Strategic Management

MBA Course Code: Winter 16111

Dell Inc. Case

MBA Student Name: Sherif Ibrahim

Sidhom

Dr. Mahmoud A. Moursi

1

Dell Inc. Case

This company was undiversified Computer

.systems & Computer peripherals

:Situation Analysis -1
INTRODUCTION
Dell was founded in 1984 by Michael Dell, the computer industry's longest-tenured
chief executive officer, on a simple concept: that by selling computer systems
directly to customers, Dell could best understand their needs and efficiently
.provide the most effective computing solutions to meet those needs
This direct business model eliminates retailers that add unnecessary time and cost,
or can diminish Dell's understanding of customer expectations. The direct model
allows the company to build every system to order and offer customers powerful,
.richly-configured systems at competitive prices
Dell also introduces the latest relevant technology much more quickly than
companies with slow-moving, indirect distribution channels, turning over
.inventory every three days on average

HISTORY OF DELL
Dell grew through the 1980s and 1990s to become at one stage the largest seller
of PCs and servers
In 1992, Dell entered into the Fortune 500 list
In 1996, Dell began selling computers via its web site (Dell.com), generating $1
million in sales per day just six months after site is live
In 1999, Dell overtook Compaq to become the largest seller of personal
computers in US
In 2006, Dell was 25th in Fortune 500 list
Problem Identification
The problem with Dell Inc. was the rapid growth within the company in their
.beginning stages
COMPETITION IN PC INDUSTRY
The PC industry is driven by rapid technological improvements in components,
particularly microprocessors, other semiconductors, and storage devices
Two factors come into play in determining the ability of PC companies to manage
.inventory and introduce new products
The traditional distribution system of the PC industry is an indirect model often
referred to as the channel
Competitors
HPLenovoIBMToshibaAcer-

DELL BUSINESS MODEL

Dell operated as a pioneer in the configure to order approach to manufacturing
- delivering individual PC configured to customer specifications
To minimize the delay between purchase and delivery, Dell has a general policy
of manufacturing its products close to its customers
This also allows for implementing a just-in-time (JIT) manufacturing approach,
which minimizes inventory costs
Low inventory is another signature of the Dell business model - a critical
.consideration in an industry where components depreciate very rapidly

Key to successes... Minimum inventory

Build-to- order model Direct to sell Inventory management is primarily about specify the size and placement of .stocked goods

:Dells success is a combination of

.Direct Sales
Inventory Management
Supplier Integration Together these allow for maximum effectiveness with
.minimum cost
Customer Driven Innovation at Dell
Dell has continued to provide distinctiveness to the industry, giving new
products, pioneering critical developments and innovations in home, small
.business and enterprise computing
Dells R&D efforts now extend to all over other industries, driven by some of the
.industrys leading product designers and engineers
The focus point of Dells innovation approach remains an unwavering
commitment to delivering new and better solutions that directly address customer
.needs
Dell start their innovation process with asking their customers, What would you
really want this thing to do? Is there a different way to accomplish that? Then
?they meet with their suppliers and ask, Can we do this in a different way
.They learn from the feedback from customers and suppliers
Listen
Dell understands the necessity directly through tens of thousands of customer
interactions, organized events, social media venues such as communities and
.customer panels
Impact
Many innovations commence in-house, led by a global team of top engineers,
product designers and technical experts. Others begin as a team effort with Dells
.strategic partners

The mission is to deliver innovative and cost-effective solutions that meet todays
real-life customer challenges and work seamlessly in existing environments and
.with other products
Solve
Dell is uniquely positioned to impact industry trends. We maintain strong internal
development capabilities. We associate, rather than compete, with top industry
.technology suppliers and original development manufacturers
Acquisitions
Dell has grown by both increasing its customer base and through acquisitions since
its inception; notable mergers and acquisitions including Alien ware (2006) and
.Perot Systems (2009)
- :Notable Acquisitions
2006 Alien ware
2009 - Perot Systems
2010 - KACE Networks
2010 SaaS
2012 - Sonic Wall
2012 Wyse
PRODUCT LINE
Desktop computers
Notebook computers
Network servers
Workstations
Storage products
Dell offers a total of 1.6 million different possible product configurations for all
.its product lines
SUPPLIERS
MICROSOFT - for Windows
6

INTEL - for micro processors

NVIDIA - for Graphic chips
SONY - for monitors
Core elements of strategy
Mass customization (end result: Delivers exactly what the customer wants)
Partnerships with suppliers
Just-in-time components inventories (Quick Introduction of Latest Technology)
Direct sales
Market segmentation
Customer service
.Extensive data and information sharing with both supply partners and customers

Researching Internal and External Factors

Dell's strengths were oriented around listening to the customers, responding to the
customers, and delivering what the customer wanted. The direct relationship was

first through telephone calls, then through face-to-face interactions, and now
.through the internet
It has enabled them to benefit from real-time input from real customers regarding
products and future products they would like to see developed. The company also
doesn't use reseller or retail channels because every computer is built-to-order,
.which allows less inventory
The direct model allows them to take the pulse of whatever market and provide the
.right technology for the right customers
Dell Inc. weakness was cell manufacturing because their assembled computers
.were being shipped five to six days after the order was placed
It is an inconvenience for the customers to always send their computer away to
.have it repaired
.First, they are left without internet access
Second, the time it reaches Austin, Texas, have it repaired, and shipped back can
take days. The company opportunities were the Dell U.K. that open business in
.1987 and in that country it was a lot of companies selling cheap computers
Dell Inc. strides on loyalty among customers and employees, and that could only
be derived from having the highest level of service and performing products.
Segmentation within the company enables them to measure the efficiency of the
business in terms of assets use. Dell Inc. evaluates their return on invested capital
in each segment, compare it with other segments, and target what the performance
.of each should be
It became a great way to identify what needed to happen for them to reach their
full potential in each business. The threat within the company started with selling
.indirect to retail channels like Comp USA, Price Club, and Sam's. Dell Inc
didn't have an idea as to whether or not they actually were making money on those
.companies. Inventory was also a threat because it depressed their earnings

In fiscal 2006, worldwide Dell Inc. reached 40.7 billion and the sales were stronger
outside the United States. They ended the fiscal 2006 with $11.7 billion in cash and
investments. Dell moved ahead of IBM into second place during 1998 and became
the world leader in 2003 to 2005. Their competitors are Hewlett Packard,
IBM/Lenovo, and Gateway. Dell Inc. has conquered success in global countries
like Japan, Latin, and China. It's was very important to Dell Inc. that they became
.the leading market in China because of competitor Lenovo
The R&D focus of Dell Inc. was to find out new technology coming into the
market. Dell Inc. also cares about the customer needs and problem so their
products can be more cost effective. The also take pride in their customer service
and technical support teams because it makes the customer feel their inquiries or
.difficulties were important
Advertisements through big name computers magazines, newsletters, and via
.internet boost their business
It gave existing and new customer knowledge and interest in purchasing their
products. Dell Inc. has competition with HP because they have an advantage with
their printers. IBM customer service and technical support has better performance
than Dell Inc. They also have an advantage because IBM global market acquired
.Lenovo, which is the number one computer maker in China
.Gateway markets in the Mexican retail
The new entrant within the industry would be the wireless mouse and modem. The
computers that are unbranded are less expensive for the customers who can't afford
.Dell computers
Customers also have friends and family that can build computers from scratch.
.Gateway has stores locally where customer can have their computers repaired
There are Dell knock-off brands that are sold for a lower price on E-bay or internet
websites. Instead of purchasing computers customer are purchasing TiVo and
.machines that can be attach to the television for internet access

Dell Inc. has a four day supply inventory average. Some customers and companies
need their products right away. The partnerships with some suppliers may ruin Dell
.name because some products are not inspected
The downfall of HP reselling their printers to Dell Inc. was they decided to take
.over the printer market and increase their sales
Issues
-Competing Value Chain Models in the Global PC Industry
Develop key components in-house and outsource the non-critical items.
Companies emerged that specialized in making particular components.
Makers had begun to abandon vertical integration in favor of a strategy of
outsourcing most all components from specialists and concentrating on efficient
assembly and marketing their brand of computers.
Declining PC Prices and Intense Competition
Sharp drops in the prices of a number of PC components had allowed PC makers to
dramatically lower PC prices.
The low prices were attracting first-time buyers into the market and were also
causing second-and third-time PC buyers looking to upgrade.
Unexpected shortages of certain key components drove up prices for these items,
but the shortages were expected to last only until suppliers could gear up
production levels.
Industry analysis: analyzing the task environment
A strategic group: is a set of business units or firms that "pursue similar strategies
with similar resources". Categorizing firms in any one industry into a set of

10

strategic groups is very useful as a way of better understanding the competitive

environment.
Business units belonging to a particular strategic group within the same industry
tend to be strong rivals and tend to be more similar to each other.
Dell has a great deal in common with hp, apple and IBM in terms of their similar
strategy.
In analyzing the level of competitive intensity within a particular industry or
strategic group it is useful to characterize the various competitors for predictive
purposes. A strategic type is a category of firms based on a common strategic
orientation and a combination of structure, culture, and processes consistent with
that strategy.
This distinction helps explain why companies facing similar situations behave
differently and why they continue to do so over long periods of time.
In this kind of firms are analyzers that operate in at least two different productmarket areas, one stable and one variable. In the stable areas, efficiency is
emphasized. In the variable areas, innovation is emphasized.

11

Dell value chain analysis

12

Industry Attractiveness Tool

It is vital to understand the underlying competitive factors in the industry sector in
which your company operates. You need a clear understanding of the attractiveness
of your industry and your companys position within this industry.
Industry Attractiveness

A detailed industry analysis is a massive task, taking many months to complete.

For your industry, you need to judge the level of detail required. There are a wide
range of groups that provide an information source:
Industry observers
your employees
Service providers
Customers
Suppliers

13

From this information, you can begin to look at industry attractiveness. A number
of standard attractiveness criteria can be used to determine general industry
attractiveness. The criteria that I use are as follows:
Growth
Size
Profitability
Competitive structure
Market diversity
Cyclicality
Community risk
It is almost impossible to find an industry that has high positive attractiveness in
every one of these areas, but an analysis of each area will give you a balanced view
of the attractiveness of your industry. The analysis will also help you in defining
strategies to manage any less attractive components of your industry. I will now
take you through the thought processes to assess your industry with respect to these
criteria.
1-Growth
Growth potential is not just about individual products or services. It is about
understanding the factors that drive demand for your range of products or services
that is your product sector or service sector. Understanding these factors will allow
you to determine the growth potential of your business. You will need to
understand the typical consumers of your products or services and any factors that
influence a growth or reduction of consumers. Some typical factors could be the
following:
Demographic trends
Social trends
Technology trends

14

Demographic trends refer to changes in age profiles, sex, geographic movements,

etc. For example, if people above fifty-five mainly use your services, then your
growth potential is probably high, given that the percentage of people above fiftyfive continues to increase every year. You are part of a growing industry.
Social trends refer to changes in the mix of work and leisure or changes in the
typical activities people perform in their lives.
Technology trends in this context refer to the introduction of new mass technology
that allows people to conduct activities that were otherwise technically impossible
or too expensive. For example, if your business is directly related to the number of
personal computers, or the number of Internet connections, then your growth
potential is probably high, given the increasing mass availability of this
technology. You again are part of a growing industry.
From an attractiveness point of view, industries whose future growth predictions
exceed average gross domestic product (GDP) growth are obviously the winners. A
simple categorization of growth can just be the following:
Low (below GDP)
Medium (at or slightly above GDP) or
High (obviously above GDP)
2-Size
Industry size is an important criterion. Once an industry reaches substantial size, it
allows a diversity of competition. It encourages supermarket style, base product
companies, technical innovators, geographic-based companies and single product
companies all to participate in the market. This provides wider customer choice
and different strategy options for companies.
The actual size in revenue an industry needs to reach to have the right critical mass
to promote diversity of competition will depend on the capital intensity of the

15

industry. The lower the capital required to enter an industry, the lower the revenue
base required for an individual company.
A prospective owner of a capital intensive manufacturing business would need to
consider national and perhaps international requirements for their products to
ensure they can develop a high enough revenue base. A simple categorization of
size can just be
Below target or
above target (the size at a critical level for a competitor to enter)
3-Profitability/Returns
Fundamentally attractive industries are those where the average return on funds
employed (ROFE) is greater than the average cost of funds. The bigger the
difference, the more attractive an industry is. In these industries, wealth is being
created. Of course, risk and return are related, and the higher the return, the greater
the risk. To calculate ROFE, simply divide earnings before interest and tax (EBIT)
by total funds employed and multiply by hundred to make a percentage.
Unfortunately, an analysis of the last ten years of a number of mature
manufacturing industries would show the average ROFE at less than the average
cost of funds. These industries have not been attractive. It does not mean that the
particular companies at the top of the industry cannot earn acceptable returns, but it
does mean that a lot of companies are not earning acceptable returns.
Over the last decade, we would discover that a lot of service industries would have
attractive returns significantly above their cost of funds. If we examined recent
figures for some new high technology or Internet-based businesses, we might find
unattractive returns.
For these industries, we would need to make a judgment about their future
attractiveness over the next decade as their market grows significantly.
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A simple categorization of profitability can just be the following:

Low (below average cost of funds)
Medium (at or slightly above average cost of funds) or
High (obviously above average cost of funds)
4-Competitive Structure
Understanding industry competitive structure is a fundamental part of strategic
analysis. There are key structural features of industries that determine the strength
of competitive forces and hence industry profitability. There are three fundamental
areas that influence the competitive structure of your industry. They relate to the
level of aggression displayed by your existing competitors, the potential for new
competitors and the influence up and down your supply chain. The following
diagram illustrates the forces driving industry competition.
5-Market Diversity
The more diverse the range of market segments covered by your industrys
products, the more attractive your industry is. An industry is open to significant
risk if its fate rests with a single market segment. The attractiveness of market
diversity comes from the fact that different segments will have different growth
rates and different demand cycles. This can smooth out the demand for products
and allow a more efficient use of resources.
For this factor, we can apply a simple rating of
Low (less than three segments),
Medium (three to five segments) or
High (greater than five segments)

6-Cyclicality
Cyclicality, to some extent, is related to market diversity. The more extreme the
cyclical nature of demand for an industrys products, the less attractive the industry
17

is. The cyclical nature of demand can make it very difficult to organize resources.
This area can have a simple rating of
Low (no obvious cycles)
Medium (minor smooth cycles) or
High (obvious repetitive cycles)
7-Community Risk

The severity of laws and demands on industry with respect to occupational health
and safety and environmental compliance will only become harsher over the next
few years. Industries are obviously more attractive if they have little risk in this
area.
Manufacturing industries are particularly at risk from occupational health and
safety and environmental factors. Excellent systems and expertise of staff can
overcome these risks, and in some industries, a particular company with skills in
this area can have a competitive advantage.
For a new entrant, the need for these systems and skills can be a significant barrier
to entry.
This characteristic of industry attractiveness can have a simple rating of:
Low (very low risk of a major incident)
Medium (some risk of a major incident)
High (risk of a major incident every few years).
Now it is time to use all the discussion points mentioned above about industry
attractiveness to gain an overview of a particular industry.
The table below is a notional industry attractiveness summary for a business. It
lists the factors for industry attractiveness. It then gives a rating for a notional
industry. It also gives the ideal attractiveness rating for each factor.
18

From this table, one can get a balanced view of the attractiveness of the industry.
Although it doesnt reach the ideal on every factor, the example industry is
generally on the attractive side.

Industry Attractiveness (Notional Services Industry)

Attractiveness Factor
Comment

Industry Rating

Ideal Rating

------------------------------------------------------------------------------------------------------------------------------------Growth

High
High
population, complex advice
(?Does the industry growth potential exceed GDP growth )

ageing

Size

Above Target
above Target
wide range of providers
(?Is there enough size in the industry for diversity of competition )

there is a

------------------------------------------------------------------------------------------------------------------------------------Profitability

Med
High
firms make reasonable but not high
returns, niche potential
(?Do the average returns on wall products exceed the average cost of funds )

Similar

------------------------------------------------------------------------------------------------------------------------------------Competitive Structure

Strong
competitor rivalry, Strong customer influence
Need reputation
advantage
(?Is the industry highly competitive)

Weak

Major

------------------------------------------------------------------------------------------------------------------------------------Market Diversity

Med
High
four market segments
(?Are there a lot of market segments that spread the risk)

Operate in

------------------------------------------------------------------------------------------------------------------------------------Cyclicality

Med
exist in the industry
(?Are there extreme cycles in the industry)

Low

Minor cycles

-------------------------------------------------------------------------------------------------------------------------------------

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Community Risk

Low
risks
(?Are there major O H and S or environmental risks )

Low

No major

---------------------------------------------------------------------------------------------------------------------

Key Conclusions
The industry is moderately attractive, but niche firms with unique characteristics
could enjoy high returns.
CRITICAL SUCCESS FACTORS
DELLs direct-to-customer business model is the key to the companys dramatic
growth and success and has focused on selling directly to customers. This helps
eliminate the middleman and offers customers more powerful configured systems
than most competitors. The direct model enables DELL to develop a thorough
understanding of customer expectations which strengthens customer relationships
and increases customer satisfaction and loyalty.
One of the characteristics that distinguish DELL from its other competitors is that
DELL provides the mode to custom the computers of the customers choice and
taste and delivers the system to the customer as it is the most crucial and critical
success factor behind DELL Computers. Therefore, DELL must be aware of the
benefits they wish to realize, how it will be realized and ensure only investments of
appropriate amounts of resources to obtain benefits. DELL relies on reputation in
the US market of award-winning service and a high-quality product.
Customer satisfaction and consumer awareness surveys should be conducted
quarterly to ensure the image that DELL creates for itself within a culture has not
existed before there is a positive one. Market timing and speed are critical to many
industries, such as technology, pharmaceuticals, and some consumer goods.
DELLs competencies are their cost/ strategy. In consistent to being an integrated

20

cost leader, DELL produces high quality PCs by using their Direct Business Model
approach and sells them directly to the customers.
DELLs weaknesses are single sourcing, new product and reliance on corporate
clients. DELL has opportunities like the potential growth in overseas markets as
the industry is still in growth phase and the entering of the new product markets.
Henceforth, the threats are technological changes that are expected since
technology can only get better. Global economy and increased competition in
which DELLs financial ratios identifies that the company is no match for their
competitors.
DELLs most competitive force is the Direct-Model concept which helped them to
reach above-average returns and remains in business today. Customers have
developed a brand-name loyalty to Dell because of their low cost differentiation
strategy.
The huge threat faced by DELL is the fierce competition in the industry. If DELL
enters into a merge it would not have to spend so much money and time trying to
develop a face-to-face communications, if the local business is already well
known. According to cost saving benefits, the company will not have to spend any
extra money for product development if it is already developed. Furthermore, there
will be plenty of joint financial support.
If there is synergy between the two companies, their market penetration will be that
much easier to achieve. DELL initiated ways to overcome its weaknesses and use
its strengths to gain advantages over its competitors- by careful analyzing of the
factors that contribute to the companys success in business strategies that had
implemented created the path for the companys continued success.
BEST COMPETITIVE STRATEGY

21

The best competitive strategy is not to directly engage in a fight. Just as in legal
disputes, there is often a high risk-adjusted cost in waging price or market-share
battles, the same as in litigation. Competition, a combination of the words
cooperation and competition, has become quite popular in recent years.
Many companies understand the vicious cycle of "trading" customers at lower and
lower margins in order to gain market share or win on price. In terms of designing
a competitive intelligence system, it doesn't have to be overly complex. You first
need to define the competitive areas that are important at an offering, market and
company level. Second, make someone accountable for monitoring each area.
Third, determine the best sources to collect info competitor Web sites, trade
journals, press releases, financial reports, etc.
Finally, create a few pro forma competitive intelligence reports that you can use to
evaluate and track trends and material changes. Dells ability to change prices and
delivery times on the fly has been leveraged effectively to manage demand based
on component availability over the common components.

22

:Dell 5 forces analysis

Threat of New Entrants: MODERATE
Low capital investment for independent storesLow product differentiation-Brand name may be a barrier to entryLow economies of scaleNo legal or governmental barriersDecreasing profitability shows that there is a threat of new entrantsRivalry: HIGH
High concentrationPrice War: Low MarginDecreasing profitabilityLow differentiationHowever, in the midst of sever competition, Dell can still gain market share from- .their competitors. That proves Dells business strategies have been successful
Threat of Substitutes: LOW

23

Strong presence of PCs throughout society.One computer for every three people in the U.S.Only substitute for PC: Apple ComputerHowever, high price, and lack of software support prevent people from switching
.to Apple system
Bargaining Power of Buyer: High
Highly price sensitive.Reliability and customer service become important factorsDells products are very reliable and customer service is outstanding. These two factors help Dell to create certain brand royalty. But thats given the fact that the
Company set the prices very low. If the prices are raised too high, customers will
.not hesitate to switch
Bargaining Power of Suppliers: HIGH
Large number of suppliers for components like hardware, keyboards, etc. But two major inputs are monopolized
Microsoft standard for all PCsIntel standard for most PCsHigh switching costs-

SOWT Analysis
:Strength
Direct Model Approach, it provides Dell away to interact to customers' directly .1
Customization of products .2
Reliability, Service and Support .3
Latest Technology .4
:Weakness

24

Market share growth is slow due to competition; Fake products/ imitations affect .1
sales
.Overdependence on Suppliers .2
.Lack of Dell Stores, can be an issue for some customers .3
:Opportunity
With increase in e-commerce the online retail stores of Dell provide them better .1
framework to tap new business
The Direct approach Model of Dell would help them there existing to sell the .2
other IT products, so new product development opportunity is for Dell
.Tablet and Smart phone Market .3
:Threats
With the increase in innovation in the market the computer systems are .1
becoming outdated, so Dell should constantly come out with new products
People need the quality products at low price which was Dell strength due to it's .2
customize solution, but now its competitors are coming up with products in same
.price range

:Financial position Analysis -2

25

First, heres the companys gross margin split between Products (hardware) and
Services (software). Dell has been making a push into enterprise offerings in recent
years, where gross margins are significantly higher. While we already know Q4 is

26

going to be ugly as far as unit shipments, Dells performance through Q3 looked

good on the gross margin front. The revenue split between the two categories was
78.7% Products to 21.3% Services as of Q3 2013. Thats a shift from fiscal year
2010, the first year the company split revenue into those two categories. In FY
.2010, the split was 82.6% hardware, 17.4% software
Thats not a lot to show for $13B in acquisitions, but integrating new products and
services takes time. How about net income the amount of money left over when
?the bills are paid

By objective standards, these margins are pretty terrible. Our net margin figures
include software products, and we doubt its an accident that the figures look the
way they do. Margins are steady in FY 2007 and 2008, than plunge in FY 2010
27

(thats calendar 2009), right as netbook sales go through the roof. The recent gains
are driven by higher revenue from services and some average sales price (ASP)
.recovery as netbook sales dwindled
While its true that Dells margins are objectively lousy, they arent terribly out of
line with what other PC OEMs make from consumer products sales. Everyone is
.going to take a hammering on Q4, not just Dell
Dells real problem is that its known primarily for cheap computers instead of
innovative ones. Its focus on supply chain management and streamlining have left
precious little room for creating the kinds of computing experiences that drive
Apples high margins. The many acquisitions since 2008 have led to charges that
the company is poorly differentiated. But a private equity bid without a new
.business plan isnt going to fix any of those issues

Financial position analysis 2013

28

Growth Rates of DELL's Income Net Income 5 Year Avg. Growth

29

20142009
DELL Operating Income Growth Rates Comparisons

Company

Industry

Y / Y Operating Income Change (

-69.81 %

47.92 %

Seq. Operating Income Change

20.35 %

-13.86 %

-53 %

-6.05 %

-26.06 %

7.57 %

-2.62 %

18.21 %

Y / Y Operating Income Growth (

Seq. Operating Income Growth

Operating Income 5 Year Avg. Change

Income from Cont. Ops. Growth Rates Comparisons

Y / Y Income from Cont. Ops. Change (

Company

Industry

-72.13 %

82.02 %

56.92 %

-16.65 %

Y / Y Income from Cont. Ops. Change

-55.72 %

-5.67 %

Seq. Income from Cont. Ops. Change

-28.28 %

10.99 %

-4.25 %

18.91 %

Income from Cont. Ops. 5 Year Avg. Change

DELL Net Income Growth Rates Comparisons

Company

Industry

Y / Y Net Income Growth

-72.13 %

82.02 %

Q / Q Net Income Growth

56.92 %

-16.65 %

Y / Y Net Income Change

-55.72 %

-5.67 %

Seq. Net Income Change

-28.28 %

10.99 %

30

Net Income 5 Year Avg. Growth

-4.25 %

18.91 %

Dell Profitability Comparisons

DELL Profitability Ratio

Company

Industry

Gross Margin (

18.53 %

34.75 %

Gross Margin

20.16 %

35.44 %

19.52 %

34.31 %

EBITDA Margin

4.13 %

19.14 %

EBITDA Margin

5.39 %

19.99 %

EBITDA Margin 5 Yr. Avg.

7.1 %

19.31 %

Operating Margin (

1.87 %

14.81 %

Operating Margin

3.15 %

15.88 %

5.47 %

15.63 %

Pre-Tax Margin (

1.51 %

14.57 %

Pre-Tax Margin

2.8 %

15.83 %

5.31 %

15.41 %

1.41 %

11.03 %

Gross Margin 5 Yr. Avg.

Operating Margin 5 Yr. Avg.

Pre-Tax Margin 5 Yr. Avg.

Net Margin (

31

Net Margin

Net Margin 5 Yr. Avg.

Ratio

C. Ratio=C.A./C.L
G. Margin=G.
profit /sales
Operating Margin
=operating
income/sales
Net Margin=net
income/sales

Dept.
Ratio=L./A.
Dept. to
Equity=L./E.
Inventory
turnover=COGS/In
ventory

2.36 %

11.68 %

4.17 %

11.62 %

201 201 201 Indust Comme

1
2
3
ry
nt
Avera
ge
1.8 1.3 1.1 1.9% Poor
4
3
9
18. 22. 21.
Poor
34.31 %
53
25
4
5.5 7.1 5.2
Poor
15.63
%
8
4
9
4.2 5.6
8
3
0.8 0.8
1
.
1.0
077 4
42. 35.
6
68

4.1
7
0.7
7
0.8
5
32.
13

11.62 Poor
%

32

Financials
TTM

Revenue USD
Mil
Gross Margin
%
Operating
Income USD
Mil
Operating
Margin %
Net Income
USD Mil
Earnings Per
Share USD
Dividends
USD
Payout Ratio
%
Shares Mil
Book Value
Per Share
USD
Operating
Cash Flow
USD Mil
Cap Spending
USD Mil
Free Cash
Flow USD Mil
Free Cash
Flow Per
Share USD
Working
Capital USD
Mil
Key Ratios ->
Profitability
Margins % of
Sales
Revenue
COGS
Gross Margin

2013

2012

2011

2010

2009

2008

2007

2006

2005

56,6
23

56,9
40

62,0
71

61,4
94

52,9
02

61,1
01

61,1
33

57,4
20

55,9
08

49,2
05

20.2

21.4

22.3

18.5

17.5

17.9

19.1

16.6

17.8

18.3

1,78
5

3,01
2

4,43
1

3,43
3

2,17
2

3,19
0

3,44
0

3,07
0

4,34
7

4,25
4

3.2

5.3

7.1

5.6

4.1

5.2

5.6

5.3

7.8

8.6

1,33
9

2,37
2

3,49
2

2,63
5

1,43
3

2,47
8

2,94
7

2,58
3

3,57
2

3,04
3

0.76

1.35

1.88

1.35

0.73

1.25

1.31

1.14

1.46

1.18

0.32

0.16

41.9
1,75
5

5.4
1,75
5

1,85
3

1,95
5

1,96
2

1,98
6

2,24
7

2,27
1

2,44
9

2,56
8

6.13

5.86

4.96

4.05

2.57

2.14

1.67

1.94

1.75

2.61

4,42
3

3,28
3

5,52
7

3,96
9

3,90
6

1,89
4

3,94
9

3,96
9

4,83
9

5,31
0

-573

-513

-675

-444

-367

-440

-831

-896

-728

-525

3,85
0

2,77
0

4,85
2

3,52
5

3,53
9

1,45
4

3,118

3,07
3

4,111

4,78
5

1.77

2.62

1.8

1.57

0.86

1.39

1.35

1.68

1.86

4,52
9

7,44
7

9,53
8

5,28
5

5,29
2

1,35
4

2,14
8

1,77
9

2,76
1

2013
100

2012
100
77.7
5
22.2
5

2011
100
81.4
7
18.5
3

2010
100
82.4
9
17.5
1

2009
100
82.0
7
17.9
3

2008
100
80.9
1
19.0
9

2007
100
83.4
3
16.5
7

2006
100

2005
100
81.6
8
18.3
2

TTM
100
79.8
4
20.1
6

78.6
21.4

82.2
17.8

33

SG&A
R&D
Other
Operating
Margin
Net Int Inc &
Other
EBT Margin
Profitability
Tax Rate %
Net Margin %
Asset
Turnover
(Average)
Return on
Assets %

14.8
7
2.14

14.2
3
1.88

13.7
3
1.38

11.87
1.07

12.2
2
1.18

11.62
1.09

12.3
3
1
0.14

10.3
6
0.87

9.19
0.83

8.73
0.94

3.15

5.29

7.14

5.58

4.11

5.22

5.63

5.35

7.78

8.65

-0.35
2.8

-0.3
4.99

-0.31
6.83

-0.13
5.45

-0.28
3.83

0.22
5.44

0.63
6.26

0.48
5.83

0.41
8.18

0.39
9.03

TTM
15.6
8
2.36

2013
16.5
1
4.17

2012
17.6
4
5.63

2011
21.3
4
4.29

2010
29.2
2.71

2009
25.4
5
4.06

2008
22.9
9
4.82

2007
22.7
8
4.5

2006
21.9
1
6.39

2005
31.5
4
6.18

1.26

1.24

1.49

1.7

1.76

2.26

2.3

2.36

2.41

2.31
14.3
1

2.98

5.15

8.4

7.29

4.76

9.17

11.08

10.6

15.4
2

Financial
Leverage
(Average)
Return on
Equity %

4.25

4.45

4.99

4.97

5.97

6.2

7.38

5.92

5.6

3.58

13.0
5

24.2
1

41.8
6

39.3
1

28.9
1

61.9

73.1

61.0
9

67.3
1

47.6
8

Return on
Invested
Capital %
Interest
Coverage

8.28

13.2
5

22.8
9

23.4
6

19.3
2

45.5
1

55.2
7

47.11

61.4
6

44.1
8

7.33

11.52

16.2

17.8
3

13.6
5

Lates
t Qtr

2013

2012

2011

2010

2009

2008

2007

2006

2005

-8.27

0.94

16.2
4

-13.4

-0.05

6.47

2.7

2.48

0.53

0.2

-2.69

3.01

7.5

11.48

-1.41

1.57

1.92

1.46

4.87

7.13

6.79

7.67

8.07
12.8
5

11.54
17.3
7

13
22.1
6

-32

29.0
7

58.0
6

-31.9

-7.27

12.0
5

29.3

Key Ratios ->

Growth
Revenue %
Year over Year
3-Year
Average
5-Year
Average
10-Year
Average
Operating
Income %
Year over Year

0.21

-69.8

34

3-Year
Average
5-Year
Average
10-Year
Average
Net Income %
Year over Year
3-Year
Average
5-Year
Average
10-Year
Average
EPS %
Year over Year
3-Year
Average
5-Year
Average
10-Year
Average
Key Ratios ->
Cash Flow
Cash Flow
Ratios
Operating
Cash Flow
Growth % YOY
Free Cash
Flow Growth
% YOY
Cap Ex as a %
of Sales
Free Cash
Flow/Sales %
Free Cash
Flow/Net
Income

11.51

11.58

-0.07

-10.9

-9.8

-6.83

-4.67

-2.62

7.62

-4.61

-12.6

-2.08

11.41

0.58

9.49

2.57

-0.41

4.54

3.88
10.0
9

32.5
2

83.8
8

-42.2

-15.9

14.0
9

27.6
9

12.11

-3.66

-17.8

-11.5

-1.06

-0.79

6.22
10.8
6

-5.9

-14

-1.3

1.93

-1.5

5.43

6.79
12.0
6

15.7
17.4
3

14.9
1

21.9
2

-32.1
18.2
9
-4.25
1.12

-71.4

5.37

39.2
6
14.5
7
10.5
2
15.1
2

2013

2012

-28.2
22.7
5
0.6

TTM

-40.6

39.2
5

84.9
3

-41.6

-4.58

1.01

-13.8

-5.04

-1.55

-9.16

4.36

5.5

1.81

2011

2010

15.7

4.12

8.96

3.55
10.3
7
15.1
4

2009

2008

2007

-0.5

17.9
8

19.9
20.9
6

2006

2005

1.61

106.
2

-42.9

37.6
5

-0.4

143.
4

-53.4

1.46

25.2
5

1.01

0.9

1.09

0.72

0.69

0.72

1.36

1.56

1.3

1.07

6.8

4.86

7.82

5.73

6.69

2.38

5.1

5.35

7.35

9.72

2.88

1.17

1.39

1.34

2.47

0.59

1.06

1.19

1.15

1.57

-52

Key Ratios ->

Financial
35

Health
Balance Sheet
Items (in %)
Cash & ShortTerm
Investments
Accounts
Receivable
Inventory
Other Current
Assets
Total Current
Assets
Net PP&E
Intangibles
Other LongTerm Assets
Total Assets
Accounts
Payable
Short-Term
Debt
Taxes Payable
Accrued
Liabilities
Other ShortTerm
Liabilities
Total Current
Liabilities
Long-Term
Debt
Other LongTerm
Liabilities
Total
Liabilities
Total
Stockholders'
Equity
Total
Liabilities &
Equity

Lates
t Qtr

2013

2012

2011

2010

2009

2008

2007

2006

2005

25.7
9

26.8
8

33.2
7

37.2
2

32.7
1

34.3
1

28.9
2

40.1
7

39.2

42.2
4

21.1
9
3.2

20.7
2.91

22.0
1
3.15

26.2
6
3.37

25.3
9
3.12

24.3
1
3.27

27.9
1
4.28

24
2.57

23.5
9
2.49

19.0
1
1.98

8.39

8.34

7.69

8.34

10.8
3

14.1
5

11.01

11.04

11.34

9.55

58.5
7
4.82
26.6
9

58.8
3
4.47
26.6
7

66.1
3
4.77
17.2
8

75.1
9
5.06
15.1
8

72.0
5
6.48
17.1
4

76.0
4
8.59

72.1
3
9.68

77.7
8
9.4

76.6
2
8.68

72.7
8
7.28

9.29

8.81

9.92
100

10.0
3
100

11.82
100

4.57
100

4.33
100

6.08
100

9.38
100

12.8
2
100

14.7
100

19.9
3
100

26.2
7

24.3
6

26.1
7

29.2
6

33.8

31.3
5

41.7

40.6
9

42.5
8

38.3
2

5.96

8.08
1.7

6.44
0.97

2.2
1.37

1.97

0.43

0.82

0.73

7.97

3.52

3.6

9.46

11.54

5.83

6.97

10.8
1

26.3
4

22.5
8

9.4

11.64

12.2
2

8.18

9.03

18.4
6

17.7
4

17.1
8

49.6
1

49.3

56.3
4
10.1
5

67.2
2

69.4

68.9
2

60.8
9

11.03

50.4
8
13.3
3

56.0
7

8.88

49.4
14.3
4

7.16

1.31

2.22

2.18

2.18

18
76.5

17.2
77.5
3

16.2
3
79.9
8

16.0
7
79.8
8

16.7
4
83.2
4

20.6
5
83.8
8

17.9
2
86.4
5

11.5
83.1
2

11.03
82.1
3

9
72.0
7

23.5

22.4
7

20.0
2

20.1
2

16.7
6

16.1
2

13.5
5

16.8
8

17.8
7

27.9
3

100

100

100

100

100

100

100

100

100

100

36

Liquidity/Fina
ncial Health
Current Ratio
Quick Ratio
Financial
Leverage
Debt/Equity
Key Ratios ->
Efficiency
Ratios
Efficiency
Days Sales
Outstanding
Days
Inventory
Payables
Period
Cash
Conversion
Cycle
Receivables
Turnover
Inventory
Turnover
Fixed Assets
Turnover
Asset
Turnover

Lates
t Qtr
1.18
0.95

2013
1.19
0.97

2012
1.34
1.12

2011
1.49
1.26

2010
1.28
1.03

2009
1.36
1.05

2008
1.07
0.85

2007
1.12
0.92

2006
1.11
0.91

2005
1.2
1.01

4.25
0.38

4.45
0.49

4.99
0.72

4.97
0.66

5.97
0.61

6.2
0.44

7.38
0.1

5.92
0.13

5.6
0.12

3.58
0.08

2013

2012

2011

2010

2009

2008

2007

2006

2005

38.1
3
10.2
3
86.7
8

36.5
9

36.4
6

31.9
4

31.5
9

27.6
9

27.7
6

29.8
5

8.57
82.5
7

8.02
82.3
1

7.45
72.0
7

6.79
80.8
9

4.71
77.2
2

4.11
74.4

3.57
73.6
1

42.5
3

40.1
9

TTM
43.2
5
12.4
5
93.8
4

42
11.36
94.7
5

-38.1

-41.4

-38.4

-37.4

-37.8

-32.7

-42.5

44.8
3

8.44

8.69

9.57

9.97

10.0
1

11.43

11.55

13.1
8

13.1
5

12.2
3

29.3
3

32.1
3

35.6
8

42.6

45.5
1

48.9
9

53.7
6

77.5
1

88.8
1

102.
3

26.5
2

26.8

30.4
5

29.7
5

23.7
3

24.7
1

24.0
8

26.0
2

30.2
5

30.6
8

1.26

1.24

1.49

1.7

1.76

2.26

2.3

2.36

2.41

2.31

:Strategies
A strategy of a corporation forms a comprehensive master plan that states how the
corporation will achieve its mission and objectives. It maximizes competitive
.advantage and minimize competitive disadvantage
:The typical business firm usually considers three types of strategy
Corporate strategy : Stability , growth and retrenchment

-1

.Business strategy: competitive and cooperative strategies

-2

37

.Functional strategy: Resource productivity

-3

.Business firms use all three types of strategy simultaneously

A hierarchy of strategy is a grouping of strategy types by level in the organization.
Hierarchy of strategy is a nesting of one strategy within another so that they
.complement and support one another

38

Dell Marketing Strategy

Product diversification is a key strategy for Dell as it seeks to maintain a
competitive advantage in the declining PC market. Dell needs to restructure its
core business priorities and develop new structures that can help it to gain
leverage in a highly competitive industry. It needs to develop a comprehensive
strategy, which can be based upon achieving key targets through the focus on
innovation and creativity. The development of a comprehensive approach is
essential because it can lead to competitive advantage in the future. Product
diversification should focus on smart phones; tablet PCs, software, storage
management solutions, enterprise services, and supercomputers, which can help
the organization to attain growth within short periods of time. Dells corporate
branding strategy is also essential because it must be restructured so that it helps to

39

target home users as well as corporate users. It should create a competitive

strategy, which should help it to offer value proposition to its customer. Dells key
competitive advantages, which include a lean, supply chain management system
and lowered costs through its direct distribution model, need to be reinvented so
.that they can offer value added services to home users
Manufacturing Strategy
Depends on The cost leadership strategy and competitive strategy by introduce low
.cost product with high value customer

40

41

42

:Customer perceived value

The difference between the prospective customer's evaluation of all the benefits
.and all the costs of an offering and the perceived alternatives
:Alternatives functional strategic options
Firms that occupy second, third and lower ranks in an industry are often called
.runner-up or trailing firms
These firms can attack the leader and other competitors in an aggressive bid for
further market share as market challengers or they can play ball and not "rock the
.boat" as market followers
:Market-challenger strategies
:General attack strategy
Frontal attack
Flank attack

-1
-2

Encirclement attack
Bypass attack

-3

-4

:Specific attack strategy

Price-discount

-1

Product proliferation

-2

Product innovation

-3

Improved services

-4

Intensive advertising promotion

-5

.Good marketing is no accident, but a result of careful planning and execution

A company can win only by fine-tuning the value delivery process and choosing,
.providing and communicating superior value
:Pricing strategy in marketing
Is the pursuit of identifying the optimum price for a product. This strategy is
combined with the other marketing principles known as the four P's (product,
.place, price, and promotion)
43

Pricing is one of the most important elements of the marketing mix, which
.generates a turnover for the organization
The success in pricing strategies for businesses is heightened with clarity on
market conditions, an understanding of the consumer's unmet desire, and the
.amount they are willing to pay to fulfill it

Dell company sends a strong message to its market- it needs to be

.consistent with the value it delivering
:Selecting the pricing objective
Survival

-1

Maximum current profit

Maximum market share

-2
-3

Maximum market skimming

Product-quality leadership

-4
-5

:Using Price-Adaptation strategies

:Price discounts and allowances
:Promotional pricing tactics

-1

-2

The Strategy
Build-to-Order Manufacturing
:Building to order avoided
Having to keep many differently equipped models on retailers' shelves to fill .1
buyer requests for one or another configuration of options and components
Having to clear out slow-selling models at a discount before introducing new .2
generations of PCs. Selling direct eliminated retailer costs and markups. (Retail
dealer margins were typically in the 4 to 10 percent range.)

44

The shift to cell manufacturing reduced Dell's assembly times by 75 percent and doubled productivity per square foot of assembly space
Customer Delight: Equally important was the fact that customers who bought from Dell got the satisfaction of having their computers customized to their
.particular liking and pocketbook
ISO 9002 quality standards Partnerships with Suppliers and Just-in-Time Inventory
If you've got a race with 20 players all vying to make the fastest graphics chip in the world, do you want to be the twenty-first horse, or do you want to evaluate the
.field of 20 and pick the best one-Michael Dell
Strategy was to partner with as few outside vendors as possible and to stay with them as long as they maintained their leadership in technology, performance, and
quality
Dell was assured of getting the volume of components it needed on a timely basis even when overall market demand for a particular component temporarily
.exceeded the overall market supply
Dell's formal partnerships with key suppliers made it feasible to have some of their engineers assigned to Dell's product design teams and for them to be treated
.as part of Dell
Dell's long-run commitment to its suppliers laid the basis for just-in-time delivery of suppliers' products to Dell's assembly plants. Many of Dell's vendors had plants
.or distribution centers within a few miles of Dell assembly plants
Direct Sales
Intelligence about customer preferences and needs Immediate feedback on design problems and quality glitches 45

Totally customer-driven system, with the flexibility to change quickly to new generations of components and PC models
Despite Dell's emphasis on direct sales, industry analysts noted that the company .sold perhaps 10percent of its PCs through a small, select group of resellers
Customer Service and Technical Support
A year's free on-site service with most of its PCs Dell also provided its customers with technical support via a toll-free phone number, fax, or e-mail
If a customer preferred to work with its own service provider, Dell supplied that provider with the training and spare parts needed to service the customer's
.equipment
Value-added Services
Dell used the knowledge gained by direct contact with customers to add to the .value it delivered to its customers
Dell charged customers only $15 or $20 for the software-loading and asset-tagging
.services-the savings to customers were thus considerable
Other Strategies
Support.dell.com E-Support-Direct from Dell Dell Talk Ask Dudley On-site Service Migration to new Technology Customer Forums Premier Pages -

46

PRESENT POSITIONING AND STRATEGY

Dell competes in several international and domestic markets and currently
produces a wide variety of products. In each of these markets, Dell has succeeded
due to its broad differentiation approach. This approach, detailed in Appendix N, is
based on the strength of its direct sales business model, manufacturing prowess,
brand strength and customer service. The ability to differentiate has allowed Dell
to stand out within mature markets and maintain a higher than average margins for
its products. Although Dell's products cover a wide swath of the industry, there are
several product lines and markets that the company does not currently serve. The
:company should consider three options
Adding a PC and server product line based on AMD microprocessors
Developing a showroom style storefront in developing markets
Expanding consulting services to include business services
Dell's addition of a product line based on AMD microprocessors would enable the
company to service the entire market of PC users. Dell's exclusive use of Intel
processors has limited the company's ability to match the high end products that its
competitors are offering. This leaves Dell continuing to serve the low-end portion
of the market and out of the very profitable high-end portion of the market. In
addition, as AMD gains market share on Intel, Dell will encounter pressure on its
own market share. Dell currently is the largest worldwide provider of PCs based on
the strength of its U.S. business. In international markets, Dell is currently second
or third, but has struggled to gain market share with its direct sales business model.
Issues in developing countries include lack of credit cards and buying habits that
involve touching and seeing before purchasing. Without gaining market share in
these large markets, Dell could surrender its top position to competitors such as
.Lenovo, who are already entrenched in these markets
47

Developing a showroom style storefront would enable Dell to compete effectively

against its competitors in these countries. The showroom allows Dell to maintain
its competitive advantages while simultaneously meeting the societal needs of the
developing markets. It will be a place for Dell to exhibit its product and conduct
sales for later delivery. Dell will retain its ability to customize its products and
.maintain its build-to-order efficiencies
Dell's efficiency has made the firm a player in business infrastructure services.
However, the company is viewed as a leader in providing value, not necessarily
complete or creative solutions. By moving into business consulting, Dell may be
.able to develop more extensive relationships with companies
These relationships could help grow Dell's core business throughbetter
understanding of client's needs and stronger ties to Dell, rather than to their current
consulting partner: HP, IBM, etc. This process will effectively open an additional
sales channel to Dell, but it is a risky endeavor. Diversification into consulting may
.pull the company too far from its core competency of sales and production
Before branching into the development of business consulting, Dell should
examine the impact on the other portions of its product portfolio. Due to its varied
product portfolio, Dell cannot be cast into one particular quadrant of either the
Boston Consulting Group Growth-Share matrix or the McKinsey 9-cell.
Each business group must be looked at separately in order to accurately portray its
business prospects. Dell's sole cash cow is its PC business. This market continues
to grow and as the market share leader, Dell is poised to reap the benefits of this
growth. In order to ensure that this product remains a cash cow, Dell must continue
to determine what products the industry wants, and consistently be a best-in-class
.deliverer of value to its consumers
One of Dell's stars is its server business. Dells market share has grown at a rate of
over 25% and it recently surpassed Sun as the #3 provider of servers. To keep this
product line a star, Dell needs to continue its growth in the low end server market,

48

it also needs to simultaneously develop its higher end server product line to meet
.the needs of the entire server market
Dell's one visible question mark is its services business. Although this division is
one of the fastest growing segments at Dell, its small market share leaves this
segment vulnerable to competitors and other market forces. In order to turn this
.business into a star, Dell needs to increase market share
Dell must develop its creative infrastructure and then advertise its creativity
throughout the market. By changing its market perception, Dell will begin to draw
.clients that it previously would not have drawn, and thus increase market share
OPTIONS AND RECOMMENDED STRATEGY
Focus on innovation-1
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

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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
Divesting-2
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

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Expansion into services-3

This strategy encourages Dell to move into business consulting. This is a new
business segment for Dell and would open a potentially new revenue stream. Given
the firm's internal success at manufacturing and value-chain efficiencies, Dell
.would have a respected reputation as a consultant
While application of these theories may be difficult at other firms, Dell's expertise
and proven track record would provide differentiation in a crowded market.
Movement into the services business places Dell against largely entrenched
.competitors
These competitors have levels of expertise that Dell cannot currently match,
.placing it at a competitive disadvantage
While Dells specific knowledge would help it enter the market, its ability to
service the complete market would be limited. Likewise, a limited market would
not allow a stable revenue stream, making this business segment questionable.
Ultimately, a move towards business consulting would distance the company from
.its core competencies
This move would limit focus from core businesses and distract the company from
.its position of excellence
Reinvigorate Differentiation Advantage-4
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
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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 companys existing value-chain. Furthermore,
Dells 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 firms signaling criteria. This may reduce the
.companys premium price and ultimately decrease profitability
Recommended Strategy
It is recommended that the final alternative, in which Dell reinvigorates its
differentiation strategy, be implemented. With this strategy, existing organizational
resources and wherewithal can be leveraged to develop a clear differentiation
.advantage
This strategy does not make unnecessary or drastic operational changes which have
the potential to disrupt the successful corporate culture and structure. Rather, the
recommended strategy identifies and improves several existing competencies
which have made the company so successful Dell considers customer service and
.support to be a key differentiator
The company, which prides itself on this segment of business, has consistently
ranked #1 in the industry. Not surprisingly, this segment represents a significant
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and expanding revenue stream for the firm. However, Dells 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. Dells 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 AMD chips
.are currently unable to do so
To strengthen Dells customization position, the firm must offer increased
configuration choices through the establishment of additional supplier
.relationships. There is however, one significant caveat
Dell must pursue relationships with only those suppliers that are able to integrate
.seamlessly with Dells 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.
.As noted, the first tactic is domestic
Recent surveys show that a high percentage of U.S. homes have PCs. However,
.there is a stark discrepancy in computer use among ethnicities
Whites and Asians are much more likely to use and own computers than
their Black or Hispanic counterparts. This high ownership among Whites and
Asians makes it difficult for Dell to grow in this demographic segment. However,
.the low ownership among Blacks and Hispanics represents an area of growth

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To strengthen Dells visibility with Blacks and Hispanics, 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. Turn-key IT solutions include the
planning, implementation and maintenance of IT customer services. Simply stated,
.it provides Dells customers with one-stop shopping opportunities
As noted in Appendix O, this business segment represents a tremendous
opportunity for revenue growth. While Dell does offer limited turn-key or managed
lifecycle services, the firm is not considered to be a major player in the market
currently representing less than 1% of the total market. The aim of this strategy is
to increase market-share through further enhancement of turn-key IT solutions. To
strengthen Dells 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,
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while sustaining customization for individual customer needs. The subsequent

.exhibit shows the gap between buyer intended value and perceived value
The difficulty for Dell stems from the lack of real differentiation between intended
.value and perceived value of buyers
Competitors adoption of Dell's business model, combined with the recent decline
in Dell's customer service has reduced Dell's competitive advantages, forcing
.customers to make decisions solely based on price
Conclusion
Micheal Dell's strategy is brilliant and would triumph issues that could bring other
companies down given that they are constantly evolving with the competitive
environments and act on the basic strategies of direct selling, build-to-order
manufacturing and strategic partnerships in real time thus giving way to JIT and
.Virtual Integration

Change is a rule, you should accept it

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