. To be
successful in these new markets, Dell must update its websites in the
particular languages and modify the accounting systems to handle the
specific currencies. Keeping these new employees in touch with one another
and with customers, suppliers, and partners will be a gigantic task requiring
the latest technology, increasing the demand for instant information. The
global market is huge and virtually untapped and Dell is in a great position to
take advantage of this market, especially with the use of the Internet and its
advanced online capabilities. Dell’s most important strategic advantage is
the ability to sell direct from Dell, eliminating all the middlemen in the
normal distribution line. Anyone who wants a Dell must order it through the
mail, online, or over the phone, which is a perfect method for doing
international business. Dell just takes the order and ships the computers via
one of its many shippers. Dell should focus on dominating the Asian market
where they only have a 3.7% hold on a market with over 19.9 billion units.
Asia is a virtually untapped market and is expected to grow rapidly in the
next few years. Dell currently has two manufacturing plants and four
technical support offices in the Asia area. Dell should look for ways to
optimize these facilities and budget some advertising towards attracting
enterprise and big businesses in that region. If Dell can capture a few large
clients in China, it may be able to dominate the Asian market, drastically
increasing its revenues.

APPENDIX
Dell’s Geographical Market Distribution