Dell Pursues Growth in a Challenging Environment I.

Company Overview

Dell was founded in 1983 by Michael Dell, an 18 year old college freshman from Texas who started out upgrading hard drives for IBM compatibles on nights and weekends. Dell is leading technology provider that design, develops, manufacturer and support PCs, software and peripherals, storage and servers, and associated services. Within a year, his service business had grown to an incredible $6 million from performing computer upgrades for local area businesses and he dropped out of school to concentrate on the business. When Dell changed his strategy and started offering custom built-to-order machines, the business exploded, with $70 million in sales by the end of 1985. Evolving into an assembler company, Dell was able to exploit certain events occurring in the industry and swiftly adapted to meet market conditions. Five years later, total sales had grown to an unbelievable $500 million and Dell became nationally known as a supplier of state-of-the art desktop and portable computers. Dell continually achieved

phenomenal records in sales and profit growth, eventually making it the most successful company ever in the PC industry, surpassing $25 billion in 2000. As one of the world's premier providers of computer products and services, Dell was the US market leader in its core products, the desktop and laptop markets by 2001.

II. Problems

Although Dell is seen to be a highly successful company, analysts worry that the recent slumping economy in the 4th quarter of 2000 and the market saturation in the technology arena could prevent Dell from achieving its prior growth rates and profits. Can it continue to maintain its stellar track record in light of the sudden decrease in demand, especially with lower and lower profit margins resulting from price wars in the industry? Should Dell continue forward with its highly successful direct model strategy to try and sustain its profitability in light of the industrys-10% growth rate and 50% reduction in profit margins in late 2000, or should it change its expectations and react to the commodity nature of the environment? Dells immediate challenge is to try and sustain its positive growth rate, spike its stock prices, and conquer new markets. But how does Dell choose its next product or service to offer the world? It must make the right choices as to what is the next value

proposition that really matters to its customers. Another challenge for Dell is how to cope in a new world where technology devices and components cost less and less (resulting in shrinking profit margins) that become obsolete practically overnight.

III. Analysis of Business Situation Method that used to analyze external factor for business issue that happened to Dell Inc. industry is Five Forces Porters analysis:

Task Environment based on Porters Five Forces

Threat of New Entrants: MEDIUM

Bargaining Power of Suppliers: HIGH

Rivalry among Existing Competitors: HIGH

Bargaining Power of Customers: HIGH

Threat from Substitutes: HIGH

1. Threat of new entrants (Medium) In The computer industry, it was difficult to find a new competition, because the competition usually involves only a few vendors. In this case, the competitors are Apple, Lenovo, Acer, HP, Toshiba, Fujitsu and others. They are also old players. 2. Rivalry among existing firms (High) As they told in the case that competitors are more advanced in innovation, while innovation is a critical field in the computer business. The need to facilitate the gadget features of everyday life are growing higher, the lack of innovation will destroy the growth of a computer company. 3. Threat of substitute product or services (High)

Computer market vulnerable to innovation. Technology companies are easily destroyed if they do not innovate, in this era, the development and innovation of new technology are rapidly increase. So companies must continue to innovate 4. Bargaining power of buyers (High) Internet growth worldwide is rapidly increases. Along with it, the demands of computing device are also increase. Computer is becoming a mandatory item in every home, even individually owned. 5. Bargaining power of suppliers (High) The numbers of supplier components like LCD, Graphic Cards, Chips, RAM and Memory are numerous. Like Sony, Samsung, ASUS, NVDIA, etc.

PEST Analysis 1. Political Government regulation about go green will impact to the R&D cost, to research about go green feature. 2. Economical Rate of economic growth increased, it is not difficult only to buy a computer or gadget. But national crisis in US will affect to buyers priority to buy computer. Changes in U.S. monetary policy as well as economy policies around the world may lead to volatile exchange rates, exposing Dell to currency risk despite its foreign currency hedging program. 3. Social-culture In today's modern era, the role of technology is enormous. Technology becomes part of many people in the world live, to work, lifestyle, even education. 4. Technological Similar companies continue to compete in develop and innovation, also competing to release cheap products that suit the needs of users. To make it happen, the company put a large

investment in the R&D. In the recent year, patent protection war done to hinder technological innovation from competitors. 5. Environmental Dells reliance on renewable energy as well as being more energy efficient estimated to save the company $ 3million a year. Physical resources, environmental issues, and weather has little impact on the computer industry given that all computer parts are artificially manufactured. However, weather issues may affect the ability of a computer companys supply chain to operate efficiently. 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.

Problems Analysis Internal factor (7) Balancing expansion to retail Bargaining power of supplier Leader change in policy and goal Still focusing in US market Inventory cost higher (dead stock higher) R&D cost 1% revenue (lower than competitors) Business model change from made to order to made to stock) External factor (8) Stagnant corporate market (large enterprise, government) Costumer market growing but not significant (home, small business) New entrants higher, rivalry higher (price war) New opportunity market (tablet) Stagnant PC market Downturn economic because of US crisis (decrese in ability to pay) Government regulation about go green (higher cost) Segment changes from corporation to home user

According to the graphic, Dell Inc. must growth, and Dell has a chance to develop in two directions: Market Development: Selling products for the home user segment by retail. Product Development: Increase R & D budget to create a new product segment such as tablet, laptop or even mobile phones.

IV. Company Situation Analysis The company situation was conducted by information from cases and other resources according to company situation at that time (2003 2006) a. SWOT Analysis Strength Weakness Leader change in policy and Still focusing in U.S. market goal Dell was late getting into the Latin R&D cost 1% revenue (lower American market and international than competitor) market Dell had the lowest operating Jumping into the laptop market too cost in the industry, by offering soon, entering the workstation superior telephone customer market late and signing services unsuccessful retail agreements Offers a broad range of product Business model change from made categories to order to made to stock Dell has total command of the Inventory cost higher (dead stock supply change higher) Latest technology Bargaining power of supplier Price for performance Reliability, services and support Opportunity Threats Costumer market growing, even Downturn economic because of not significant (home, small U.S. crisis (decrease in ability to business) pay) Segmented changes (corporation New entrant higher, rivalry higher to home user) Price competition and arrangement Stagnant PC market (provide the Government regulation about go

simplest and most complete IT solution customized for their needs) Computer hardware manufacturers include expansion into peripheral markets and ancillary products such as printers and noncomputing goods Demand for electronics devices is high

green (higher cost) Other regulatory and legal challenges Rapid technology innovation and high level

7S System: The company is well known for its innovations in supply chain management and electronic commerce, particularly its direct sales modes and its configure to order approach to manufacturing-delivering individual PCs configured to costumers. Dell focus in five area operations: consumer business, mobile computers, emerging countries, enterprise, and small/medium business. Staff: As of January 1996, 3.500 people still worked at the current Dell headquarters and grow up. But, when Dell is in the process of moving manufacturing operations from Ireland to Poland, it reduces the necessary labor force by 1.900 employees. As of 2013, the company employs about 4000 people in central Texas only, and 103.300 peoples worldwide. Style: The corporation markets specific brand names to different market segment. Its Business/Corporate class represent brands where the company advertising emphasizes long life-cycles, reliability, and serviceability, Dells Home Office/Consumer class emphasizes value, performance, and expandability, etc. Strategy:

Dell offers solution for PCs, mobility, software, peripherals, storage, and networking servers as well as services. Dell also offers financial services for training and advising on consumer and enterprise financing opportunities. Skills: To minimize the delay between purchase and delivery, Dell has a general policy of manufacturing its products close to its costumer. This also allow for implementing a just-intime manufacturing approach, which minimizes inventory costs. So, the company has skillful employee since they have to meet the orders. Structure: Dell follows the neoclassic organizational design. As any other multinational company delegation of authority also exist in Dell. Dell hierarchy is shrinking as managers are increasingly delegation in everyday decision making to employee. Project Managers at Dell have no direct reports, they rely on their people skill to get things done. Shared Value: The shared value of Dell Inc. is satisfied their costumer by providing their superior customer services.

As Dell continues to negotiate the challenges of the mature life cycle stage, the company will need to continue to focus on process innovation and creating business and consumer customer value in order to maintain its status as industry leader.

Product Market Matrix Dell currently serves a global market through the sales of its products and services. Its core business is computer related and is based in the U.S., where the company has the largest percentage share of the computer market.

Present Products and Services Dell's present product line can be segmented into 5 major categories: Desktop and Mobility Computing, Software and Peripherals (Printers, Monitors, Plasma TV's, Cameras, etc.), Servers and Networking, Infrastructure Services and Storage. Present Market Dell has expanded its business model worldwide. In each geographic market, Dell pursues three independent market segments: consumers, government and businesses. Related Product and Markets Dell has commitment with Intel for the microprocessors. But AMD has developed fresh new microprocessor with great performance. However, Dell's newest plant, WS1, is built in a lean manufacturing mentality, where diverse product models can be built by the same manufacturing line executing Single Minute Exchange of Die (SMED) methods. This should reduce the impact of changing between chip vendors, as the plant already has flexibility built into its operating procedure.

Dells direct sales model is not providing the returns expected in China. So, Dell should invest in partnerships or storefronts similar to the 'Apple store' concept where the entire Dell product line can be seen and touched, a method that will probably work better with Chinese buying habits. Unrelated Product and Markets Dell will establish more ongoing relationships with customers and become a company offering a solutions focus, an area currently dominated by rivals IBM and HP. Porters Generic Strategies While Dell offers a broad range of product categories in different markets and industries , its corporate differentiations strategy is best exemplified by its core businesses, PC sales and services. The company has dedicated itself to making the customer the most important voice in the value chain. It direct sales model keeping advertising and inventory costs low and provided a high level of customer services when delivering the end product.

By utilizing just-in-time inventory through supply chain management and SMED methodologies, helps Dell to eliminate stocks of finished products, reducing component stocks and replacement costs. Dell focus is on increasing customer value, but is keeping the value consistent with the product purchased.

Market Attractiveness and Strength Using the Boston Consulting Groups growth share matrix, and the McKinsey 9 cell matrix, Dell's many businesses can be independently analyzed. Dell's PC division, comprising both desktop and mobility segments can be categorized as a Cash Cow, due to the company's front running position and ownership of over 18% of the world market (Williams, Cowley, 2006).

This market is expanding, especially in developing countries (Kharif, 2005), with an expected increase in shipments of 10.5% worldwide in 2006 (Kanellos, 2006). Dell's strength in this segment comes is evidenced by their control of the corporate and personal markets in the U.S. where they are the top vendor. Outside the U.S., Dell is currently either the #2 or #3 PC maker, where they are seeing greater than 20% Year over Year (YOY) growth, depending on the market (Young, 2006) (Evans, 2005).The server business is one where Dell continues to make show consistent growth in market share, making it a star in Dell's portfolio. Dell's market share has increased substantially over the last several years to almost 11%, overtaking Sun to rank as the #3 producer of servers (Shankland, 2005). To grow market share, the company focused on lower end, higher volume servers, posting between 22-25% YOY growth over the last several years. As the company matures in this market, Dell is expanding its business by growing into higher end Windows markets such as clustered servers (Yager, 2005). These new product offerings put Dell in a strong position to capitalize on the expected 6-8% growth of the market in 2006 (Graham-Hackett, 2005).Unlike their PC and server businesses, Dell does not have the current strength of market to categorize their service business as more than a question mark.

This segment is the fastest growing business segment at Dell, with over 30% of growth for each of the last several years. However, Dell estimates that it currently services less than 1% of this over $670B industry. The company sees this segment as an opportunity to grow its

business through continued refinement of its depth of expertise and capability of its consultant base (Marengi, Cotshott, 2006). The company has developed a focused strategy to continue to expand this business through the development of suite services and packaging services through product sales. In order to move this segment of business to a Star or Cash Cow, Dell must develop this business into a more consistent and recognizable portion of its product portfolio. The final market Dell competes in is the peripherals market, which includes printers, digital cameras, monitors, storage, HDTV's and many other products. These products together make up 16% percent of Dell's overall revenue and have shown more than 20% YOY revenue growth (Form 10Q, 2005). Within this segment, however, Dell's product offerings cannot be categorized together, as the products range from cash cows to question marks. The largest revenue producer and cash cow is the digital display business due to the product linkages between monitors and computer purchases. Outside of digital displays, where Dell does not have the same product ties to its PC line, Dell faces competition from many entrenched market leaders. Despite this, Dell is experiencing significant sales growth for its peripheral products. For example, its printer unit, while a distant#2 behind HP, has grown to over a 13% market share in just over 2 years (Singer, 2005). Its storage division, based on a partnership with EMC, is ranked a distant #4, holding just over 8%of the market for external and disk storage (Nisbet, 2006). However, due to its ranking in PC sales, Dell is the #1 reseller of storage, more than 16% ahead of its nearest rival (Zerekes, 2004).Within each of these markets, Dell has experienced over 20% YOY growth (Form 10Q, 2005).

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VI. Solution VII. How to Implement Solution