Introduction

The global and industry issues companies face, combined with the current
turbulent financial and economic environment, are challenging even the best
companies to remain focused on their core capabilities, customers and
markets. To be successful in an uncertain environment, a company must
make the right choices that enable it to develop distinctive capabilities and
remain highly relevant to its customers and markets. Because of these
changes of responses to customers, cooperation among departments
becomes crucial and it is necessary to manage processes across the
organization to promote cooperation swiftly.

Taking Dell as a case study, this paper focuses on the operational methods
and strategies both inside and outside the corporation and how they are
managed under the competitive environment in the IT era. The choice of Dell
stems from the fact that it provides an appropriate case of how the
management of operational processes across the organization, utilizing IT
effectively, may lead to competitive advantage. First, this paper surveys
Dell’s business model. Then, it analyzes process management to support the
model from the perspectives of “process management inside the
corporation” and “process strategy outside the corporation.”
Company Background
Dell Inc. is an American, multinational Information Technology corporation
based in Texas, United States. Founded in 1984 and named after its founder,
Michael Dell, the company has become one of the largest IT corporations in
the world, employing over 96,000 people worldwide (U.S Security and
Exchange Commission annual report, 2010). With total revenue amounting
to $52.9 billion, Dell was listed as the 38th largest company in the United
States and the 5th largest company in Texas by Fortune Magazine in May
2010.

Products and Services

Dell offers a broad range of product categories, including mobility products,

desktop PCs, software and peripherals, servers and networking, and storage.
Its services include a broad range of configurable IT and business related
services, including infrastructure technology, consulting and applications,
and business process services.

The Company’s four global business segments are: Large Enterprise, Public,
Small and Medium Business, and Consumer. It designs, develops,
manufactures, markets, sells, and supports a wide range of products and
services that can be customized to individual customer requirements. The
Company’s products and services are organized between enterprise
solutions and client categories. Enterprise solutions include servers, storage,
and related services, software and peripherals. Client includes mobility,
desktop products, and also related services, software and peripherals. Its
services include a broad range of configurable IT and business services,
including infrastructure technology, consulting and applications, and
business process services.
Financial Performance

According to its 2010 annual report, Dell’s revenue as at January 2010, stood
at $52.9 billion with $43.69billion (82.6%) generated from products while
$9.2 billion (17.4%) was generated from its services. A comparison with the
2009 fiscal year however reveals a decrease in products revenue and unit
shipments year-over-year by 17% and 6% respectively. This has been
attributed to a decrease in customer demand from its commercial segments
and lower average selling prices in its customer segment. Services revenue
however shows a year-over-year increase by 5% during the 2010 fiscal year
owing to its acquisition of Perot Systems which contributed $588 million in
services revenue during the fourth quarter of 2010. But for the acquisition of
Perot Systems, the company’s revenue dropped 2%. This is because its
services are traditionally tied to the sale of hardware which implies that the
6% decline in hardware demand negatively impacted its services revenue.

Company Strategy

Since its foundation, the company’s strategy has been based on the Direct
Customer Model, relevant technologies and solutions, and highly efficient
manufacturing and logistics. Dell has always tried and managed to create
direct relationships with its customers, by selling products directly thereby
eliminating the need for intermediaries. The sale has always taken place
through a telephone service or via the Internet.

In order to accomplish its goal of being as fast as possible in the delivery of

the customized products it supplies, Dell has created an ample network of
manufacturing plants around the world. The corporation is present in each
continent and in most of the states with national basis. For instance, in Italy
Dell has established its Italian department – Dell Italia.

What’s more, Dell has forced many of its suppliers to set their plants
alongside its own facilities in order to minimize the time of the transactions
that occur between them and the company itself. They provide the company
with a constant flow of information regarding their inventory levels and, by
contrast, the company contributes to the development of their performance
and the decrease of their costs of production by providing them with the
necessary training to keep reducing costs at a fast pace and meet its strict
targets. In fact, suppliers are quarterly met and classified according their
levels of reliability, cost, quality and speed, and these are compared to their
industry average. Once a supplier meets the targets imposed by Dell, the
latter establishes a long-lasting relationship in which even know-how and
new achievements are shared so as to enable Dell to meet its financial
fundamentals and ensure the highest return on investment to its
shareholders.

Customer Expectations

1 - Reliability: How reliable does your website make your company look? Is it chock full of ads for other
sites? Is there a testimonials section? Some previous customers they can contact? Is there a street address
anywhere? A phone number they can call? Is there any way at all to contact the people behind the website?
Personally, it bends me out of shape when I have a question to ask and there's no way to contact anyone.
In a large company in which everyone has email addresses, how hard is it to list their names, or at least the
positions they hold, on a contacts page? Reliability implies accountability in the event of problems. Yet, too
often, web pages are designed to obscure all lines into the staff of the company, excepting only the sales
line.

2. Responsiveness: Autoresponders are just not enough. A company's attitude toward its web customers
shows in how hard or easy it is to get an answer to a tough question. Recently I tried to buy a network card
for my Dell laptop. Going through their web page (very well designed and very useful as it was) and
emailing someone who should have known got me this unsatisfactory answer "No, we don't carry them.
Here's the name of some third party vendors who might." Yet I called Dell's order line and within one minute
I had located and ordered the network card I had asked about. Of course they had it. It's a standard item
for the Dell Notebooks. The guy who emailed me was just brushing me off--he wasn't willing to make the
same call I made, inside the company, to find out. This can only be solved by training the individual staff
member to be more responsive to customers (or by replacing service staff who just don't get it). Try this on
your own website --ask a tough question by email and see how long it takes to get an answer, if you get
one at all, and if that answer is correct.

3. Assurance: Does your website convey to its visitors the impression that you know your business? Is it all
buzzwords and glitzy graphics, or can they get the specs on your product? It's a turn-off to visit websites
where no one can figure out WHAT they're about. Don't forget about all the slow computers and slow
modems out there that can't download a meg-a-minute. Can they turn off the images and still find out what
you do or what you're selling in text-only mode? Do you have so much Java script and so many extra pop-
up screens that you'll blow somebody away from the site? One of the reasons for Amazon.com's amazing
success is that their site exudes assurance. You know they know what they are doing.
4. Empathy: Something an autoresponder cannot give is empathy. If someone emails your staff (or you)
with a valid complaint or some kind of critical remark, do they get a form email brushing them off, or do
they get a phone call or email from your Quality Control people? Does your company have a quality control
person who is responsible not only for the quality of the product or service you provide, but also for the
quality with which that product is presented, marketed, promoted, talked about by staff to customers? Is
there an incentive program in place inside the company to ensure that your staff actually do care what
happens when someone has a problem? Is anyone in the company verifying that your tech support person
actually answers his or her emails, and that the answers he or she gives are correct?

5. Tangibles: In a website, the only tangibles are what you see on each screen. So each screen had better
be clean, clear, legible, and actually HELP the person get closer to buying or getting what he or she wants.
Do all the links work? When were they tested last? Is there a "no frames" button somewhere? Do the pages
all work with ALL the browsers?

My point: If the visitor to your website has an agreeable experience, he or she is more likely to buy
(especially on an impulse item). But if that experience is disagreeable, you've most likely lost them and
you've defeated the purpose of having your website in the first place.

Target Market
In general, Dell targets customer segments where revenues grow faster than expenses. There are
4 different customer groups - they are individual customers, small and medium size business,
large corporations and public sectors.
It can be clearly seen that Dell attempts to obtain all the customers with different demands and
purposes, which on the other hand explains the large variety of products designed and offered.
The four segments are explained as follows:
• Home and home offices
This customer group includes individual customers who purchase computer systems, printers and
electronic accessories for private reasons and home use. This group of customers focuses more
or less on the price and factors such as performance and feature of the products. Their purchasing
decisions are easily effected by word-of-mouth and previous experience. Nevertheless, they
generate only 10 percent of Dell’s total revenue according to the marketing manager who we
interviewed. Dell’s focus therefore is clearly not placed on this part of the customers (Ibid).

• Small and medium size companies

This customer group involves small and medium size companies that employ 1 up to 3500
workers. These companies individually are handled and supported by huge call centers with the
maintaining mechanics and technical support. For instances in the Nordic countries, the call
center locates in Copenhagen handling sales covering Sweden, Denmark and Norway. In
Stockholm there is a Nordic technical support center in charge of business and server support.
(Ibid)
• Large enterprises
Large enterprises stand for those who employ more than 3500 employees. These customers are
treated as Dell’s special customer and generating about 40 percent of Dell’s total revenue. Large
corporations like such have special demands on the sorts of products as well as the service,
standardization and reliability of the products. Price is just a secondary consideration for large
corporations. (Interview with Dell, 2006)

• Public sectors
State and local governments, higher education and healthcare are classified to be another
separated customer group by Dell. The same with large corporations, the public sectors requires
for standardized, reliable products supported by well future maintenance. (Ibid)
Global Market Segmentation
Dell employs a combination of an Individual consumer-based
segmentation approach which focuses on the characteristics of individual
consumers and a diffusion-based segmentation approach which involves
the grouping of countries based on how new products gain market
penetration (Gatignon and Van Den Bulte, 2004). The variables which are
major determinants in this type of segmentation include economic variables,
cultural variables and information access.

Individual Consumer-based Segmentation

Angelmar et al (2004) described this segmentation approach as one that focuses on customer
characteristics, attitudes, needs, and behaviours that are explicitly related to the product category of
concern for new product introduction.” The variable in this approach, within the context of the Dell
business model is demographic.

Demographic Variables

A look at the homepage of its official website shows that Dell does not organize its website by product
groups (desktops, notebooks, servers, printers etc), but by customer groups (privates, small
businesses, large businesses, public/state organizations). They offer the same products to all
customer groups. Nevertheless, they suggest product bundles and supporting services that are
individually tailored for the needs of each particular group.
Home users and small medium size business mainly look for factors
such as the performance and features of the products and they shop from a
variety of vendors and use an array of information sources including reviews,
editorials, word of mouth in making their purchasing decision. When these
customers purchase for the first time, they evaluate the experience
significantly through their overall perception of the price and service. Home
users and small medium size business primarily purchase laptops, desktops,
printers and other accessories for the reasons such as gaming, entertaining
and business but they both only require a low level of standardization on the
products.

Large enterprises and Public sectors (usually referred to as The

“relationship” customers) vary very much in their needs, demands and
purchasing behaviour compared to the former kind. Enterprises and public
sectors simply treat computer purchases as a “total cost of ownership” over
the life cycle of its use and price is not worth so much of consideration. They
focus on attributes such as service, reliability, vendor reputation. Moreover,
product standardization is of significant importance. Products that fit in
fulfilling all these purposes are storage systems, servers and as well as
standardized office-used laptops and desktop computers.

Dell is trying to obtain these “relationship” customers by competing with

resellers such as HP/Compaq and IBM.

Diffusion-based segmentation

This approach involves the grouping of countries according to their

similarities in a typical pattern of how new products gain market penetration
(Gatignon and Van Den Bulte, 2004). These patterns include the economic
variables, cultural variables and information access which are the major
determinants of the illustration of Dell’s diffusion-base segmentation.
5.1.2.1 Economic variables

Economic variables include economic wealth and openness of the economy

in the countries of interest. Research has shown that higher-income
consumers are generally the first to adopt a new product (Rogers, 1995). A
good example is Dell’s XPS computer family. This set of systems, with the
newest configuration set-ups are especially designed for gaming and
entertainment purposes therefore their prices are approximately 2 to 3 times
higher than normal home-use PCs. This implies that only consumers with
relatively higher purchasing power are taken into consideration. A look at
Dell’s official website shows that the XPS series for example, does not exist
in every market where Dell has local offices. Some models from the XPS
family are only available in limited areas within the domestic U.S. market
and selected European countries. There are no XPS series laptops available
in most African countries.

5.1.2.2 Cultural variables

Cultural variables cover issues such as uncertain avoidance, need for

achievement and industriousness. Uncertainty avoidance refers to the
degree to which the members of a society feel uncomfortable with
uncertainty and ambiguity (Hofstede, 2001); need for achievement refers to
the stress of performance and the need to be a success achiever;
industriousness refers to the diligence and assiduousness in work or study.
According to Hofstede (2001), uncertainty avoidance and need for
achievement both happen to be more apparent in less economically
developed countries. As a result the propensity to innovate is higher in
developed countries while the propensity to imitate is higher in less
developed countries.

A look at the evolution of business activities globally however, shows that

the three issues stated above do not have much of a significant impact on
Dell’s market segmentation. The reasons are as follows:
 1. Firstly, people, especially business people of different nationality share
the same culture in many business fields in the world today, the worlds
of finance, oil and electronics etc. (Andersson, J-O et al., 1996). It can
be seen that business life is getting internationalized and the products
needed for business purpose are getting homogenous around the
world. A Japanese company for example, needs the same server
system as a Swedish company. Therefore, to the extent of introducing
technology-concentrated products, the cultural variables do not play
an important role.

2. With respect to the individual customers, cultural differences do not

have any significant impact during the introduction of a new product
worldwide. Dell does not need to make any adaptations when
introducing a new product worldwide. This is because every laptop is
built only after the individual customer has customized it according to
his preferred configurations on the internet and placed and order. The
order is then sent out to the respective manufacturing centre for
assembly. Dell can during this process, make any necessary
adaptations in a more effective and cost-saving manner.

5.1.2.3 Information accessibility

Information accessibility relates to the availability of new product information

via media channels, interpersonal communications such as word of mouths
and education. Naturally there are differences between countries in
information accessibility. Some countries have more strict regulations on
media information due to the control from municipality while some others
are more liberated from information control. These differences however, are
not significant enough to influence Dell’s market segmentation. This is
because at an exceptional high rate of 90 percent of the time, Dell uses the
sprinkler entry strategy. This involves the introduction of new products
into the market at the same time. Essentially, All available resources such as employees
and capital get distributed to all countries to enter the new markets as quickly as possible and to develop a

secure market position (Wensley et al, 2002).

Read more: http://ivythesis.typepad.com/term_paper_topics/2008/01/a-comparison-of.html#ixzz19I77JQkP

Operations
3.2 Direct sales
Direct sales consist of two factors: “direct relationship with customers” and
“products and services targeting specific customer segments” (Kraemer et
al., 2000, p. 8). By building a “direct relationship with customers” without
sales corporations, Dell eliminates margins for sales corporations in order to
increase its cost competitiveness and makes it possible to respond to
customers’ detailed needs by utilizing information acquired through the
direct sales for product development and marketing (Kraemer et al., 2000, p.
8).

3.3 Make-to-order
Make-to-order makes it possible to respond to customers’ detailed product
needs through product mass customization. In particular, because PC
products consist of standardized parts, containing characteristics of
standardization and modulization, mass customization becomes possible
(Kraemer et al., 2000, p. 6). Dell eliminates necessity of maintaining parts
and completed products and avoids cost and risk that accompany inventory
holdings by connecting make-to-order with direct sales. In the PC industry
where technological invention rapidly banalizes parts and products, this
method is particularly useful. Moreover, because Dell orders parts after
accepting product orders, it can sell products with the latest technology at
premier prices. Because Dell starts production after receiving payment from
customers, it is not necessary to have floating capital and it maintains capital
cost at a lower level.
3Nihon

3.4 Customer support

Based on the customer data acquired at the time of order, Dell provides
detailed customer support such as after sales service and additional orders.
Adopting the direct sales method, Dell may acquire customers’ purchase
data directly. Consequently, it accumulates the data as a product and
customer database and realizes accurate customer support through
established support system for each customer segment.
Figure 1 depicts Dell’s business model. In the case of Japan, after taking
orders from customers directly over the telephone and the Internet and
receiving confirmation of payment, the order data will be transferred to
factories in Malaysia and China as well as to commodity distribution
corporations within and outside Japan that are consigned for transport
operation (Ui, 2002, p. 121). FedEx is responsible for the management of the
whole transport business from two factories in Asia to Japan and the logistic
center in Japan. Seibu Transportation (for corporation customers) and
Sagawa Express (for individual customers) are responsible for transportation
from two domestic distribution centers in the Kanto and Kansai regions to
customers (Ui, 2002, pp. 151–158). Depending on each order, a domestic
logistics center combines the product with peripheral goods such
as printers and monitors that are procured in Japan and delivered to a
customer.4 Customer segments of Japan Dell (the official corporation name
is “Dell Inc.”) are composed of consumers (individual customer), big- and
medium-size corporations, SOHO/medium- and small-size corporations,
global corporations, government, and other public offices/educational
institutions/ medical institutions.5 As for the big- and medium-size
corporations that comprise most of the sales, Dell carries out consulting
sales by sending
its employees to the corporations. After they sign a business deal, Dell offers
services of product information and additional orders at the “premier page”
provided for each customer at Dell’s website. In the US, more than 27,000
“premier pages” exist that are customized for each customer. Through this
page, it is possible to make automatic orders without paperwork, customize
product specification, confirm order records and order status, and to take
advantage of service tools provided for the customer’s exclusive use
(Saunders, 2002, p. 130). As for dealing with major customers, external and
internal sales representatives make a joint “account team” to carry out
business negotiations. The external sales representatives explain Dell’s
direct model, conduct research into customers’ needs, and make system
proposals in face-to-face meetings. The internal sales representatives
provide all kinds of first contact services such as making appointments with
customers, consultation concerning products, making estimates, taking and
placing orders, and responding to questions about delivery dates (Ui, 2002,
p. 132).

On the other hand, for SOHO/medium- and small-size corporations, Dell

implements direct sales only through telephones and Internet, but it tries to
shift telephone orders into Internet orders by opening an “online store” that
makes online sales through Internet or “Dell real site” at PC discount stores.
The rate of Internet orders for individual customers in Japan reaches a little
less than 80% in comparison with 50% in the US and 30% in Europe (Nikkei
Business, 2002, pp. 44–48).
4.2 Performance evaluation

The Dell model is to provide acceptable delivery of a configured-to-order

product as requested (or as agreed to) by the consumer. Once this service
objective is achieved, the secondary objective is profitability by being able to
satisfy the consumer with the specific product that they want while
maintaining minimal assets in facilities, equipment, and inventory.

MARKET EXPECATATION OPS PERFORMANCE OBJECTIVES

Price Cost

Quality Quality

Delivery Speed

Customization Flexibility

Reliability Delivery Dependability

Five Performance Dimensions

Operations and supply chains can have an enormous impact on many performance dimensions.

Experience suggests that there are five performance dimensions that are particularly relevant to

operations and supply chain activities. These are:

1. Quality

2. Delivery
3. Flexibility

4. Cost

5. After-sales support.

Let’s look at each of these performance dimensions in depth.

Quality.

The concept of quality is a broad one as it covers all other performance objectives. In the

context of the Dell model, it boarders around timeliness, competitive pricing and an attention to

specifics as regards the computer system configuration required by the customer.

The average Dell customer desires a state-of-the-art computer delivered in a

timely manner at a very reasonable price. Dell, from its inception, has always

promised to build a computer, exactly as and when a customer orders it, and

deliver it at a very competitive price. From a supply chain perspective, these

three characteristics suggest that the supply chain must be short so that Dell

is not forced to dispose of obsolete equipment. The short supply chain

means that it would be difficult for Dell to go through distributors and

retailers and thus have product for immediate access by consumers.

This characteristic also allows Dell to up-sell consumers when the feature or
module that they desire is not in stock. This ability to effectively manage or
refine consumer demand is critical to the effectiveness of the Dell model as
it reduces the requirement for forecast accuracy. In the case of delivery
time, the fact that Dell customers are willing to wait anywhere from a few
days to a week allows a configure-to-order (CTO) strategy which means that
it is not necessary to have products on the shelf at retailers around the
world. Even though the CTO strategy substantially reduces the need for
finished goods inventory assets, it does result in the need for increased
production assets or the ability to further manage delivery promises.

In terms of operations strategy, Dell employs a strategy that involves the

postponement of manufacturing and logistics until the order has been placed
(and generally paid for as well). The Dell model also employs extensive
outsourcing through the use of third party providers to store and sequence
components and deliver finished product to the consumer.

Delivery.

This refers to the ability to deliver products or services on time. Today, many firms are

requiring increasingly tighter delivery windows. Whereas in the past, a delivery was considered

to be on time if it was made within a few days of the promised date, the acceptable time frame

is now as little as two hours -- even for goods that are not perishable.

In order to deliver goods on time, Dell adopts a make-to-order system. After

taking orders and receiving payment from customers, Dell employs an SCM
system, placing orders for parts
necessary for requested specification, assembling parts, and delivering the
product in as few as three to four days. In the assembly process, workers
touch a PC around 18 times. It takes about five hours including inspection
before delivery (Saunders, 2002, pp. 26, 42). At a Dell factory, two
employees make a team that engages in production, packaging, and
delivery.

Dell has a system in which the team’s productivity becomes an incentive

(Dell, 2000, p. 187). Dell consigns production of print basal plates with
electronic components to the EMS (Electronic Manufacturing Service) and
makes the final assembly of all the products for itself. Dell does not consign
the assembly operation to EMS because Dell believes that it is more efficient
than EMS (Nikkei Business, 2002, pp. 44–48).

What makes this possible is “Six Sigma activity” called BPI (Business Process
Improvement). The BPI is a program to review daily business transactions
and to improve cross functional process for the purpose of advancing
“customer’s satisfaction” by a project team beyond departments and
countries.6 Concretely, BPI is an activity in which all the employees take up
business problems, the quality control department summarizes the problems
and decides appropriate themes, and a project team consisting of selective
employees from each department carries out improvement (Ui, 2002, p.
179). In Dell, several projects always emerge across the organization and
their performances reflect compensation assessment (Ui, 2002, p. 180).
4.2

Flexibility.

Flexibility has become particularly valuable in the development of new products. Some firms

compete by developing new products or services faster than their competitors, a competitive

posture that requires operations and supply chain partners that are not only flexible, but willing

to work closely with designers, engineers, and marketing personnel.

Dell distinguishes among several types of flexibility, including:

1. Changeover Flexibility – This refers to the ability to begin production of a

new product with minimal delay. Dell was regarded as a world-class
manufacturing innovator and a pioneer in how to mass-produce a customized
product. Dell's build-to-order strategy meant that the company had no in-
house stock of finished goods inventories and that, unlike competitors using
the traditional value chain model; it did not have to wait for resellers to clear
out their own inventories before it could push new models into the
marketplace-resellers typically operated with 30 to 60 days inventory of
prebuilt models. 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.

2. Design Flexibility – This refers to the ability to change the design of a product to

accommodate specific customers. In 2002, Dell took its direct business model one step

further by implementing the Custom Factory Integration service for providing fully-

customised solutions direct from their ISO 9002-certified manufacturing facilities. This

global service integrates the customer’s choice of hardware and software during Dell’s

build process, ensuring that systems arrive ready to run from the moment they are

delivered

Cost.

Cost is always a concern, even for companies that compete primarily on

some other dimension. In fact, in some industries, competition is so intense

that firms are experiencing unrelenting pressure to reduce costs, even as

their performance improves in other ways. Because operations and supply

chain activities often account for most of an organization’s costs, they are

natural targets in cost reduction efforts.

Cost is such an important performance dimension that we will return to it

throughout this book.
Dell examines basic figures of its financial statements every month for
corporate management. In terms of income statement, Dell considers
margins, average sales price, and sales indirect expenses as the most
appropriate performance measures. Dell measures these figures and
manages them depending on customer segment, product, and country in
real time (Dell, 1998, p. 81). As mentioned above, because each customer
segment is managed as a self-sufficient department, Dell’s method of
managing cost and profit is similar to Mission Costing. In order to measure
cash flow from the balance sheet, Dell examines the average age of
inventory, the accounts receivable, and the accounts payable (Saunders,
2002, p. 81). Because, in principle, Dell begins production only

after taking orders and confirming payment, collection of sales always precedes.
In such a system, a cash circulation cycle is minus 44 days in the
fiscal year of 2005 (Figure 3). In contrast, other competing corporations
without the “direct model” cannot help carrying out sales on credit for
the purpose of supporting distributing agents, their cash circulation cycles
become substantial plus. Because Dell does not maintain parts inventory
and has suppliers deliver them just before the assembly, the age of inventory
is prominently shorter than other competing corporations. In fiscal year
2005, the average age of inventory was four.

As Figure 3 shows, the short

age of inventory also has an important positive effect on the cash circulation
cycle. As mentioned above, the short age of inventory is especially effective
in IT-related industries in which technology invention is remarkable and
rapidly decreases parts prices. Suppose other competing corporations’ age
of inventory is 20. Once Intel releases a new type of chip, Dell may deliver
a new product 16 days earlier than its competitive corporations.
Dell also reflects the achievement rates of the goal of customers’ satisfaction
to its employees’ bonus that is calculated according to the following
formula: the rate of sales achievement × the rate of profit achievement ×
the rate of customer satisfaction achievement. Dell has made all the employees
become aware of the degree of customer satisfaction by reflecting it to
bonuses for those who do not directly deal with customers in the sections
of personnel, accounting, and information systems (Ui, 2002, pp. 178–179).
Moreover, Dell has a performance plan like MBO (Management By
Objectives). Employees set a concrete annual goal that may be evaluated
in figures. Twice a year, they have meetings with their direct bosses and
senior members above the bosses in which their pay rise for the following
year is decided by the degree of achievement of their set goals (Ui, 2002,
pp. 187–188). Since the fiscal year 2004, Dell has introduced a new personnel
system of examining the degree of employees’ satisfaction and of reflecting
the results to the managers’ bonuses. Individual and team achievements

and the degree of customer and employee satisfaction become important

factors to decide the bonus (Nikkei Business, 2004, p. 12).

After-sales Support
The customization that occurs in production is carried over to sales and
service. For in-stance, Dell installs custom software on the machines that it
builds for corporate customers. It also maintains an inventory of its
customers’ computers and has a sales and engineering staff dedicated to
servicing key corporate customers. It seeks to lower the total cost of
ownership for its corporate customers by helping them manage their PC
inventories and offering technologies that reduce the cost of hardware and
software maintenance in networks (Dell outlines strategy, 1997).
Dell provides a toll-free technical support line, 30-day money-back
guarantee, and next-day, on-site service (free for first year of ownership)
(Why Dell is a survivor, 1992). Dell avoids having to staff a large service and
support organization by working with service partners such as Wang, Unisys,
NCR, and BancTec. It has managed its service operations so well that in the
1997 PC World Reliability and Service Survey, Dell was ranked as Best
Overall in reliability and service (In PC World’s semi-annual, 1997).
The foregoing improvements in logistics, procurement, inventory, product
design, production processes, sales, and service are keys to Dell’s success in
the PC market. An-other is Dell’s use of information and technology to sup-
port these improvements and to enable the use of new business processes
such as Internet sales and service. The result is the refinement and extension
of the business model through IT.

Analysis of Competitive Advantage Using Porter’s Generic Strategies

Cost Leadership Strategy

Companies following this strategy place emphasis on cost reduction in every
activity in the value chain. Ideally, low cost strategy is centered on the
capability of Dell to produce and deliver products of competitive quality at
lower costs.

Dell uses efficient cost structures to protect their markets from the
competitors. It responds to competitors’ move of making in-roads in
the market space by reducing prices. Its Direct Method provides two distinct
advantages:
1. Reducing marketing and sales cost by eliminating markups of
distributors and retailers.
Building to order reduced inventory costs and risks of retaining inventories.

While Dell participates in many 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. Its direct sales model
changed the way the industry did business, eliminating the middleman and
putting consumers and businesses directly in touch with production. Dell has
been able to eliminate unnecessary costs and reinvest in areas that create
value for the end user, such as mass customization and world class service
and support.
By utilizing just-in-time inventory through supply chain management and
SMED methodologies, Dell is able to manufacture computers with a world
class cycle time. This enables the firm to maintain a cost structure that other
PC makers cannot currently match. This also helps Dell to eliminate stocks of
finished products, reducing component stocks and replacement costs
(Tournois, 2004).Not only does this allow Dell to quickly respond to
competitor price shifts, but also allows the consumer to get the high quality
product it wants very quickly and for a reasonable price. By introducing mass
customization to the market, Dell created a brand name, which was ranked
as the 19th most recognizable consumer brand by
Core brand (Slavens, 2005).

Another key aspect of Dell's brand is its high quality customer service

reputation. Among low end customers, Dell's ranking has slipped due to

changes in the way services are marketed as the company focuses on higher

margin products (Lee, Thornton, 2005).Within this segment, Dell continues to

provide high quality services and is recognized as the industry leader. In

either case, the company continues to focus on providing high initial quality,

instituting rigorous checkouts for each PC before the product is shipped.

As the market has changed, Dell's business model continues to differentiate

itself by focusing on customers. However, Dell is now building service into its

business model. It will begin charging for services on its lower end products

while promoting some higher end products that will continue to receive free

service (Lee, Thornton, 2005).In either respect, Dell focus is on increasing

customer value, but is keeping the value consistent with the product

purchased.

Differentiation Strategy
A firm can best implement an integrated cost leadership/differentiation businesslevel
strategy when a company can “adapt quickly to environmental changes, learn new
skills and technologies more quickly, and effectively leverage its core competencies
while competing against rivals”. Dell has successfully meets all three of these criteria.
Dell’s direct model allows it to communicate directly with customers, which eliminates
intermediaries and provides Dell with real- time feedback and market information. This
rich information allows Dell to respond quickly to changes in consumer demand or
overall market conditions. A successful pioneer of mass customization of computer
manufacturing, Dell has quickly demonstrated its ability to learn new technologies and
successfully apply them in its manufacturing system. Dell has leveraged this core
competency to provide a low-cost, highly customized product to end users. To maintain
this strategy, Dell must be continuously adaptive and demonstrate strategic flexibility,
quickly responding to opportunities to reduce cost or increase differentiation. One
example of how Dell has managed to maintain strategic flexibility is through the tight
integration between its online e-commerce consumer-direct website and its flexible
manufacturing system. The flexible manufacturing system in itself allows Dell offer
mass customized products that exactly match customer specifications. This degree of
customization distinctly differentiates Dell from other batch-process manufacturers, but
can be a costly system to maintain. By streamlining its production procedures by
connecting consumers to warehouse assembly workers, Dell has reduced the overhead a
flexible manufacturing system can introduce, and it increases customer satisfaction as
well as opens new opportunities for new sales.
The threat of new entrants raises the level of competition in the industry. The computer industry
is highly competitive because of the high degree of uniformity and availability of technology and
little scope of differentiation of the products resulting in little customer switching costs. There
are no large benefits to Dell from economics of scale neither does assembling require large
capital investments.

Challenges
Direct Model – Dell’s Direct Model could be seen as a weakness from another
point of view. Dell assumes that its customers are educated, which is not the case
for every customer. Dell does not provide a retail service which allows the
customers to see their computers, and purchase them right away (advantage of
retail is that it is time efficient from the consumer standpoint). Therefore, the
model is limited because it cuts off a substantial part of the consumer market.
Low market share in the International Market – Compared to its rivals, Dell had a
low market share in the international market. In Western Europe, Dell only had
less than a 10% market share, and in other parts of the world, Dell had a marketshare lower than
5% (Rangan and Bell, 23). This is a weakness because
international diversification is very important. Since most of Dell’s revenues
come from the US market, having a low market share in the international market
is more risky today because of the effects of economic downturns.
Laptop customization was limited – Although Dell had an advantage in allowing
customization within its PC industry, there was a limit to how much you could
customize your laptop. Therefore, Dell was not much differentiated compared to
its rivals within the laptop industry.
Quality of Display – In my opinion, Dell’s laptop has a weakness in its quality of
display. The physical aspect of Dell’s laptops in general was not as great as
Apple laptops for example, or even its rivals within the PC industry.

Threat of Substitutes
The threat of substitutes is high since products from Dell are essentially similar to those from HP
and Gateway. However, Dell has been able to sell at lower margins since it saves on the margins
charged by wholesalers and traders. The relative price and performance determine customer
preferences and Dell has taken advantage of the market preferences.
Bargaining Power of Suppliers
Dell’s suppliers do not have a high level of bargaining power since Dell dictates the terms and
schedules of delivery. Besides, in an industry that is characterized by innumerable suppliers, who
are not in a cartel, and a few dominant buyers of components that are individually low-value and
undifferentiated, suppliers cannot have a high degree of bargaining power.

Bargaining Power of Buyers

The buyers of computers do not have a high bargaining power that could reduce the
attractiveness of the industry. There are a large number and a wide variety of customers – from
corporate to individual customers for desktop to laptop PCs, as well as for storage, server and
printers – that the players can target.

Degree of Rivalry among Competitors

The intensity of rivalry between players depend on the number and size of players, cost structure
of the industry, level of product differentiation, customer-switching costs, level of aggression by
players and exit barriers. In these terms, when Dell entered the market, it found an intensly
competitive market, which is highly fragmented and produce a commodity that is nearly
undifferentiated and customer switching costs in the market are low. Hence, the players are
highly aggressive and evolve different selling strategies. This resulted in Dell forming its unique
direct model since it realized that with competition, returns and margins inevitably come down.

Read more: http://ivythesis.typepad.com/term_paper_topics/2008/01/a-comparison-of.html#ixzz19I4MNpJN

http://www.mbaknol.com/management-case-studies/case-study-of-dell-primary-
target-markets-and-positioning-strategy/

http://www.pinegars.com/PDF_Files/Paper%202a.pdf

http://home.telepath.com/~wanderer/school/BAD%204013%20-%20Dell
%20Case%20Analysis.pdf

http://www.dell.com/downloads/global/corporate/iar/20040618_tbr.pdf
 http://www.privatewriting.com/sites/1/samples/term_paper_bachelor_IT_16s.pdf

http://i.dell.com/sites/content/corporate/financials/en/Documents/fy10-year-in-
review/FY10_Form10K_Final.pdf

Robin Wensley, Barton A. Weitz (2002) "Handbook of Marketing"; SAGE Publications Ltd.

Read more: http://ivythesis.typepad.com/term_paper_topics/2010/02/how-to-use-dells-overall-cost-

leadership-.html#ixzz1A3OpaNZm

Read more at Suite101: SWOT Analysis of Dell Computers: Strengths, Weaknesses, Opportunities and
Threats Analysis http://www.suite101.com/content/swot-analysis-of-dell-computers-
a92597#ixzz1A3a7ZSdw

http://www.scribd.com/doc/18080386/Strategy-Analyses-and-Recommendations-
for-Dell