I.

Background

Michael Dell started running business in computers when he was in college.

He bought random access memory chips and disk drives for IBM PCs at cost
from IBM dealers, who had excess supplies on hand because they were
required to order large monthly quotas from IBM. Dell’s sales grown up to
$80,000 per month and because of his success he decided to drop out of
college and form a company. His company was known as PCs Ltd where he
sells both PC components and PCs under the brand name PCs Limited.
During the next several years, PCs Limited was hampered by growing pains.
Michael Dell sought to refine the business model and made different
strategies while at the same time keeping costs low. The company was
renamed Dell Computer in 1987, and the first international offices were
opened at the same year. Sales to large customers quickly became the
dominant part of Dell’s business. Michael Dell’s vision was for Dell computer
to become one of the top three PC companies.
In the years 1990-1993, the company began distributing its computer products
through Soft Warehouse Superstores. But soon, the company realized that
they made a mistake using that kind of distribution so they withdrew from it.
During the year 1993, further problems emerged: Dell reportedly lost $38
million in risky foreign currency hedging, quality difficulties arose with certain
PC lines made by the company’s contract manufacturers, profit margins
declined, and buyers were turned off by the company’s laptop PC models.
The company realized that there were higher costs and unacceptably low
profit margins in selling to individuals and households that is why Dell did not
pursue consumer market aggressively until sales took off in 1996 and 1997.
PC savvy individuals are now looking for powerful computer with multiple
features, did not need much technical support, liked the convenience of
buying direct from Dell, ordering a PC configured to their liking, and having it
delivered to their door. Dell formed and internal sales and marketing group to
cater to the needs of these consumers during the year 1997. In late 1997, Dell
became a low cost leader among PC vendors by wringing greater and greater
efficiency. Since then, the company had continued driving hard to reduce its
costs by closely partnering with key suppliers to drive costs out of its supply
chain and by incorporating e-commerce technology and use of the Internet
into its everyday business practices.
From 2002-2007, Dell was widely regarded as the lowest cost producer
among all the leading vendors of PCs and servers worldwide. Dell products
received more than 400 awards relating to design, quality, and innovation.
II. Problem

1. Dell computer brand name is not popular to the college

market.
2. The erosion of Dell’s brand value continues due to the
perception of declining customer service.
3. Dell’s inability to serve all market needs due to the current
strategy of limited vendors in its supply chain. Dell brings few
products to market and leverages technology created by
other companies effectively and efficiently.
4. The company has such a huge range of products and
components from many suppliers from a plethora of
countries, that there is the occasional product recall that can
cause Dell some embarrassment.
5. Customers just can’t buy Dell as simply as other brands
because each product is custom-built according to their
specifications and this might take days to finish.

III. Objectives

1. To aid or to make actions to the declining customer service

and support efforts of the company.

2. To strengthen Dell’s customization position.

3. To strengthen Dell’s visibility and revitalize the company’s

marketing to the other markets.

4. To strengthen Dell’s position as the low-cost personal

computer producer and provider within the market
 IV. Theoretical Framework

Wharton Model of Competitive Advantage Cycle

Understanding the key sources of advantage and how they are

sustained or eroded become crucial in formulating competitive
strategy. The Wharton Model below will help assess the nature and
magnitude of present advantages and the reasons why they have
been sustained.

Key Success Factors

- Brand Loyalty
- Brand Equity
-Product differentiation Source of Advantage
and specialization Differentiation and product
specialization. (Product
Driven)

Investments in
Positional Advantage Performance Rewards Renewal
Dell is well known for its for Dell’s Inc. Dell Inc should invest in
innovations in supply Customers other sources of income
chain management and Quality service and and lowering costs and
innovation in e- products losses of product recall
commerce. A variety of Satisfaction and customer
scopes and brands Dell kiosks for customer compensation for faulty
under its belt. service and misrepresented
products.

Competitive Dynamics
Erode Advantages

- Other brands prioritizing

and strengthening
Barriers to Imitation customer service and
- Constant innovation relationship.
 Analysis

Dell’s primary source of advantage is product differentiation and

specialization because they have the most differentiated and customized line
of computers/laptops for the consumers in the market. They have different
specialized features for each particular user such as heavy users for
education, business, entertainment and gaming. Dell has different types of
brands each catering to the said categories.

Dell’s positional advantage is its variety of scopes and brands

aiding to that of its source of advantage which is the product differentiation
and specialization. Dell has tapped many specific market segments as shown
here:

Its Business/Corporate class represent brands where the company advertises

emphasizes long life-cycles, reliability, and serviceability. Such brands
include:

 OptiPlex (office desktop computer systems)

 Vostro (office/small business desktop and notebook systems)
 n Series (desktop and notebook computers shipped
with Linux or FreeDOS installed)
 Latitude (business-focused notebooks)
 Precision (workstation systems and high-performance notebooks),[35]
 PowerEdge (business servers)
 PowerVault (direct-attach and network-attached storage)
 PowerConnect (network switches)
 Dell/EMC (storage area networks)
 EqualLogic (enterprise class iSCSI SANs)

Dell's Home Office/Consumer class emphasizes value, performance, and

expandability. These brands include:

 Inspiron (budget desktop and notebook computers)

 Studio (mainstream desktop and laptop computers)
 XPS (high-end desktop and notebook computers)
 Studio XPS (high-end design-focus of XPS systems and extreme
multimedia capability)
 Alienware (high-performance gaming systems)
 Adamo (high-end luxury laptop)

One of Dell’s performance rewards for its customers is the launching of

Dell kiosks in malls for customer service and maintenance of the units. Some
of Dell Inc's marketing strategies include lowering prices at all times of the
year, offering free bonus products (such as Dell printers), and offering free
shipping in order to encourage more sales and to stave off competitors.
It is common knowledge that there are criticisms sparking the quality of
customer service Dell offers such as in May 2008, the New York Supreme
Court ruled that Dell and Dell Financial Services "engaged in fraud, false
advertising, deceptive business practices, and abusive debt collection
practices". The relevant lawsuit aimed to highlight and seek restitution for a
lack of technical support given to customers by Dell. The court plans to hold
further proceedings to determine how much money Dell has to pay out to
customers and how much profit Dell made unlawfully, in New York.

In July 2009, Dell apologized after the firm offered its Latitude E4300
notebook at NT$18,558 (US$580), 70% lower than usual price of NT$60,900
(US$1900) in its Taiwan website. The firm withdrew orders and offered a
voucher of up to NT$20,000 (US$625) a customer in compensation. The
consumer rights authorities in Taiwan fined Dell NT$1 million (US$31250) for
customer rights infringements. Many consumers sued the firm for the unfair
compensation. A court in southern Taiwan ordered the firm to deliver 18
laptops and 76 flat-panel monitors to 31 consumers for NT$490,000
(US$15,120), less than a third of the normal price.[81] The court said the event
could hardly be regarded as mistakes, as the prestigious firm said the
company mispriced its products twice in Taiwanese website within 3 weeks.

With these latest criticisms Dell must invest in other sources of income that
will not jeopardize its stockholder’s money and should incur less cost and fees
for compensation to its damaged customers. Also another eroding factor other
than the accused engage in fraud, is the ability of customers to switch brands
to a brand that is more customer friendly.
 V. SWOT Analysis

STRENGTHS WEAKNESSES
• Lower cost due to direct selling • Difficulty in attracting the
• Lower cost due to decreased college students segment of the
inventory market
• Lower risk of retaining • Customization and direct
inventory due to build-to-order method problems with home
model users
• Stronger relationships with • Occasional product recall
customers due to their direct
model
• Extensive range of ways as to
how customers may comment
• Inexpensive quality products
and services
• Customization
• Innovative
• Application of the internet to
other parts of the business
• Total command of the supply
chain
OPPORTUNITIES THREATS
• Continuous increase in usage • Constant change in the industry
of personal computers • Decrease in price difference
• Customization’s attraction to among brands
second-time computer buyers • Increase in demand for high
• Increase in demand for laptops quality, low priced products
• Convenience in online • Slow down of the growth rate of
shopping the industry
Diversification • Technological advancement is
a double-edge sword
• Fluctuation in global currencies
Constant change in the industry

In a volatile market such as personal computers, threats abound. Computers

change in a constant sometime daily basis. New software, new hardware and
computer accessories are introduced at a lightning speed. It is essential for
Dell therefore to be always on the lookout for new things or introduce new
computer systems.

Decrease in price difference among brands

One of the biggest external threats to Dell is that price difference among
brands is getting smaller. Dell’s Direct Model attracts customers because it
saves cost. Since other companies are able to offer computers at low costs,
this could threaten Dell’s price-conscious growing customer base. With almost
identical prices, price difference is no longer an issue for a customer. They
might choose other brands instead of waiting for Dell’s customized computers.

Increase in demand for high quality, low priced products

The threat to become outmoded is a pulsating reality in a computer business.

Not only that, companies must produce products that are high in quality but
low in price. This is one challenge that Dell contends with.

Slow down of the growth rate of the industry

The growth rate of the computer industry is also slowing down. Today, Dell
has the biggest share of the market. If the demand slows down, the
competition will become stiffer in the process. Dell has to work doubly hard to
differentiate itself from its substitutes to be able to continue holding a
significant market share.

Technological advancement is a double-edge sword

Technological advancement is a double-edge sword. It is an opportunity but at

the same time a threat. Low-cost leadership strategy is no longer an issue to
computer companies therefore it is important for computer companies to
stand out from the rest.
Technology dictates that the most up-to-date and fastest products are always
the most popular. Dell has to always keep up with technological
advancements to be able to compete.
Fluctuation in global currencies
Dell, being global in its marketing and operations, is exposed to fluctuations in
the World currency markets. Although it is a very lean organization, orders do
have to be placed some time ahead due to their size or value. Changes in
exchange rates could leave the company exposed to potential loses in parts
of its supply chain.
OPPORTUNITIES

Continuous increase in usage of computers

Personal computers are becoming a necessity now more than ever.

Customers are getting more and more educated about computers.

Customization’s attraction to second-time computer buyers

Second-time buyers would most likely avail of Dell’s custom-built computers

because as their knowledge grows, so do their need to experiment or use
some additional computer features.

Increase in demand for laptops

Demand for laptops is also growing. As a matter of fact, demand for laptop
has overtaken the demand for desktops. This is another opportunity for Dell to
grow in other segments.

Convenience in online shopping

The internet also provides Dell with greater opportunities since all they have
to do now is to visit Dell’s website to place their order or to get information.
Since Dell does not have retail stores, the online stores would surely make up
for its absence. It is also more convenient for customers to shop online than to
actually drive and do purchase at a physical store.

Diversification

Dell is pursuing a diversification strategy by introducing many new products to

its range. This initially has meant good such as peripherals including printers
and toners, but now also included LCD televisions and other non-computing
goods. So Dell competes against iPod and other consumer electronics
brands.

WEAKNESSES

Difficulty in attracting the college students segment of the market

Dell’s biggest weakness is attracting the college student segment of the

market. Dell’s sales revenue from educational institutions such as colleges
only accounts for a measly 5% of the total. Dell’s focus on the corporate and
government institutional customers somehow affected its ability to form
relationships with educational institutions. Since many students purchase their
PCs through their schools, Dell is obviously not popular among the college
market yet.

Customization and direct method problems with home users

For home users, Dell’s direct method and customization approach posed
problems. For one, customers cannot go to retailers because Dell does not
use distribution channels. Customers just can’t buy Dell as simply as other
brands because each product is custom-built according to their specifications
and this might take days to finish.

Occasional product recall

The company has such a huge range of products and components from many
suppliers from a plethora of countries, that there is the occasional product
recall that can cause Dell some embarrassment. In 2004 Dell had to recall 4.4
million laptop adapters because of a fear that they could overheat, causing
electric shocks or fires.

STRENGTHS

Lower cost due to direct selling

Dell is able to reduce cost because selling directly to customers allowed the
company to reduce marketing and sales cost by eliminating mark-ups of
distributors and retailers.

Lower cost due to decreased inventory & Lower risk of retaining

inventory due to build-to-order model

Dell uses build-to-order inventory system which aims to operate on the

principles of lean manufacturing. This means that the end consumer dictates
when and what products will be produced. A production order only generated
when a customer order is received and confirmed. This model reduces
production waste, work in progress, inventory holding cost and improves
customer lead times and cash flow for the company.

Stronger relationships with customers due to their direct model

Dell's Direct Model approach of enables the company to offer direct

relationships with customers such as corporate and institutional customers.
This is because the company can assist the customers personally fostering
trust and loyalty.

Extensive range of ways as to how customers may comment or suggest

The company’s strategic method also provides other forms of products and
services such as internet and telephone purchasing, customized computer
systems; phone and online technical support and next-day, on-site product
service. This extensive range of products and services is definitely one of
Dell’s strengths.

Inexpensive quality products and services

Dell boasts a very efficient procurement, manufacturing and distribution
process allowing it to offer customers powerful systems at competitive prices.

Customization

Each Dell system is built to order to meet each customer’s specifications.

Innovative

Dell is able to introduce the latest relevant technology compared to

companies using the indirect distribution channels. Dell turns over inventory
for an average of every six days, keeping inventory costs low.

Application of the internet to other parts of the business

The company's application of the Internet to other parts of the business

including procurement, customer support and relationship management is
growing at a rate of 30 percent. The company's Web site received at least 25
million visits at more than 50 country-specific sites.

Total command of the supply chain

Dell cuts out the retailer and supplies directly to the customers. It uses
information technology, and Customer Relationship Management (CRM)
approaches to capture data on its loyal consumers. So a customer selects a
generic PC model, and then adds items and upgrades until the PC is kitted
out to the customer's own specification. Components are made by suppliers,
never by Dell. PC's are assembled using relatively cheap labour. You can
even keep track of your delivery by contacting customer services, based in
India. The finished goods are then dropped off with the customer by courier.
Dell has total command of the supply chain.

10
INDUSTRY CHARACTERISTICS AND MACRO FORCES

A strategic map is an analytical tool to graphically display competition

in an industry and see how industry changes or how trends might affect
it. In the figure below, the strategic dimensions of Push and Pull and
Purpose of Usage are used.

Strategic Map of the Information Technology-Computer Hardware Industry

Analysis

• Currently in the market, HP is number one and has a great pull for its
brand of laptops and PC units because of its variety specific for its
users ranging in gaming, entertainment, business and education.
• The second in the market is Dell however it is over run by the pull and
the aggressiveness of users for Apple who caters to entertainment,
business and education because of its constant innovation and buzz
marketing for products.
• This leads Dell on a leverage bordering from pull to push& pull. Notice
the apparent scope in gaming, because Dell is the leading brand for
gaming because of its successful brand of Alienware.
• Sony is in the Push & Pull area scoping mid-range of gaming to
entertainment until a bit of business specifics.
 • Acer on the other hand is Push and Pull area nearing the Pull region
scoping from the mid range of entertainment to business and
education.
• IBM has been sold to the Chinese which owns Lenovo, because of this
brand absorption, it is in the Push region because the firm wants to
push the brand and its product in the market for consumers to react
and create a need for them to purchase.
• The biggest Push is with Samsung given that the brand and its
product’s attributes have a minimal scope in the consumer’s
preferences and categories of specialization.

The current environment for the computer hardware industry is shaped by

several macro forces. Primarily, Dell and its competitors are influenced by
economic, demographic, technological and national forces. Government,
social, physical and national forces peripherally affect the computer hardware
industry to varying degrees.

The commoditization of the personal computer—a vital tool for business and
consumer customers—is a key driver for the economics of this industry.
Corporate spending accounts for 80% of all technology spending, and
economic conditions decreasing business capital expenditures has a negative
and direct impact on the computer hardware industry. While this industry is
mature in the U.S., leading to decreased growth expectations, computer
spending by other countries around the world will likely fill this void.
Specifically, the computer hardware industry is predicted to grow
exponentially in Latin America and non-Japanese Asia over the next several
years.

Demographic forces also influence the characteristics of the computer

hardware industry. Geographic areas discussed above indicate where
computers are well below their penetration levels—creating the prospect of
new markets. Although 2003 U.S. census data on computer and internet
usage at home correlates closely with income and educational level, the
commoditization of computer hardware industry enables it to be accessible to
lower income level consumers. Consumer race and age also influences
computer usage, according to the 2003 U.S. Census Bureau. Computer
hardware companies should target less educated consumers, Hispanics,
Blacks and people older than 65 years to achieve additional areas of market
growth.

Technological forces have the most significant influence on the computer

hardware industry. The phenomenon called the “upgrade cycle” is one of the
most influential macro forces on the computer industry. The upgrade cycle
drives waves of new purchases among business and consumer customers as
technological change transpires. Some industry analysts assess that 50% of
computer hardware product profits are created during the first 3 – 6 months of
sales. In 2006, Microsoft is set to release the “Vista” operating system which
is likely to catalyze an upgrade cycle among business and consumer
customers.

Customers increasingly choose a single vendor to meet all of their computer

needs and technology upgrades. For a computer hardware company to
remain competitive, all customers’ needs must be efficiently satisfied. We
recommend that Dell focus on “turn-key” technology solutions in order to
maintain its superior differentiator status within the industry.
National forces are increasingly important in a computer company’s ability to
maintain its competitive edge, both in terms of the manufacturing process and
improving sales. Computer companies are increasingly shifting their
manufacturing operations outside of the U.S. to take advantage of a growing
business and consumer market for their products as well as cheaper
operating costs.

Government, social and physical forces influence the computer hardware

industry, however, these macro forces are significantly less important than
those discussed in prior paragraphs. Governments throughout the world
represent an opportunity for computer hardware companies, including Dell, as
they aim to develop and deliver more services to their citizens. Social forces,
including holiday, back-to-school sales and a summer business slowdown in
Europe also drives sales in this industry. The physical environment has very
little impact on the computer industry since all computer parts are artificially
manufactured.

However, adverse weather can negatively impact the competitive edge of a

company such as Dell, which relies on “just in time” inventory methods as well
as direct sales to its customers.

The electronic computer manufacturing industry is mature in Japan, the U.S.

and Europe. Growth opportunities remain among certain target populations
within those areas and significant areas of market expansion are likely to
occur in Latin America, Asia, and the Middle East. However, computer
hardware companies are likely to continue the trend towards consolidation for
the foreseeable future. Mergers and acquisitions have characterized this
industry over the last few years including Lenovo Group’s purchase of IBM’s
PC division in 2005 and HP’s 2002 acquisition of Compaq.

Pricing in the computer manufacturing industry is extremely competitive. IT

reflects the rapid pace of technological change and decreasing PC costs.
Since 2000, the prices of chips and disk drives declined and the
standardization of primary components of PCs led to a decline in PC prices.
Direct sellers, including Dell, have traditionally been able to under-price
indirect sellers in the industry including Compaq and HP. However, most PC
vendors now offer a desktop model for less than $500 and a laptop for $700.

Key success factors for companies in this industry continue to evolve as the
industry matures. Specifically, they include:

• Competitive prices
• Superior relationships with suppliers
• Product customization for business and consumer customers
• Quality customer service
• Excellent cost structure
Dell’s business model incorporates many of these key factors; the company is
working to improve customer service and product customization

There are also significant opportunities for computer hardware manufacturers

including expansion into peripheral markets and products such as printers.
Dell entered this market in 2003. However, threats to the computer hardware
industry are strong—primarily, stiff competition among top industry players
such as HP.

The computer and peripherals industry is firmly entrenched in the maturity

stage of the life cycle. Companies in this stage, including Dell, experience
stable sales, slight growth, and decreasing production costs. In order to
remain at the forefront of the competition, computer hardware companies
should focus on process innovation—an arena where Dell has succeeded.
Specifically, Dell adopted a customer-focused approach with a closely
managed supply chain and cash-flow process. Dell’s low-cost, direct sales
model shaped its position in the industry and other companies have struggled
to copy this innovation. As Dell and other computer hardware companies
continue to maneuver the challenges of the mature life cycle stage, they will
need to remain focused on process innovation and creating business and
consumer customer value to maintain its status as industry leader.

COMPETITIVE LANDSCAPE
(PORTER’S FORCES)

Understanding the external environment is key to successfully competing in

the computer hardware industry. Porter’s Five Forces of Competition provide
a framework for Dell to outline the bargaining power of suppliers and
customers, the threat of new entrants, the threat of substitutes and the
intensity of competition.

Bargaining Power of Suppliers (HIGH)

In this industry, the bargaining power of suppliers is high due to the limited
number of suppliers for key components. For instance, Intel sells 90% of the
microprocessors used in PCs and Microsoft provides 85-90% of the operating
systems. In addition, 80% of the world’s laptops are assembled in Taiwan.

Bargaining Power of Customers (HIGH)

Likewise, the bargaining power of customers is also high due to the fact that
PCs are now commodities. Nearly all PCs contain the same components or
the same type of components. However, customers’ power remains limited
because consumers may be willing to pay a premium to computer companies
that are able to provide technological solutions.
Threat of Substitutes (MODERATE)

There are numerous PC sellers that are offering the same specifics and
functions that Dell offers. Increase in low-priced sellers is also rampant.
However, since the company offers customization, the customers chooses
which parts they want which is a unique combination that other companies do
not offer.

Threat of New Entrants (LOW)

Alternatively, the threat of new entrants is low. The 1990s saw a significant
level of growth, but the early 2000s have shown signs of contraction within the
industry. The threat of substitutes is also low since the only available
substitute for a Windows-based PC is an Apple Macintosh.

Intensity of Competition (HIGH)

Finally, the intensity of competition is high since there are relatively few
competitors in the market. However, they all offer the same basic products
and must compete on price.

Value Chain Analysis

Inbound Logistics

Dell’s direct-to-consumer sales model has revolutionized the value chain

within the computer industry. This model, which relies heavily upon web-
based technologies such as Electronic Data Interchange (EDI) and just-in-
time inventories, has clearly been one of the distinguishing factors in Dell’s
success. Dell encourages its suppliers to use its website to track orders and
inventories. This real-time information sharing allows Dell’s chip and
component manufacturers to better see Dell’s sales.The goal of the
information sharing is to create a virtual corporation where suppliers can
watch their products purchased as parts on Dell’s computers. By using this
technology, suppliers are able to more efficiently meet inventory requirements
and maintain low costs.

Operations

Dell has positioned itself as the number one seller of personal computers by
maintaining an efficient and streamlined operating strategy. Dell’s servers,
storage systems, mobile and desktop computers are built-to-order in six
manufacturing facilities around the world. Web-based systems control
customer orders and inventory levels.“Dell maintains inventory levels of only
four days, even as it serves more customers with more products in more
markets every day” (Fiscal 2005 in Review, 2005). As noted, Dell’s culture
encourages its employees to find ways to cut costs. Within the last 4 years,
Dell has increased its productivity by 400% and saved more than $1.9 billion
by removing unnecessary costs within its operations (Fiscal 2005 in Review,
2005).This efficiency has allowed Dell to sell its made-to-order units for 10%
to 20% less than its rivals.

Outbound Logistics

Dell’s direct-to-consumer business model enables its customers to purchase

its products via its website, by fax/phone or at limited retail locations. Internet
customers are able to customize their purchases on their own “Dell
Homepage.”Dell notes that customers which utilize its website spend more
and make purchases faster than those using the fax/phone method of order.
Once the order is placed, Dell prides itself on a 7-day shipping schedule. This
delivery schedule is typically better than those offered by the company’s
competitors.

Marketing and Sales Dell’s marketing efforts have a ubiquitous presence

across the web, television and print. Few competitors can match the
marketing budget of the $50 billion firm. Internet sales currently make up over
50% of the firm’s total sales. In hopes of increasing its consumer base the
organization has offered its products at discount chains Wal-Mart, Target,
QVC Inc. and Costco. Although Dell built its reputation as a low-priced
computer seller, the firm has shown signs of distancing itself from its discount-
price image by expanding its product mix to include high-end PCs, televisions,
MP3 players and other electronics.

Service

Over half of Dell’s sales are made on its website, limiting the level of direct
sales interaction between its employees and customers. However, once the
purchase is made consumers often interact with customer service/support
representatives. As cost differences become slimmer, exceptional service is
one way in which computer companies differentiate and attract new and
returning customers. Revenues from enhanced services/support are
significant for the firm and have grown “nearly 40 percent for three
consecutive years” (Fiscal 2005 in Review, 2005).Although the firm has long
prided itself on offering the best customer service in the industry, recent
surveys have shown declining results in this segment of the business.
Consumer Reports ranked Dell behind Apple, IBM and Toshiba for its
customer support with laptops (Computers, Desktops, & Laptops, 2006, p.
232).Despite the decline, Dell has still managed to rate higher than its
competitors HP and Compaq. I n recent years customer service/support has
been moved to lower wage nations. Top executives have acknowledged the
problem and are reportedly working toward improvements.

Firm Infrastructure

Dell was founded in and maintains its worldwide corporate headquarters in

Round Rock, Texas. To increase its global presence the firm has expanded
its infrastructure to include corporate offices and manufacturing facilities in the
UK, Japan, Singapore, Ireland, Brazil, China, Malaysia and other U.S.
locations. The firm’s infrastructure also includes several overseas call centers
in India. Although the company partners with retailers, it does not have any
official retail locations as part of its infrastructure. Most of the firm’s
infrastructure is virtual or web-based. This allows the company to sidestep
retail overhead costs while maintaining customer visibility.

Human Resources

Dell employs over 55,000 individuals. The organization is dedicated to

creating a diverse workforce to meet the objectives of the organization and its
customers. Dell-sponsored groups were formed to promote a sense of
community among employee participants, support business goals, aid in their
personal and professional development, support business goals and provide a
resource for organically recruiting and retaining the best and brightest talent in
the industry. The organization works diligently to create a corporate
environment based on meritocracy, personal achievement and equal access
to all available opportunities.
Technology Development

Dell defines itself as a “global diversified technology provider”. Although it

would seem that Dell spends a tremendous amount on its R&D this is not the
case. Dell brings very few new products to market. Instead, Dell has a
focused strategy which leverages the work of partners and other firms “to
recreate the work others have done very well” Fiscal 2005 in Review,
2005).Dell’s global teams meet regularly with customers to gain feedback on
which new technologies will have the greatest impact. This feedback is then
shared with partners such as Oracle, Intel, EMC and Red Hat to share in R&D
costs. This strategy is in stark contrast to IBM which spends billions of dollars
annually on R&D. The savings that Dell realizes from R&D allows it to deliver
cookie-cutter servers and desktops at value. However, many analysts believe
the firm’s inability to adopt more state-of-the-art technologies has prevented
Dell from establishing a successful strategy for high-end products.

Procurement

As previously stated, Dell has remained extremely loyal to chip maker Intel.
As the largest producer of personal computers, Dell is also the largest
customer of Intel chips. Intel claims to be able to ship materials into Dell’s
production facilities every two hours based on real- time customer orders.
This real-time supplier allows Dell and its suppliers to forecast and manage
the most efficient levels of inventory. “Dell's decision to remain solely
committed to Intel chips have certainly helped contain the cost of low-end,
standard-based desktops and servers. Purchasing orders for production
facilities are initiated when customers place orders thereby depleting
inventory levels on the shared website. This form of purchasing allows both
Dell and its suppliers to properly forecast, thereby maintaining low levels of
inventory and capital investment.

VI. Alternative Courses of Action

1. Focus on innovation

While many of its competitors are working feverishly to develop the

next generation of technology, Dell has been waiting. To date, the
firm's strategy has been to recreate technology. In many cases,
companies that do their own R&D are able to stay ahead of the
industry through the development of new products.
Putting more emphasis on R&D has some potential benefits. Through
increased R&D spending, Dell may be the first to introduce products to
market and establish first mover advantage. Dell's recognizable brand-
name would allow it to expand into new products and potentially create
insurmountable barriers to entry for its competition.
However, an increased emphasis on R&D would distance the company
from its core competencies. Increasing R&D changes its focus from
mass customization of mature products to smaller batches and product
introduction and growth. Additionally, it would force the company from
its direct sales model, as new products require multiple distribution
channels to ensure they are available to customers as quickly as
possible. Currently Dell's strength is the sales of mature products
through mass production, bringing quality and price without the cost of
R&D.

2. Divesting

As is the nature of many larger companies, Dell is competing in several

different product markets. Divesting products or services that the
company is not competing near the top of the market will increase
internal focus. Divesting of these assets or divisions could occur
through identifying a competitor and selling the business, or by
spinning a division into its own company.

The key benefit of this strategy is the improved focus on core business.
Stripping away these segments would enable Dell to become more
streamlined. Specifically, it would require all segments to work for
similar customer bases. Establishing a singular customer focus to each
employee allows Dell to leaps in product creativity and adds more than
value to its brand.

As a complete solutions provider, Dell is uniquely positioned to meet a

full range of customer needs. Divesting portions of their business,
especially in its growing infrastructure segment, could potentially limit
growth. Removing components from Dell's network will mean that as
business grows, Dell would utilize external resources to satisfy
customer's requests, limiting the effectiveness of Dell's competitive
advantage. A single Dell branded solution is more likely to position Dell
as a differentiated service company.

3. Reinvigorate Differentiation Advantage

This strategy encourages Dell to return to its core competencies and

calls for the company to ‘get back to basics.’ It pushes the company to
improve upon those competencies which helped differentiate it from the
beginning. Specifically, improvements will include the enhancement of
customer service, the addition of suppliers, new marketing campaigns,
the modification of retail sales and the expansion of turn-key solutions.
This strategy seeks to widen Dell's competitive advantage through the
further refinement of its existing core competencies.

Advantages of this strategy are considerable. Dell has long established

itself as a pioneer and expert in value-chain management. The
 improvements this strategy develops are located within the company’s
existing value-chain. Furthermore, Dell’s culture and structure is
specifically aligned to focus on improvements in these areas. Most
significantly, the suggested strategy does not force the firm reinvent
itself. Because improvements are limited to existing business
segments, Dell will not be required to produce or develop new product
lines.

The negative aspects of this strategy are worthy of mention. By solely

improving upon existing competencies, the company runs the risk of
becoming stagnant. The proposed strategy does not encourage the
addition of new products or services, potentially keeping the company
out of new and profitable markets. Stagnation in the technology
industry represents a significant risk and may cause degradation in the
firm’s signaling criteria. This may reduce the company’s premium price
and ultimately decrease profitability.

OBJECTIVES
To aid or to make To strengthen Dell’s To strengthen To Total
actions to the visibility and Dell’s position as strengthen
declining customer revitalize the the low-cost Dell’s
service and support company’s personal computer customiza
efforts of the marketing to the producer and tion
ACA
company other markets provider within the position
market

Focus on 1 1
innovation
2 3 7

Divesting 2 3
1 1 7

Reinvigorate
Differentiation
Advantage 3 3 2 2 10
VII. Recommendation

Dell considers customer service and support to be a key differentiator. The

company, which prides itself on this segment of business, has consistently
ranked number one in the industry. Not surprisingly, this segment
represents a significant and expanding revenue stream for the firm.
However, Dell’s lead in customer service and support has declined in
recent years. Declining training and the outsourcing of customer service
and support has damaged its reputation. To rectify this problem, Dell must
improve its customer service representatives’ selection process, ensuring
they are easily understood and well trained. By improving this segment of
business Dell can once again clearly differentiate itself from rivals HP and
IBM.

Dell’s hugely successful direct sales model has allowed its products to be
customized by customers. However, Dell maintains a single source
relationship with chip maker Intel which limits consumer choice. Those that
prefer to have PCs powered with chips are currently unable to do so. To
strengthen Dell’s customization position, the firm must offer increased
configuration choices through the establishment of additional supplier
relationships. There is however, one significant warning. Dell must pursue
relationships with only those suppliers that are able to integrate
seamlessly with Dell’s supply-chain. This strategy will allow Dell to offer
additional choices for its customers while maintaining production
efficiencies.

This strategy also recommends that Dell revitalize its marketing efforts to
target underserved markets within the U.S. while expanding its marketing
abroad into emerging and growing international markets. To strengthen
Dell’s visibility, it is recommended that Dell modifies its marketing focus.
Dell must develop marketing campaigns to position its PCs as
commodities that are necessary for everyday life.

The second marketing enhancement will be centered in emerging markets

where Dell’s direct sales model has several inherent limitations. For
obvious reasons, the model does not work well in markets which
customers do not have access to the internet or credit-cards. In these
markets it makes sense for Dell to expand its use of retail locations or
showrooms. To achieve success within emerging markets Dell must
combine its direct sales model with its learned experience from its retail
partnerships. This tactic calls for Dell to develop showrooms in which
displays are available for customers to test and use products before they
place an order. Once a customer has decided to purchase an item, they
may use an in-store phone or internet connection to place their order. As
in the traditional Dell model, customers may customize their product during
this process. This tactic allows Dell to bring its product to customers in
emerging markets while still maintaining its direct sales business model.
 To strengthen Dell’s position within the market, the company must improve
its focus on specific customer needs. Dell must improve its existing
services to provide reliable and predictable solutions around this segment
of business. Specifically, it is critical that the company design and deliver
services which offer superior quality and efficiency, while sustaining
customization for individual customer needs.

Financial Ratio Analysis

The table below compares Dell’s financial ratios to the personal

computer industry and to publicly held companies operating in the same
markets for the previous fiscal year. Bold values indicate better performance.
It is worth noting that Dell’s top management, since the mid 90’s, focused on
the return-on-invested capital (ROIC) as a key performance indicator (KPI).
This focus, managing profitability, made the company's stock a very attractive
investment; Dell’s ROIC and ROE are way above the industry’s and
competitors’ average. All other profitability ratios indicate good performance
and profitable operations. There is no major indicator of risk or weak
performance in Dell’s financials.

Comparative Financial Ratios Data

Dell Industr Market

y
Profitability Gross Profit Margin 18.3% 20.95% 48.23%
Pre-Tax Profit Margin 8.32% 8.50% 10.64%
Net Profit Margin 6.2% 5.71% 6.96%
Return on Equity 46.9% 26.80% 13.20%
Return on Assets 13.1% 10.40% 2.20%
Return on Invested 60.60 25.40% 6.50%
Capital %
Valuation Price/Sales Ratio 1.37 2.06 1.46
Price/Earnings Ratio 24.43 37.34 20.65
Price/Book Ratio 15.38 9.72 2.77
Price/Cash Flow Ratio 20.6 31.12 12.06
Operations and Days of Sales 32.29 30.46 50.53
Efficiency Outstanding
Inventory Turnover 107.2 67 7.5
Total Asset Turnover 2.12 1.9 0.3
 Net Receivables 12 11.9 7.2
Turnover
Financial and Current Ratio 1.2 1.53 1.41
Liquidity
Quick Ratio 0.9 1.3 1
Leverage Ratio 4.74 2.57 6.1
(asset/equity)
Leverage Ratio 0.1 0.06 1.35
(debt/equity)
Per Share Data Revenue Per Share 23.02 18.09 21.66
(dollars)
Diluted EPS from 1.29 1 1.53
Operations
Book Value Per Share 2.05 3.84 11.39
Growth 12-Month Revenue 14.60 9.20% 1.80%
Growth %
Source http://www.scribd.com

Unlike many competitors, Dell does not rely on debt to finance its
capital structure. This is contributed to cost cuts in operations and efficiencies
in manufacturing and inventory management. Dell also outperformed the
industry in terms of annual growth. It is wise though to lower future
expectations in light of recent reports of lower than expected growth rates and
net profits in the 3rd and 4th quarters of the previous year. Lastly, Dell does not
pay dividends to stockholders. Instead, Dell uses net income to fuel its
growth.