In 2001, Dell Computer became the world’s largest personal computer vendor, continuing to gain market share and post profits in an industry struggling with slumping sales and billions of dollars in losses. Dell sells 90% of its PCs directly to the final customer, largely bypassing the reseller channel that accounts for most of the world’s PC sales.
This direct customer relation ships the key to Dell’s business model, and provides distinct advantages over the indirect sales model. Dell’s direct relationship with the customer allows it to tailor its offerings to customer needs, offer add-on products and services, and use the Internet to offer a variety of customer services. In addition, Dell’s PCs are built to customers’ specifications upon receipt of an order, giving Dell additional advantages over indirect PC vendors who must try to forecast demand and ship products based on those forecasts.
Dell’s direct sales and build-to-order model has achieved superior performance in the PC industry in terms of inventory turnover, reduced overhead, cash conversion, and return on investment (Kraemer, et al., 2000). Dell’s business model is simple in concept, but very complex in execution. Building PCs to order means that Dell must have parts and components on hand to build a wide array of possible configurations with little advance notice. In order to fill orders quickly, Dell must have excellent manufacturing and logistics capabilities supported by information systems that enable it to substitute information for inventory. The demands of Dell’s model have led it to adopt a new organizational structure referred to as a virtual company or value web. It is marked by a focus on a few key strategic activities, and extensive outsourcing of non-strategic activities.
Dell works closely with external partners to produce its PC products and to offer its customers an array of additional products and services that add value and allow Dell to capture a larger share of the customer’s IT spending. To manufacture its products, Dell coordinates a global production network that spans the Americas, Europe and Asia, combining in-house final assembly with heavy reliance on outside suppliers and contract manufacturers. Manufacturing of printed circuit board assemblies (PCBAs), subassemblies (box builds), and some final products (mainly notebook PCs) is handled by contract manufacturers or original design manufacturers such as SCI, Solectron, Celestica, Hon Hai, Quanta and Arima.
Like other PC makers, Dell relies on outside suppliers for components and peripherals such as disk drives, CD-ROM drives, semiconductors, add-on cards, monitors, keyboards, mice and speakers. Its PCs can be bundled with standard software such as Microsoft Office or with specialized software requested by corporate customers.
Dell relies on outside partners for services such as system integration, installation, on-site repairs and consulting. Partners include Wang, Unisys, IBM and BancTec. It also works with resellers who support Dell hardware and receive referral fees for recommending Dell to customers.
Dell Background PART I
The company was founded in 1984 by Michael Dell, now the computer industry’s longest-tenured chief executive officer, on a simple concept: that by selling personal computer systems directly to customers, Dell could best understands their needs, and provides the most effective computing solutions to meet those needs. Today, Dell is enhancing and broadening the fundamental competitive advantages of the direct model by increasingly applying the efficiencies of the Internet to its entire business.
Throughout its history, Dell has profited from bucking trends. Back in 1994, against the prevailing wisdom of the time” Dell decided to forsake traditional PC-retail and distribution channels and sell directly to customers via phone and the Internet. Its contrarians strategy paid off “enabling” Dell to slash costs and leapfrog competitors in market share. Before long, Dell was applying its online expertise in every facet of its business, moving well beyond e-commerce to integrate suppliers tightly with its back-end systems and streamline its own internal business processes through the Web. Together, Dell s direct model and its automated back-end systems helped Dell soar to become the number two vendor of PCs in the United States by 1997.
Fueled by its coup in the PC market, Dell extended its direct, online model to its enterprise-systems business, which includes servers, workstations and storage products. Skeptics argued that server products, in particular, were too complex to sell direct, but Dell, obviously, “disagreed” and it paid off. Coming from a server market position of number 10 in 1996, Dell ranked third in U.S. server sales by the end of 1998, notching eight consecutive quarters of triple-digit growth in its enterprise-business belt. Since then, Dells revenue from enterprise computing systems “network servers, storage products and workstations” has increased an average of more than 40 percent per quarter, and Dell is now the number two vendor in both United States and worldwide server markets.
But those accomplishments are just the tip of the iceberg. Today, Dell also:
- Is the fastest-growing server vendor in the world” with sales of its servers accounting for 40 percent of industry-wide growth;
- Earned revenues of $28.5 billion during the past four quarters;
- Supplies approximately 90 percent of the Fortune 500;
- Ranks number one in the U.S. business workstation market and number two in the worldwide market;
- Consistently tops leading customer-satisfaction surveys;
- Ranks in the top fifth of Fortune 500 companies; and Increases its total revenue by the equivalent of a Fortune 500 company every quarter.
Yet, Dell has a dilemma. The further upstream it moves into the complex server, networking and storage areas, and the more guidance and services its customers need. While no one disputes the fact that Dell has mastered the hardware game, the company’s largest customers are now demanding more than just hardware: They want solutions. So what’s Dell to do? Well, its first order of business will be to show customers that it is more than a very good, very efficient hardware manufacturer.
In other words, Dell wants customers to know it more as a systems partner than as a hardware vendor. By providing customers with a single point of contact for all the hardware services they need, including testing, implementation, integration, development and even outsourcing” Dell can be a better long-term partner to them. But, while Dell has provided break-fi x and online services for some time, its image as a true enterprise services provider has yet to be fully established.
How successful will Dell be in elevating its position in the professional services arena and in using services to create deeper relationships with customers? In this report, we discuss Dell s professional services history, its strategy, and its plans for the future, and the differentiators that Dell brings to the table as a consulting provider. We examine what’s on the Dell services menu today and outline the role Dell plays, the roles its partners play, and the way in which Dell intends to weave third-party services together with its own. Next, we analyze the opportunities and challenges Dell faces in launching new service offerings and positioning itself in the professional services market. Finally, we outline Dell s long-term service objectives and analyze the steps that Dell must take to achieve them.
Dell arranges for system installation and management, guides customers through technology transitions, and provides an extensive range of other services. The company designs and customizes products and services to the requirements of the organizations and individuals purchasing them, and sells an extensive selection of peripheral hardware and computing software. Nearly two-thirds of Dell’s sales are to large corporations, government agencies and educational institutions. Dell also serves medium and small businesses and home-PC users.
Dell’s Unique Direct Model: Dell’s award-winning customer service, industry-leading growth and consistently strong financial performance differentiate the company from competitors for the following reasons: Price for Performance — With the industry’s most efficient procurement, manufacturing and distribution process, Dell offers its customers powerful, richly configured systems at competitive prices. Customization — Every Dell system is built to order. Customers get exactly what they want. Reliability, Service and Support — Dell uses knowledge gained from direct customer contact before and after the sale to provide award-winning reliability and tailored customer service. Latest Technology — Dell introduces the latest relevant technology much more quickly than companies with slow-moving indirect distribution channels.
Dell turns over inventory every six days on average, keeping related costs low. Superior Shareholder Value — During the last four quarters, the value of Dell common stock nearly doubled. From 1996 through 1998, Dell was the top-performing stock among the Standard & Poor’s 500. Internet Leadership Sales via Dell’s Web site surpassed $18 million per day during early 1999, accounting for 30 percent of overall revenue.
The company’s application of the Internet to other parts of the business –including procurement, customer support and relationship management — is approaching the same 30-percent rate. The company’s Web received 25 million visits at more than 50 country-specific sites last quarter. Timeline: 1984 Michael Dell founds Dell Computer Corporation 1985 Company introduces the first PC of its own design: the Turbo, featuring Intel(r) 8088 processor running at eight megahertz 1987 Dell is first PC company to offer next-day, on-site product service International expansion begins with opening of subsidiary in United Kingdom 1988 To better meet unique customer needs, Dell begins to organize business around distinct customer segments Dell conducts initial public offering of company stock, 3.5 million shares at $8.50 each 1990 Manufacturing center in Limerick, Ireland, opened to serve European, Middle Eastern and African markets:
- 1991 Company introduces its first notebook PC
- 1992 Dell included for first time among Fortune 500 roster of world’s largest companies 1993 Dell joins ranks of the top-five PC makers worldwide Subsidiaries in Australia and Japan are company’s first entries into Asia-Pacific region
- 1995 Original $8.50 shares of Dell stock worth $100 on presplit basis
- 1996 Asia-Pacific manufacturing center in Penang, Malaysia, opened Customers begin buying Dell computers via Internet at www.dell.com Dell begins major push into network-server Market Company added to Standard & Poor’s 500 stock index
- 1997 Company sales via Internet reach $1 million per day Dell ships its 10-millionth computer system Per-share value of common stock reaches $1,000 on presplit basis Dell introduces its first workstation systems
- 1998 Company expands manufacturing facilities in the Americas and Europe, and opens production and customer center in Xiamen, China Dell introduces PowerVault storage products
- 1999 Dell opens www.gigabuys.com, an online computer-related superstore Sales via Internet exceed $18 million per day Industry Outlook While the personal-computing market has expanded dramatically since the 1970s, Dell believes that the industry’s best days and its own are yet to come, for two broad reasons.
First, the stream of software and hardware innovation from companies such as Microsoft Corp. and Intel Corp. is rapid and robust, and is sharply increasing system performance and reducing the relative cost of computing. For example, in February 1982, Intel introduced its 286 chip, which was capable of processing 2.66 million instructions per second, or MIPS, at a clock speed of 12 million cycles per second, or megahertz. Today’s Intel Pentium II processors are capable of considerably more than 600 MIPS at 450 megahertz, and the sharp upward development trend is expected to continue. Second, while computer performance is going up, the relative cost of computing computer prices per MIPS has steadily declined, encouraging new computer users and more rapid PC replacement.
Dell’s Expanding Services
For most of its existence, Dell has not relied on consulting services to differentiate its products. Instead, it has focused on making it easy for customers to do business with Dell. The convenience of buying custom configured systems via the Web, of getting24-hour online technical information and support, and of being able to access accounts without going through a sales representative serves a dual purpose: Customers like it, and Dell Serves Up Enterprise Consulting keep its operational costs the lowest in the industry.
Strategically, the company chose to capitalize on this advantage by using its automated systems to manufacture, market, sell and support as much hardware as possible, as quickly as possible. In keeping with this focused strategy, Dell provided only the services needed to support hardware sales directly. It eschewed providing many high-end, specialized support services itself, and chose instead to broker those services for customers to third-party providers. But, while this allowed Dell to focus on its core business, the enterprise business has grown to encompass higher-end server and storage products, as well as more complex solutions. To whom the FDI and their product mix differentiation in order to have a competitive advantage sourcing all markets here in Exhibit 1 we can see their market share.
Market Share Global Chart
These scale-out and scale-up architectures demand more robust consultative services. Historically, Dell often had to turn away customers that wanted Dell to provide more in-depth consulting. In effect, Dell was passing up a strategic opportunity to expand its customer relationships and address a larger portion of its customers IT needs. A little less than two years ago, however, Dell began fortifying its internal services organization to address this gap. Today, Dell Services actively identifies sells and manages an expanded selection of Dell -branded consulting offerings to its existing and potential enterprise-hardware customers. Whereas hardware implementation and support were once the only choices on the menu, Dell has added several new items, including infrastructure design and implementation, capacity planning, B2B integration, storage assessment and customer-relationship management just to name a few.
Dell based its decision to put more muscle into its services offerings, and to develop new services offerings, on a combination of factors, including: Increased size and complexity of Dells product mix. (Exhibit 2) With Dells increasingly large footprint in the server market and its growing presence in the storage market, the balance of hardware it sells is tipping towards higher-end, enterprise products” which also provide it with much higher profit margins than lower-end products. These sophisticated solutions require trained personnel to optimize, tune and maximize system efficiency. At this level, customers often need additional assistance in the design and implementation stages of the more complex network architectures like server clusters and storage-area networks; here is the framework of what Dell is capable to handle economies of scope having a great sort of products as MP3, Internet, TV screens, etc.
Standards Based Technology
The third parties need to supplement customers IT resources. The current shortage of IT personnel increases Dell s and its customer’s dependence on third parties to handle IT projects. These third parties act as trusted advisors, exert significant influence over hardware sales and ultimately impact the returns a customer can expect from its hardware purchases. By taking a lead role in managing these third parties, Dell can reduce complexity for its customers, continue to stay in touch with their needs, sell more products to them and better manage their IT experiences.
Dells desire to increase its value-add to customers. Although Dell operates much more profitably than its competitors on hardware alone (which translates into cost advantages for its customers), the more upstream Dell takes its consulting services, the more opportunity it has to add value for its customers. Dell prides itself on the efficiencies it drives throughout its business.
These efficiencies have helped Dell provide customers with top-notch products. In today’s growing Internet economy, however, Dell needs to extend its hardware efficiencies to a menu of consulting services that provide customers with the knowledge base and resources to implement more complex enterprise architectures. While it does not want to become an IBM (wherein consulting services are completely unbundled from hardware sales), it does see the benefit of handling more complex engagements than it has in the past. After all, as Dell goes up the consulting food chain, the price of services and, most important, the value they provide to customers goes up; and Customer demand for Dell to take on more service responsibility. Customers routinely ask Dell to provide services beyond the box. So, Dell s expanded ability to manage these projects means it can respond better to customer demand and enhance the overall customer experience.
Dell still works with best-of-breed partners to deliver most of its services. The difference is that Dell will now propose and sell complex engagements (such as storage design) and take the primary customer-facing role to ensure the engagements success. It believes that this approach will create a win-win-win scenario for its customers, its partners and itself. Namely: Dell s customers win because they get a single source for end-to-end services, standardized project management and a single point of accountability through a trusted brand Dell; Dell s partners win because they gain access to consulting engagements with Dells clients, with Dell doing most of the upfront work, closing the sale and managing the customer relationship.
Additionally, they are able to partner with a company that does not compete internally for the same consulting services; and Dell wins because it elevates itself to a more strategic role with its current customers by providing them with a single source for all their IT needs; it expands to reach new customers; and, it does so without the expense of rapidly scaling a large, internal consulting organization. Customers demand Dell to take on more service responsibility. Customers routinely ask Dell to provide services “beyond the box.” So, Dell’s expanded ability to manage these projects means it can respond better to customer demand and enhance the overall customer experience. Dell still works with best-of-breed partners to deliver most of its services.
The difference is that Dell will now propose and sell complex engagements (such as storage design) and take the primary customer-facing role to ensure the engagements’ success. It believes that this approach will create a win-win-win scenario for its customers, its partners and itself. Namely:
- Dell’s customers win because they get a single source for end-to-end services, standardized project management and a single point of accountability through a trusted brand-Dell;
- Dell’s partners win because they gain access to consulting engagements with Dell’s clients, with Dell doing most of the upfront work, closing the sale and managing the customer relationship. Additionally, they are able to partner with a company that does not compete internally for the same consulting services; and
- Dell wins because it elevates itself to a more strategic role with its current customers by providing them with a single source for all their IT needs.
Above all, Dell wants to respond more effectively to its existing government, education and corporate clients that have sophisticated service and consulting needs. By expanding the menu of services available, and becoming the single point of accountability for these services, it can make its clients’ total IT experience more seamless and hassle-free. In particular, Dell’s expertise with its own hardware and its tight relationships with independent software vendors (ISV) and implementation partners, such as Microsoft and IBM Global Services, make it a logical extension for Dell to provide such services.
The Consulting Recipe-A Pinch of the Old, a Dash of the New
Today, Dell has two enterprise-system consulting groups-one called the “Advanced Systems Group,” or ASG, and another called “Dell Technology Consulting,” or DTC.
The ASG is a non-fee-based consulting organization that consists of Dell’s existing hardware sales and support network-hundreds of internal presales consultants, systems-support engineers and technical sales representatives. The ASG supports Dell’s enterprise customers by
- Providing presales technology consulting and custom configuration support for Dell’s enterprise hardware products;
- Providing infrastructure-level consulting for customer technology projects; and
- Collaborating with customers on an ongoing basis to implement and maintain Dell enterprise hardware systems as part of their standard computing environment.
In addition, the ASG works closely with Dell’s account teams to provide in-depth knowledge of the customer’s environment and IT organization, and to help identify customers’ upstream consulting needs. Once those needs are identifi ed, ASG engages Dell’s growing group of custom-consulting specialists-DTC.
Established in March 1999, DTC supports Dell’s PowerEdge Server, PowerApp Appliance and PowerVault Storage customers by providing solution services “beyond the box.” Originally, its focus was on hardware consulting, so its offerings were very similar to those of ASG. As DTC developed, however, it began to inch up the food chain-adding ever more complex consulting services.
Today, this relatively new division is the main ingredient in Dell’s enterprise consulting recipe. By taking on projects that go beyond hardware support, DTC gives customers more options for working with Dell Services than they’ve ever had before. For example, customers with consulting needs can now request proposals or quotes from DTC, regardless of whether the work is directly tied to a hardware sale. In addition, DTC will create proposals for extended work when ASG or Dell’s account team observes an opportunity around a hardware sale.
Within each category, DTC offers a wide range of products-from one-day training courses to yearly outsourcing arrangements. It also operates a network of six worldwide solution centers, where customers and partners can get hardware training, services and support. Right now, the majority of DTC’s projects is still much focused and last fewer than four weeks.
Dell’s goal, however, is to change this scenario so that at least 50 percent of DTC’s projects last from several months to a year, or more. Since the most labor-intensive part of Dell’s work is in the beginning stages of a project, Dell believes it can quickly add these downstream services. Overall, this shift is part of a larger Dell strategy to grow its total set of service offerings -including the work of ASG and DTC-into a $10 billion business within the next five years.
Since Dell relies so heavily on partners, communication and collaboration are central to its implementation methodology, which it calls the Dell Solutions Framework (DSF). The illustration in Figure 2 graphically depicts how Dell integrates these elements into its services offerings.
As a rule, Dell leads every project it proposes and establishes a one-toeight ratio of Dell heads to partner heads. This ratio ensures flexibility and allows Dell to respond quickly to increases or shifts in demand. Partners must buy in on all aspects of the project, so they help Dell outline both the scope of the engagement and the final price to the customer. This process is accelerated by Dell’s tight relationships with its partners, such as Microsoft, Unisys and IBM Global Services, which Dell pre-certifies on its platforms. Some partners, such as Immediant and Getronics, also deploy personnel to work at a Dell location on an extended basis.
To supplement its existing partner network, Dell is also investing in several startup storage and services firms through its Dell Ventures arm. Investments ranging from $3 million to $20 million each have been made in firms such as StorageNetworks, Corio, Interliant, NaviSite, Netyear Group and Xuma. In return, these firms agree to set aside resources to work on Dell projects and get regular training to support Dell hardware. Dell’s main objective with these investments is to add value to its existing partner mix and ultimately to benefit Dell’s mainline hardware business. Therefore, it limits investments to late-stage startups that have established models in growing niches, such as Internet applications hosting, e-business strategy and storage hosting.
Using their Resources:
While a focus on upstream services is certainly not unique to Dell, it is adding some special sauce to its consulting recipe. Dell believes that its customers can benefit from its experience managing projects and building out complex, Internet-based infrastructures, in addition to its expertise in implementing industry-standard hardware and operating systems. As discussed in the introduction, Dell prides itself on being able to create operational efficiencies and profit from the competitive advantages this creates. From its efficient operations alone, the company generates around a $1 billion in cash flow each quarter ($1.2 billion in the second quarter of fiscal year 2000) and has virtually no debt. This additional money is a powerful tool for Dell, enabling strong investment. Dell intends to benefit its customers too by helping them apply its expertise in streamlining operations to strengthen their own businesses. Just as Dell once cracked the code to a winning online-distribution model, it believes this approach will enable it to crack the code to building a winning enterprise-services model. The three keys, according to Dell, are:
- Standardized products;
- Ability to win customer trust; and
- Single-point accountability.
Standardized Products Dell’s overall product strategy is to focus almost exclusively on industry standard Intel-server platforms that run Novell, Windows 2000, Windows NT and Linux, which account for more than 80 percent of the OS market. By employing a standards-based “scale out” approach, Dell can build and support 24×7 implementations like Dell.com, satisfying the majority of customer business requirements. Meanwhile, Dell’s major competitors -IBM, Hewlett-Packard, Sun and Compaq-each promote their own competing UNIX platforms (AIX UNIX, HP-UX, Solaris, and Tru-64 UNIX, respectively).
Dell contends that participating in the UNIX performance race requires substantial investments in R&D and resources, which can become diluted when spread across multiple product-development teams, each trying to optimize platforms for multiple flavors of operating systems. In contrast, Dell concentrates on the biggest part of the pie-the operating systems that most companies use most of the time. By following the 80/20 rule, Dell can invest its resources in areas that will yield a sure-and greater-return for itself and its customers.
Extending this model to the services arena, Dell will focus its consultants on architecting, implementing and supporting the most prevalent, standardized technologies. It expects this approach to yield faster, more predictable and more trouble-free deployments than those targeted at up-selling customers to more proprietary offerings.
Cementing customer trust and loyalty is also central to Dell’s strategy. As a brand, Dell enjoys a reputation for being highly responsive to its customers’ needs. In April, for example, Dell’s customer-support team for server products measured a 90 percent success rate for first-time, on-site resolutions, based on internal audits. Of those resolutions, Dell took 75 percent less time to solve the customers’ problem than the industry average. Furthermore, it has held a number one ranking for nine consecutive quarters in server, desktop and notebook customer satisfaction, according to surveys by benchmarking firm, Technology Business Research.
Dell is also strongly committed to acquiring and incorporating customer feedback as part of its product and service design and development process. It holds multiple customer events every year, at which clients provide input on what Dell’s future products should be, and Dell, of course, solicits and receives continual customer input via its Web site, as well as through ongoing focus-group activities. Dell believes the relationships it has forged, and the customer trust it has built through those relationships, will engender customers’ trust in it as a supplier of extended IT services. Customers such as Healthcare.com (a health-care enterprise-application integration vendor) agree. It chose to engage with DTC largely because of its four-year ongoing relationship with Dell.
The company participates in focus groups to help design Dell products and closely monitors how upgrades in Dell’s product line might be best integrated within their existing systems. So, when Healthcare.com needed help planning a move from Novell Netware to Active Directory on Windows 2000 and migrating to Dell storage platforms, it was a natural fit to call on DTC.
From a marketing perspective, Dell will capitalize on its status as an Internet poster child to build awareness and credibility for its new service capabilities. After all, the company can boast internal experience with one of the most robust e-commerce sites in the world, Dell.com. Dell.com operates within a three-tiered architecture, runs on 300-plus servers, and handles 2.8 million hits per day and accounts for more than 50 percent of Dell’s total sales volume- handling transactions worth an average of $50 million every day. All of this is accomplished on Dell hardware in an industry-standard environment. This internal experience, and the corresponding reputation it has brought Dell, has primed customers to trust it as a solution provider.
Finally, the third and most important key lies with single-point accountability. Dell has always preached this doctrine, and it will continue to do so with its more upstream consulting services. The company takes a leadership position in every project it sells and assumes sole responsibility for ensuring the project’s success. As the front-face to the client, Dell can mask the complexities of working with several consulting firms and allow the client to focus on what gets done-not which company does the work. Dell’s practice of vertically integrating partners within its business is illustrated next. In addition to cost advantages, the vertical integration model allows Dell to pick and choose resources with the most appropriate skill sets for each assignment, instead of having to rely only on the skills of its internal, non-deployed consultants.
ith Healthcare.com, for example, Dell worked with Microsoft to help Healthcare.com scope out a multi-year project, managing account hardware and software upgrade schedules, production requirements and future performance capabilities. ASG handled day-to-day issues and product needs, while DTC focused on the project management, ongoing implementation and the interface with Microsoft. Although Healthcare.com could have hired both Dell and Microsoft separately, Dell’s ability to provide a single source of accountability made this customer’s experience more seamless and hassle-free. It also cut time out of the engagement process, since Dell works with Microsoft on an ongoing basis and knew exactly which resources would be necessary for the job.
Wrapping It Up and Taking It Home
Dell has recognized that it must expand its enterprise services organization to support its increasingly high-end product mix, and its customers’ demand for end-to-end services from a single source. In addition, it realizes that customers want to learn from its successful, internal e-business experience, and that it can use a professional-services organization to elevate Dell’s strategic influence in the market. In contrast, however, to most of its competitors, Dell will not run a soupto-nuts consulting factory by itself. Instead, it will play the role of a master chef-directing and synchronizing its partners to pull together a menu of integrated services.
Though Dell will add resources to its consulting team, it will concentrate its energies on hiring people who can manage partner relationships in order to provide a complete services offering. As in the past, Dell’s consulting services are still chartered to support hardware sales. With DTC, however, Dell is becoming much more flexible about how it executes on this charter. Dell will, for example, evaluate consulting projects based on the total opportunity, not just on the hardware sales component
Although the group is still in its early stages of evolution, DTC already manages a wide variety of projects and has full support from Dell’s senior executives, who are committed to developing it into a robust services organization that offers customized engagements and recommendations. Over time, DTC should be able to engage in more involved, complex projects, deepening its strategic position with its enterprise clients. But conventional wisdom-and many of Dell’s competitors-suggest that it is necessary to build a large, internal consulting organization to provide the types of integrated services that Dell hopes to offer in combination with its partners.
Several competitors, in fact, are rapidly scaling internal capabilities. IBM, for example, has expanded its services division, IBM Global Services, to the point where, with over 100,000 employees, it’s become the largest consulting organization in the world. While IBM Global Services operates independently of IBM’s hardware sales divisions and even partners with IBM competitors, such as Dell, IBM’s internal investment in consulting has cemented IBM’s market positioning as a solutions vendor. Furthermore, HP is also working to build its internal service capabilities via acquisition, and Compaq acquired Digital, in large part to boost its internal service and consulting ranks.
Many of the markets are now extremely competitive due to the liberalization of the world trade and investment environment. In industry after industry, capable competitors confront each other around the globe. Strategy is often concerned with identifying and taking action that will lower the costs and differentiate Dell’s product offering through superior design, quality, service, and functionality.
Dell is a multinational firm with production facilities in other continents and customers around the world.
- Quarterly Financial Highlights – Third Quarter
- (In millions, except per-share data) FY04 FY03 Change
- Net Revenue $10,622 $9,144 16%
- Operating income $912 $758 20%
- Net Income $677 $561 21%
- Earnings per share $0.26 $0.21 2 4%
- Days supply in inventory 4 4
- Annual Financial Highlights
- (In millions, except per-share data)
- FY03 FY02 FY012 FY00 FY99
- Net revenue $35,404 $31,168 $31,888 $25,265 $18,243
- Operating income $2,844 $2,271 $2,768 $2,457 $2,046
- Net income $2,122 $1,780 $2,310 $1,860 $1,460
- Earnings per share $0.80 $0.65 $0.84 $0.68 $0.53
- Closing stock price $23.86 $26.80 $25.19 $37.25 $50.00
- Full-year FY ’02 income/earnings data exclude a $742 million pretax charge related to job reductions, consolidation of facilities and impairment of assets.
- Full-year FY ’01 income/earnings data exclude a $105 million pretax charge related to job reductions and consolidation of facilities, as well as the cumulative effect of a change in accounting principle of $59 million.
- Full-year FY ’00 income/earnings data exclude a $194 million pretax charge for purchased in-process R&D.
Growth Highlights High lights of Dell’s Stock History
- Date Event Per-Share Price Presplit Stock Price
- June 22, 1988 Initial Public Offering $8.50 —
- April 9, 1992 Three-for-Two Split 25.81 38.72
- Oct. 27, 1995 Two-for-One Split 45.00 135.00
- Dec. 6, 1996 Two-for-One Split 56.75 340.50
- July 25, 1997 Two-for-One Split 81.50 978.00
- March 6, 1998 Two-for-One Split 69.25 1,662.00
- Sept. 4, 1998 Two-for-One Split 54.75 2,628.00
- March 5, 1999 Two-for-One Split 43.03 4,131.00
- October 31,03 Close of Last Quarter 36.00 3,456.00
- Internet basics Background
- Market context
The last mile is the most lucrative part of the network as the operator effectively owns the customer. However, it is also the part of the network where major traffic bottlenecks still occur. Until relatively recently the largest investment has been focused on the backbone or core of the network where there is now a glut of bandwidth and unlit fiber. A similar level of time, development and investment now needs to be ploughed in to the last mile.
- The market for equipment vendors is worth $750m in 2001 and will increase to $2.5bn by 2006.
- The number of business access lines installed will be 5.1m by 2006.
- The number of residential broadband access lines installed will be 37m by 2006.
- ADSL (and associated equipment e.g. DSLAMs and DSL modems) will be worth over $1bn by 2006.
- Fixed wireless and broadband satellite will complement the fixed line technologies rather than acting as a direct threat.
- Fiber will rule the last mile in 10 years time.
The previously neglected SME and residential market now have the opportunity to take up a range of broadband access technologies at an affordable price. As Internet usage and the number of IP-based applications increase, the demand for higher bandwidth to accommodate packetized voice, data and video will grow. In turn, the service providers (SPs) will be able to exploit the advantages of and opportunities created by IP technologies, by offering the enabling technologies with bundled solutions.
Broadband access technologies enable the mass market to have high-speed Internet connections and consequently the value-added services which have traditionally only been available to large corporations with sizeable telecommunications budgets. For the business user arena, bundling together broadband access and services including web hosting, video streaming, video conferencing, voice over Internet Protocol (VoIP) and IP virtual private networks (VPNs) will enable SPs to capitalize on the growing market demands. As a more level playing field for the business market is being created, this will hopefully encourage consumers to seek high-speed Internet access for their homes. Residential customers want information at their finger tips and want to be entertained, without lengthy delays, in the privacy of their own homes.
The high degrees of activity in this area, including deregulation, increased competition, market demand for broadband services, and the introduction of new alternative technologies, has satiated the needs of the usual early adopters wanting high-speed Internet access and spurred others into action so they do not get left behind and lose their competitive edge. This report comprehensively examines all of the access technologies that are and will be available to the end-user and how the SPs and equipment vendors (EVs) are battling to rule the last mile in this fiercely contested market.
The report’s unique selling point is the two key data sets which forecast:
- service provider equipment costs;
- Service provider access revenues.
The first data set looks at the initial financial outlay by SPs in order to enter the access market. The cost of provisioning for new subscribers over the next five years is predicted, in terms of purchasing CPE (customer premise equipment – DSL / cable modems / transceivers etc.) and PPE (provider premise equipment – cable head-ends, DSLAMs, satellites etc.). This also allows equipment vendors to identify how each access market will grow and consequently which market to enter or remain in. The second data set looks at the revenue generated for SPs from all installed lines. These calculations include monthly access fees, installation cost and upgrades. Another key selling point of this report is that the data are split for both residential and business end-users. The figure below illustrates the sales distribution channel and the revenue flow.
Dell, Inc is primarily a designer, developer, producer, marketer, and supporter of desktop, portable, and enterprise computers. As well, Dell provides IT support and services. Dell competes in three major markets: North America, Europe, and Asia. The company appears attractive in light of a combined analysis of the following four key measures: Relative competitiveness, prospects for growth, current earnings, and business stability. Expenditures will also be considered, as they are an important secondary confirmation of growth potential and business cost.
Value Chain Costs
Dell has very effectively streamlined its operations; all production processes have been calculated according to the principles of JIT manufacturing. This has resulted in improved efficiency. Dell production now has extremely low relative transfer time due to strict inventory control, and high productivity. Dell has also extended their efficient management techniques to the other aspects of their value chain, and has in-sourced these processes. The resultant efficient structuring has resulted in reduced costs-to-market and a higher profit margin.
Growth: The Future
Prospects for growth appear favorable: The last three analyst initiations projected FY 2005 earnings to be 1.22, 1.25, and 1.45, respectively (1.307 average). With the trailing twelve month EPS at .909, these estimates call for growth over the next two years to be 17.5% per year. Consensus estimates call for 2005 earnings of 1.21. The difference between these numbers increases the likelihood of increasing consensus earnings estimates, a catalyst for stock-price appreciation.
Valuations appear attractive: The stock trades at $34.41 per share, or at 36.08 times trailing twelve month EPS, well below the company’s 5-year average P/E ratio of 51.96, although this is reasonable, given decreased earnings growth expectations. The company trades with a much lower P/EG ratio than competitors; the company has a P/EG ratio of 2.64. For comparison purposes, competitors HPQ and AAPL have P/EG ratios of 3.295, and 8.24, respectively (based on 5-year EPS growth projections, and trailing earnings).
It is expected that DELL will spend approximately 300 million on capital expenditures this year, in line with the prior year. The money will be spent on expansion and research and development. This is neutral information, consistent with expectations.
Dell has a market capitalization of 88.24 billion, has earnings of 3.45 billion (EBITDA) for the trailing twelve months, carries 5.12 billion in cash, and 506 million in debt. The company is sufficiently capitalized to proceed with operations and planned capital expenditures.
Porter 5 Forces
Until now, Dell’s supplier-management processes have typically relied on manual mechanisms which limited the company’s ability and to react quickly to marketplace changes. To remedy this, Dell set out to enhance and automate its factory-scheduling and demand-planning capabilities.
Dell has completely automated its ability to take thousands of orders, translate them into millions of component requirements, and work directly with its suppliers to build and deliver products to meet customer requirements. In fact, more than 90 percent of Dell’s component purchases now are handled online: Suppliers use an Internet portal to view Dell’s requirements and changes to forecasts based on marketplace activity, and to confirm their ability to meet Dell’s delivery requirements. Then, as Dell factories receive orders and schedule assemblies, a “pull” signal to the supplier triggers the shipment of only the materials required to build current orders, and suppliers deliver the materials directly to the appropriate Dell assembly lines.
Lastly, the initiative has helped Dell’s suppliers communicate more effectively, reduce obsolescence (and resulting supplier returns), improve exception management, increase forward visibility, and cut transaction costs. Working with Dell, suppliers now are full participants in a state-of-the-art, online community where $25 billion worth of business is conducted annually.
Dell’s procurement specifications and standards of excellence have an opportunity to partner with Dell in delivering quality products and services to Dell and its customers. Some of the qualities they look for in their suppliers are:
- Cost competitiveness
- Understanding of Dell’s business
- Proven track record and references
- Good financial standing
- Ability to conduct business electronically, e.g. via e-mail and internet
- Competitive advantage and “Value Added” capabilities
- Ability to grow with Dell
- Core competency in supplier’s line of business
- Technological capabilities (hardware & software)
- For production suppliers: Continuity of Supply strategy
- For production suppliers: Quality processes (ISO 9000 or equivalent)
- Diverse supplier certification by a third-party: Small Business (SB), Small Disadvantaged Business (SDB), Small Business Administration 8(a) Program (SBA 8(a)), Woman-owned Small Business (WOSB), Veteran-owned Small Business (VOSB), Minority/Women Business Enterprise (M/WBE), and/or Historically Underutilized Business Zone (HUBZone).
Dell’s new strategy is the products diversification; almost all electronic companies are potential entrants to this new market.
Dell customers are turning to the Internet as a primary channel to purchase the goods and services needed to conduct their businesses. The Dell Marketplace extends value to its customers by providing access to a dynamic e-commerce community through powerful, reliable and affordable open-standard technologies.
With the new strategy Dell’s competitors have increased. Before this new strategy, Dell’s the competitors where PC, servers, and printers companies. But now, Dell is entering into a new market with new competitors as Apple, Sony, Palm, Samsung, Cannon, Olympus, and Phillips. Of course “old” competitors continue in the market: IBM, Compaq, Hewlett-Packard, Epson.
Also websites that sells electronics distribute the same products that Dell does in its new strategy.
Dell offers in-person relationships with corporate and institutional customers; telephone and Internet purchasing; customized computer systems; phone and online technical support; and next-day, on-site product service.
Dell’s products: PC, Severs, Storage and printers, were only bought for homes, offices and educational centers. But now, the new strategy expands the segment, adding all this new technology to Dell’s portfolio, the company massificates and products are for everyone in the planet.
- No inventory buildup
- Industry leading growth
- Cost efficiency
- Direct to customer business model – latest technology
- Internet sales leadership – $5M worth of products everyday
- No proprietary technology
- High dependency on component suppliers Opportunities
- Network-internet, intranet and extranet
- Strong potential market in Europe, China and India
- Low costs and advanced technology
- Growth in business, education and government markets Threats
- Competition (price and market share)
- Currency fluctuation in countries outside the US
- Political instability
- Tariff trade barriers Marketing Strategies
- Major customers: large corporations, government agencies and medical and educational institutions to small business and individuals.
A year has passed since the controversial merger between Hewlett-Packard “HP” and Compaq was initiated. The results to-date have been better than the skeptics and the opponents of the merger predicted. This was most evident in the cost savings area where HP has already reached $3.5B in annualized savings versus its forecast of $2.5B in 2004. The company did well in constructing a detailed merger process, and then executing it with diligence and decisiveness. This accomplishment was especially significant in an environment where revenue growth had stagnated due to the overall economic slowdown, and in particular, the market recession in the IT sector.
The critics of the merger point to the lack of revenue growth as proof that the merger was ill conceived. It is true that a mega-merger cannot be justified and sustained solely on cost reductions. It has to prove that the merged resources and collective product offerings are stronger and more competitive than the sum of the two companies operating independently. From a product and technology portfolio perspective, the new HP is better positioned in the market. Compaq brought strength in desktop PC, handheld devices, storage, high end servers, consulting and services, and the direct selling model to better compete with Dell. The resulting company did move quickly to sort out the product overlaps and eliminated the weaker ones regardless of which side they came from. This allowed them to avoid protracted internal debates and uncertainties for their customers. It has also contributed to their ability to align the organizations quickly and achieve the cost reductions ahead of plan.
It is true that HP has shown little revenue growth during the past four quarters. However, that was true of the overall IT market sector, especially in the enterprise area. Telecoms have and should remain weak due to overcapacity, pricing deflation, and a lack of significant new revenue sources. The same was true for the other sectors of the technology industry, but some are beginning to emerge from it, albeit at a slow pace. IT spending should pick up as companies invest again to get more productive use of their technology, to refresh their technology infrastructure, and to implement new business models driven by new technology. For HP, the test is whether or not it will be able to grow its revenues when that happens, and more importantly, whether it can gain market share against its key competitors – IBM and Dell.
The number one competitor in Dell’s view is IBM. Emotionally, being number two to IBM is a good reason to gain on IBM, but the challenge is significant. IBM’s business has shifted its revenue and profit growth during the past decade from a dependence on hardware, to solutions/services. It was recognition of the fact that as customers move away from proprietary systems, (which was IBM’s differentiation), towards open standards, hardware was becoming more of a commodity, which favors low cost producers. IBM was not one of them. In addition, commodity buyers do not have strong loyalty to their suppliers. However, solutions and services carry unique characteristics and values from the supplier to the customer, and therefore, they are differentiators against competitors.
They support higher margins and have higher growth prospects because customers will depend on suppliers to provide complete solutions, ongoing support, and an increased trend towards outsourced management of their IT. To support a solution-selling model, IBM has chosen to invest heavily in software, not the packaged applications, but primarily middleware upon which the applications sit. This was an important strategic decision, because having control of the middleware made it easier for IBM to manage the integration of the third party applications. It is more effective to deliver solutions working with one major outside party than two outside parties. Recent evidence of IBM reinforcing this direction was the acquisition of the Price Waterhouse consulting business and the selling of its storage business.
HP has been working to boost its consulting/solutions revenues in its enterprise business for some years including its failed acquisition of the same PWC unit in 2000. With the merger of Compaq, HP has acquired significant assets in these areas, but it still is far less than what IBM offers. Future acquisitions in this area are likely with potential targets such as EDS and Unisys. In the software area, HP has not had good success in the past, with the exception of the Open View network management platform. It had good technologies but could not turn them into commercial successes due to a lack of effective software business management process.
Has the Compaq merger brought new competence in this area? If not, HP must continue to work with multiple partners to deliver complete solutions, which can put it at a disadvantage vis-ï¿½-vis IBM, which has control over more pieces of a total solution. In the IT services outsourcing area, HP has made good progress with the recent high profile wins of customers such as CIBC, Procter and Gamble, Nokia, and others. The question is, at what cost? These are long-term contracts; therefore sacrifices made in margins today should carry forward for years to come. The good news is that HP has to be taken as a serious player in this growing business trend and will be given the opportunity to compete for future contracts.
In this DELL Model chart we can see their distribution chain process, and what they can achieve becoming the owner of their core business by processing all their production, plants and other processes without the risk of sharing confidential knowledge, remember that Research and development is one of the key tools for their absolute advantage.
Dell is a formidable competitor to HP an IBM, not only in PC’s, but also increasingly in other areas including printers, storage, and handheld devices. Dell’s success grounded in its direct selling business model is well proven. Dell’s direct model has a 4 to 6 percentage margin advantage over HP’s historical indirect channel model. One has to assume that the manufacturing costs are similar for similar products, given that the products are based on standard hardware and software components and are manufactured by many of the same contract manufacturers or ODM’s. Both HP and Dell have such sufficient large unit volumes that it is questionable that either can gain significant cost advantages through higher volumes.
So we believe HP has no choice but to move more aggressively towards a direct model and the Compaq merger is a catalyst in that effort (as Compaq was moving fast in that direction prior to the merger). It is a difficult transition for HP, as it has to be very careful not to alienate its long-standing channel partners. HP should have a viable PC business as the market will want an alternative to Dell, so the continuing challenge is how to make it a sustainable profit contributor to the company. Dell will be expected to use pricing pressure to gain market share globally as long as it enjoys those margin advantages.
Dell has now entered into the low-end printer business with its direct model, clearly aimed at challenging HP’s major profit contributor. Can Dell have the margin advantages that it enjoys in PC’s in printers and supplies when it has to OEM them from Lexmark or others? Probably not now, but it has the resources to become a serious competitor over time. However, HP’s brand image in printers and its commanding global market share in excess of 60% pose a very strong line of defense against Dell and other competitors. HP’s imaging business should continue to do very well under a very experienced and seasoned management team.
Porter’s Generic Strategies
A firm’s relative position within its industry determines whether a firm’s profitability is above or below the industry average. The fundamental basis of above average profitability in the long run is sustainable competitive advantage. There are two basic types of competitive advantage a firm can possess: low cost or differentiation. The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them, lead to three generic strategies for achieving above average performance in an industry: cost leadership, differentiation, and focus. The focus strategy has two variants, cost focus and differentiation focus.
- Target Scope
- Low Cost
- Product Uniqueness
- (Industry Wide)
- Cost Leadership
- (Market Segment)
- (low cost)
In cost leadership, Dell sets out to become the low cost producer in its industry. They include the pursuit of economies of scale, proprietary technology, preferential access to raw materials and other factors. A low cost producer a Dell is must find and exploit all sources of cost advantage knowing that if a firm can achieve and sustain overall cost leadership, then it will be an above average performer in its industry, provided it can command prices at or near the industry average. Dell is able to use economies of scale being in the entire world searching for lower costs, high qualified labour, and tax credit, distribution channels, in order to grow and have better operational margins. Dell have become the owner of their core business by processing all their production, plants and other processes without the risk of sharing confidential knowledge, and decreasing costs of production.
In a differentiation strategy Dell seeks to be unique in its industry along some dimensions that are widely valued by buyers. It selects one or more attributes that many buyers in an industry perceive as important, and uniquely positions it to meet those needs. It is rewarded for its uniqueness with a premium price. Dell differentiation is based on a superior design, quality, service and functionality. As a matter of fact, they want to create deeper relationships with customers by expanding high quality services;
The scope of services included:
- Management of the design
- Program management of all logistics including sourcing and managing vendors, venue selection and management, event services, housing and sponsor coordination.
- Marketing services for tour branding, audience generation, on-site materials, promotional web-site development/support and analysis of exit interview results.
- Registration services, including Web-based registration, processing all registrations, badging, lead collection and processing.
- On the road” project management including planning the tour schedule, travel, installation and dismantle services and maintenance.
- Financial management of the budget, invoicing, supplier payments and reporting.
- Relationships between both customers and suppliers,
A major part of Dell’s strength has been maintaining strong links with both customers and suppliers. “The real essence of a value chain is we are taking these business processes and automating them, but still adhering to the intrinsic quality of the products we build and the strength of our relationship with our suppliers.”
They were the first in the industry to sell personal computer systems directly to customers, applying the efficiencies of the Internet to its entire business. The company can best understand their needs, and provide the most effective computing solutions to meet those needs.
The generic strategy of focus rests on the choice of a narrow competitive scope within an industry. The focuser selects a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others.
The focus strategy has two variants.
(a) In cost focus Dell seeks a cost advantage in its target segment
(b) Differentiation focus seeks differentiation in its target segment. Both variants of the focus strategy rest on differences between a focuser’s target segment and other segments in the industry. The target segments must either have buyers with unusual needs or else the production and delivery system that best serves the target segment must differ from that of other industry segments. Cost focus exploits differences in cost behaviour in some segments, while differentiation focus exploits the special needs of buyers in certain segments.
Dell is becoming more serious about the sub pc market, a segment from which it has been virtually absent. Despite Dell’s success with more expensive PCs, this is now an imperative since more and more buyers–both corporate and consumer–are snapping up low-cost boxes. Dell has a performance in multitasking with Intel Hyper threading technology and dual channel ddr400 memory.
Dell is the leader in the low cost personal computer market, in part through its bold, low cost, low-margin, mass sales approach, it provides open mailing lists for customer questions and give direct access. Dell has assumed a leadership position in lowering customer total cost of ownership (TCO) by making integration and migration seamless through its Open Manage software. The company has been trying to recreate this success with servers, specialized products such as server appliances, and now storage.
Dell products never grow old by gathering dust in the plant or in channel warehouses, the customers live on the opposite end of the direct model equation, where receiving products built-to-order is an attractive prospect because it helps to ensure that customers get the precise performance they want for the prices they pay. No resellers, retailers, or intermediaries inject cost and delay into our sales model, so customers do not have to work around expensive middlemen. Dell is becoming from now one a perfect partner to printer (Lexmark), in which have rise the trade market and become one of the leaders in this product.
Dell approach to business enables us to execute in existing markets and identify new opportunities for growth they moved into the storage market because it is adjacent to our core server market; Dell is researching and developing products to the modular needs of enterprise customers.
Dell strategy is to drive consolidation and modular computing, enhance systems manageability, simplify storage, and promote enabling technologies all to deliver the lowest possible TCO to our customers. The tactics they are using is to accomplish these goals are as simple as they are unique: They concentrate on standardizing technologies, enabling us to leverage innovations marketwise; Dell focus on costs to maintain the low-cost leadership position; and, most important, want to focus in their customers. These strengths have given Dell momentum to carry us to each successive level of the enterprise computing market and stay ahead in competitive times.
Dell has a prestige but they needed to introduced new products that could increase it sells and gain new market. Technology companies can not afford to wait for other companies to develop the next generation of innovative solutions. Through aggressive research and development and strategic partnerships, they must get in the game themselves.
This company offer computers built to the customer’s specifications delivered anywhere in the country. They have improved in technology, quality, and services.
- Strategic Objectives
- Sources of Competitive Advantage
- National Differences
- Scale Economies
- Scope Economies
- Efficiency in Operations
- Exploit factor cost differences
- Low coordinator costs
- Outsourced based supplier chain
- Real time access to orders information
- Scale in each activity
- Integrating online ordering
- Supply chain management
- E-commerce enable firms to intensify relations with trading partners
- Sharing investments and costs
- Future trend of cutting price of storage
- Trends for Merges and acquisitions
- Market or policy-induced changes
- Technology focused on entertainment
- Balancing scale with strategic & operational risks
- Big technological player
- Range of products
- Market adaptability (new trends)
- Just in time philosophy
- Portfolio diversification
- MP3 / TV Screens / Music Download / Printers
- Innovation and Learning
- Societal differences in management and organization
- Matrix structure
- Experience – cost reduction and innovation
- Low labor costs / no costs
- Inventory management /
- Shared learning across activities
- Closer partnership with SUN / EMC
DELL Competitive Advantages
- Dell today aims to bring the same model of success it has found in the desktop PC and workstation world into the data center:
- Achieving economies of scale through the use of standard, off-the-shelf components.
- Integrating online ordering
- EE–commerce enables Dell to intensify relations with some of their trading partners.
- Manufacturing, integration and distribution of their systems. Dell has started manufacturing its own storage area network
- Cut the price of storage by bringing the manufacture of SANs in-house – marking a change to Dell’s partnership with storage giant EMC sDell will still have to depend on its relationships with other vendors such as EMC
- Today outsourcing flexibility inbuilt in the non-integrated business models of Dell Computer is the competitive advantage.
- Dell takes ownership of components
- Disintermediation and Re-intermediation
- Dell provides direct sales to businesses and households
- Dell has made selling and distribution more do-it- yourself activities, replacing distributors, value-added resellers and retailers
- Dell has efficient customization has tended to replace do-it-yourself at another level. It makes less sense for an individual to buy all the software and
- Dell has increased specialization in one area, while eliminating it in another small number of partners considers low coordination costs.
- Inventory process enables just in time process.
- Constant supply of real-time information
- Web based integrated value chain
- Allows its supplier to access to its data warehouse
- Customers can track the progress of their orders.
- Like in Amazon. COM they have builds an online framework that enables to introduce new products to the market, MP3 media players, etc.
- Enables Dell to adjust production to demand.
Changing for new economies of scale
In this graphic we can see that most of what in the past was their target in mass-market products such as Standard PC, Storage Devices, Servers, etc, they are building a new niche in order to take advantage of their online web based integrated model. Most of the new devices such as Media Players, MP3, TV screens, downloads, etc are being part of the distribution chain of most of the companies that have build a portal in the internet to show their products. Take advantage of the web culture that is transforming market. Nowadays the marketing is focusing much more in Brands and the distribution and promotion of products by web pages, this allows Dell to have low costs in distribution chain and also diversification.
Dell product range market
Dell has very effectively streamlined its operations; all production processes have been calculated according to the principles of JIT manufacturing. This has resulted in improved efficiency. Dell production now has extremely low relative transfer time due to strict inventory control, and high productivity. Dell has also extended their efficient management techniques to the other aspects of their value chain, and has in-sourced these processes. The resultant efficient structuring has resulted in reduced costs-to-market and a higher profit margin.
In this figures we can appreciate Dell’s present value chain, basically involves what they have acquired over their life, and as so many industries, huge fixed assets, ownership of their processes, from building parts, product and services. Outputs and inputs directly controlled by the Company, with same customers profile and also same competitors.
Due to the new strategy that Dell is applying to enter the new market of the consumer electronics, their actual value change have to be changed. The value chain that the company was using in the beginning of their operations was based on a specific product, computers. Now the company has introduced different products, and they are not producing these new products. So their value chain has to involve new elements on the chain.
The structures that they have now introduce their suppliers of the components that they use to produce a PC or a Laptop. But these components were part of a final product, now they will have to have providers of final products. What does it means? Dell is a company that ensembles computers, but they do not have experience or knowledge to ensemble printers, mp3 players, digital cameras and the new electronic consumer products that they are introducing in their new strategy. As a result of the introduction of new products the company has to consider new vital elements on their value chain and on their logistics. In the next figure we can see how their value chain has to be changed.
The new elements that Dell has to include in to its value chain are suppliers. Dell is a company dedicated to computers and the know how of producing computers is not the same one to produce a printer or a digital camera or a mp3 player. As a result Dell has to develop and integrate companies that create these products for them, and at the end Dell just put their brand on the products. As an example we can say that Dell has a JV with Lexmark to manufacture their printers.
In the case of a digital camera Dell will have to create JV’s with other companies to develop their cameras and provide a quality product. As an example Panasonic digital cameras has a body created by them, because they have the technology of the electronics, but they have a JV with Leica who produces the lenses. This combination produces a product with a very high quality and to Panasonic it does not represent an investment on R&D to develop an entire area of Optics in their company.
As we can see Dell will have to include new suppliers in their value chain according to the number of new products that they want to offer. They will need a supplier or a JV for the cameras, another for the mp3 players, and another for the printers and so on and so forth. In addition of the new suppliers Dell will need to change their internal operation as well as the service for the clients. The changes can be divided, according to the Porter’s Value Chain, in the next areas:
In this area Dell will have to change the way they manage their suppliers because they will have to do some investments in some automatic way to manage they inventories. This is because Dell is very well known because of their good response and low cost. So Managing low cost by managing JIT techniques for inventories is easier when you have 3 products than when you have 200.
The way that Dell will manage their internal operations will change, in order to respond to the new demand. As big the diversification as greater the problems are, especially if they try to produce something where they do not have experience on doing it. On the other hand, Dell will have to create de systems to manage their production, their management of products and the internal management of resources.
With the new products that Dell is introducing they will have a larger demand and a wider scope of products to deliver. So if Dell wants to keep their good service on deliver their products, their logistics of distribution have to be evaluated and redefined. The final objective of this is to keep a good level of distribution.
Sales & Marketing
As a result of an increment in the variety of products the companies have to lunch a new campaign of marketing to try to get in the market. Also Dell will have to consider that they are entering in to a market which is already occupied by big competitors that have many years of been into the market. As a result Dell will have to create an aggressive campaign in order to penetrate the market. This is the most important part that Dell has to face, if this new incursion in to a new market will be rentable for them.
The most important factor the Dell has to develop their marketing and sells is the internet. Dell has an advantage over other companies due to their sales on the web. As a result, the company have to use this knowledge to penetrate the market with their new products and also to provide the a good service to their clients.
Dell has a reputation of a good service during and post sell and this reputation is a great part on the image of the company. This image can be used by them as an advantage to sell or a factor of differentiation. The service may be one of the most important competitive advantages of Dell if they can maintain an effective logistics to deliver and sell, as well as a good service post sell.
These are the changes that Dell have to perform on its value chain on the other part of the chain we have Dell’s suppliers, distribution channel and the customers value chain. Due to the changes that Dell is performing in it’s chain this other links of the chain will have to adapt to Dell’s changes. This means that some new providers did not have Dell as a client, because of this, they did not take under account the demand the Dell has now of their products. Now with Dell’s demand on some products they will have to adapt to it, and so on. If we go back on the chain or forward on it, this model will have to be applied in all the links of the chain.
Dell’s Value Created
One of the bases to analyze Dell and its components is by knowing the company’s value created that suggests that a firm has high profits when it creates more value for its customers and does so at a lower cost. Porter has argued that low cost and differentiation are two basic strategies for creating value and attaining a competitive advantage in any industry.
Core Business have maintain economies of scope by the Internationalization its business, being known in offshore regions they have expand products that link to technology and chain companies needs. Competing with big players in the market they need to focus in their prices in order to maintain trust of good quality products and to bring the strategic idea of being part of any home in the world with all their products and components. They are focus in personal needs as the diversification, economies of scale being in all the world searching for lower labor costs, high qualified labor, tax credit, distribution channels, economies of scope with a wide list of products and components and economies of scale, in order to grow and have better operational margins as shown in the strategic leader below.
The Firm as a value chain.
It is useful to think of Dell Computer as a value chain composed of a series of distinct value creating activities including production, marketing and sales, materials management, Research and Development (R&D) human resources, information system an the firm infrastructure. Here we will find the value creation activities as primary activities and support activities.
Primary activities have to do with Dell’s designs, creation and delivery of the product; its marketing; and its support and after sale services. The primary activities are broken into four functions: R&D, production, marketing and sales and services.
R&D .- Technology companies compete with each other by developing new products as the case of producing mp3 media players, LCD projectors, Flat TV screens, etc. Either way the R&D function has created value on Dell.
Secondary Activities: The support activities of the value chain provide inputs that allow the primary activities to take place.
The materials management or logistics function controls the transmission of physical materials through the value chain, from procurement through production and into distribution. The efficiency with which this is carried out can ignorantly lower cost, thereby creating more value.
The human resources function can help create more value in a number of ways. Ti ensures that the company has the right mix of skilled people to perform its value creation activities effectively.
Information systems refer to the normally electronic systems for managing inventory, tracking sales, pricing products, dealing with customer services inquiries.
Dell infrastructure includes the organizational structure, control systems and culture of the firm. Through strong leadership, top management can consciously shaper the infrastructure of the firm and through that the performance of all other value creation activities within it.
Adapted Ansoff Matrix
PROTECT BUILD: Consolidate
Dell’s strategy was to build-to-order. Dell Computer would offer customers a menu of choices, and then assemble the individual computers to the precise customer specifications. This strategy proved to be very successful, boosting the company from its startup position to nationwide prominence within less than a decade.
Why to change then?
Conventional retail channels and pre-configured computer models did not allow the company to leverage its most effective competitive weapon: mass-customization of products. Moreover, Dell’s stock configurations could not command their accustomed price premium while sitting on retail shelves because they were insufficiently differentiated from competitors’ offerings.
Worse, Dell experienced a sizable increase in its capital costs, as it had to maintain 60- day finished goods inventory for the channel, whereas before it needed no finished good inventory.
PRODUCT DEVELOPMENT: With New Competences
Dell is launching new products that include: the Dell Music Store, a new online service to sell music downloads; a combination, HDTV-compatible, 17-inch flat-screen TV and computer monitor with integrated speakers; and the Media Experience, a software application to be packaged with all Dell Dimension desktops for managing digital media, such as photos, music, video and DVDs.
In addition to this set of electronics, Dell unveiled a new handheld computer, the Axim X3, with optional 802.11b wireless connectivity capabilities, plus a new desktop, the Dimension XPS, designed for 3D gaming and high-end multimedia applications.
Also, Dell is selling a new home-targeted projector, the 2200MP, which will display larger-than-life images of sporting events, video games or DVDs on a wall or screen.
MARKET DEVELOPMENT: New Segments
The new strategies will diversificate not only the market segment but also the customers. Dell understood that if they want to massificate the products they have to explore new products and these new segments will have new target customers.
Buy a computer, server, storage, is a intelligent purchase and to do it you need to spend between $600 to $5,000 -$ 6,000, but to buy a MP3 song, a MP3 player, Handhelds, Digital Cameras, PDA, the consumer do not have a lot amount of money, so the purchase can be impulsive. Now Dell’ products are for everyone, Dell can be in a pocket, can be everywhere: Massification.
Seeking to accelerate revenue growth, Dell’s new strategy is to move into the broader and high-performing consumer electronics category extending the company’s existing product portfolio and providing customers with a single source for consumer technology needs.
Providing customers with the specific products they want, both quickly and cost-efficiently, is one of the most effective ways of boosting market share, and thereby increasing corporate value.
“Customers enjoy music, movies, home films and personal communications, when, where and how they want.”
- Dell trends
- Owner of all processes
- Specialization / Delegating on supplier and partners
- Outsourced processes based
- Computer – Servers
- Diversification / Printers,/ internet, etc
- New technological products / MP3 / Music download / Business Partners diversification
- Competing with Big technological Players / IBM ; Compaq, HP
- Business Partnership, customers as suppliers; Competing with Big players and also with customizes
- Other competitors, Media player industry, Music, Internet, Printers, Might be SONY, Apple, etc
- Focused on Mass Market
- Mass market + Corporative clusters
- From personal devises to Corporate to whole services
- Heavy structure
- Building a supplier value chain,
- Merges & Acquisitions
- Dell’s Competitive Advantage
- Dominates PC Brand Repurchase Loyalty
- MetaFacts TUPdate#031211
Dan Ness, Principal Analyst, MetaFacts, December 11, 2003
Dell leads all other PC brands with the highest repurchase rate among the major manufacturers. The Repurchase Brand Loyalty measure is calculated annually by MetaFacts, Inc. as part of their Technology User Profile study. The 2003 research is based on a survey of 11,175 respondents and leaves no doubt that Dell is the PC repurchase brand leader.
According to the study, Dell has attracted the most-loyal PC buyers, rising to rank first among the major brands with a 77% repurchase rate. This is off the heels of the 2002 research which had Dell at an industry-leading 64.7% repurchase rate, a 19% year-over-year increase. Apple came in second in 2003 with a 57.6% repurchase rate, improving nearly 11% over its 2002 result. Although Compaq alone enjoyed a healthy 43% year-to-year improvement, when you combine HP & Compaq, the two brands are stronger than last year by 17% though still ranked third among the leaders. With Gateway decreasing from 54.5% to 47.5% from the 2002 to 2003, IBM Clones now rank fourth with 48.4%. (See table below.)
For Dell, repurchase brand loyalty is a key measure for PC makers as they look to expand beyond the maturing personal computer market and into the highly competitive consumer-electronics market. With new products such as portable digital-music players, an online music stores and flat-panel television sets, leveraging their strong brand loyalty with consumers will be a major factor in obtaining success in these new markets.
Dell is promising to bring an MP3 player, a digital music service and an LCD (liquid crystal display) TV/monitor to market for the holidays. Its new devices will join Gateway’s plasma TVs, Hewlett-Packard’s digital cameras and media receiver, and Apple Computer’s iPod on the list of consumer electronics goods traditional PC makers introduced. Dell enjoys a strong brand and PC market leadership, but Dell, will succeed in consumer electronics only if they:
ï¿½ Create an experience greater than the sum of its parts. Early adopters don’t care much whether all of their gadgets share a brand name–they shop for best-of-breed devices to customize their digital home experience. To sell a diverse product set, PC makers must offer advanced features that work only across like-branded products. HP is smart to integrate its cameras and printers, as is Apple, whose iPod can be a boot drive only for the Mac. To drive sales, Dell should reserve some of its music service features for owners of its own MP3 player.
ï¿½ Don’t sell consumer electronics as you do computers. When buying PCs, Dell shoppers configure their machines and buy online. But consumers buy electronics differently. Few consumers buy high-end TVs without comparing models in person, and even fewer buy high-end TVs online. Without its stores, Gateway couldn’t sell plasma TVs. Likewise, Dell needs kiosks or retail partners to show off its new TV/monitors and to short-circuit worries about shipping fancy screens.
ï¿½ Resist the temptation to push the networked home too fast. Home networking is still in its infancy, and entertainment applications won’t take off until 2005. HP, Sony and others jumped the gun with devices that move PC content to the TV and stereo. Dell should hold back from building a multifunction media center–and focus instead on bundling networking gear with PCs and supporting home network installation.
Dell can use one of their competitive advantages considering that they are available much more quickly and with more sell points. As their selling process can be in your screen in the future, much more unexplored developing countries may be an attractive market, consider China, and India, that as a huge market will be in not so far from now, Internet based country. Being offshore and globally they will be able to be in every home and company without to much investment, fixed assets and huge distribution chains.
Dell has also started making “white box ” PCs for regional dealers and opened up kiosks in retail outlets. In the past, Dell has eschewed stores and dealers, preferring to sell its products to customers via the mail.
Dell needs to focus in the future, trends that comes through technological needs and technology wide spreading trend. Being presence in all markets by Internet is a big advantage, they need to strength this value chain, and try to mix not only their online base but also try to merge or acquire companies that have the other way distribution chain already established and gain by synergy those attributes in order to compete with the new products. If Dell has both distribution channels it would be very difficult to be attacked.
Dell needs to understand that the move into the printer market–and other areas for that matter–isn’t without its risks. For starters, Dell increasingly risks alienating partners. In addition to HP, which dropped a distribution deal with Dell, Cisco Systems and 3Com have stopped working with the company. Given Dell’s intent to compete with these vendors in certain product categories, each one has changed its reseller agreement with Dell. Needs to focus in the long term relationships and do not forget to constantly review their competitors.
Dell can make up any lost revenue, but note that the PC maker’s penchant for new markets may hurt future partnerships. Efficiency is another key issue for Dell as it enters new markets. Everybody question whether Dell can continue to keep its operating costs down as it enters new markets. Dell`s cost structure is what allows it to enter new markets, including printers, and new devises that allow to gain market share and profitability.
BASIC Ways to Compete
Dell will need to acquire a strong differentiation strategy. Dell will succeed with their new range of products only if they focus and take into account that is being part of new players in the entertainment business linked to technology.
To be a low-cost producer, this will be achieved only if their supplier chain is being reinforced by a clear and long term relationships.
Getting Feedback from Customers and Suppliers
To continually bring information from the outside world into Dell, with an eye toward staying as competitive as they can, uses a variety of innovative approaches.
Dell’s core competences:
Three main characteristics
- They should make contribution to stakeholder value. Nowadays we can seek into our external environment and find that a neighbor uses in high or low terms the 20 years unknown technology. If companies like Dell that have influenced the way of transforming speed and technological devices don’t consider their community they won’t last. Stakeholders are being part of every supplier and customer chains.
- They should opens door to other opportunities, printers new venture has become a successful entrance on new division opportunities but Dell must search much more in what they are good to build and create.
- They should represent such a unique blend of tacit and explicit knowledge that others cannot copy it.
- Leveraging the Power of Knowledge
Three Common Traits of Marketplace
Operational Excellence: making certain that all components of the business are linked on an operational basis; an environment that allows cross-pollination of ideas, extensive communication and collaboration among management, departments, and people across all functions and disciplines.
Sense of Mission: recognizing the new trends and let their new mission to be distinguishing from competitors.
Focus on Innovation: recognizing that in every business function the most obvious way of doing things is probably not the most efficient approach; thinking outside the box in order to discover the way to stand out from the competition.
- Merges and Acquisitions
Whole industries have pegged in the idea of acquiring or being acquired by others that probably are strongest and more successfully, so Dell will need in the medium term to search for partners that will provide, Dell has also increase in the ability to be a partner for products that probably they never build, create or even produce.
- Absolute cost advantages
Building good relationship with suppliers, and outsourcing their processes they will achieve:
- Dell low-cost product design / processes
- Dell access to necessary inputs
- Dell learning curve
Strategies contend that Dell must:
Invest in serious branding efforts to bring awareness and credibility to Dell’s services capabilities. Dell offers a strong complement of services, but these services are still among the company’s best-kept secrets. It must launch a major campaign to bring its new business to customers’ attention-and earn consideration in the RFP process. In addition, it must sell its services offerings at a much higher level within its target customer organizations, and provide ongoing metrics that attest to its ability to deliver services more efficiently and effectively through its model than that of its competitors;
Communicate a clear message to partners about its goals for Dell services. Dell must reassure partners that its new consulting emphasis does not mean it will try to compete with them in the future. In reality, Dell’s strategy can give partners greater opportunities to provide more services to more customers;
Ensure high quality of services. Dell must ensure a high quality of services from Dell, through its partners, to its customers. Specifically, it should continue monitoring and assessing partner performance, and rewarding and renewing those partners that do a good job. Open lines of communication, certification programs, frequent training on Dell equipment and regular performance assessments for partners will be critical to ensure that Dell’s partners can represent the company in the best possible light; and
Build its skills and thought leadership in areas related to e-business. Dell must leverage its own e-business experience and build on it with new thought leadership in e-business. It could, for example, market joint offerings with firms in the Dell Ventures investment portfolio, such as web Methods, NeoForma.com and Interliant.
Overall, we believe Dell has a cohesive services vision and the ability to execute on that vision. In just the past year, Dell has demonstrated that it can use DTC to handle upstream engagements, and to drive increased value to its partners and customers. In particular, for customers that use an industry-standard architecture, Dell is a strong candidate to provide higher-level services because it has already “been there and done it.” It built the multi-billon dollar e-business infrastructure for Dell.com on industry-standard platforms and can offer customers the value of learning from that experience. The entire set of DTC offerings, when combined with Dell’s existing ASG technical-support services, positions Dell as more of a total-solution vendor, as opposed to a box-pusher. This is an important strategic move for Dell, since it will pave the way for it to forge better relationships with its customers and partners, sell more hardware, and ultimately grow its business and influence in the market.
The Role of Dell Strategy
Successful companies are those that focus their efforts strategically. Strategy should be a stretch exercise, not a fit exercise. To meet and exceed customer satisfaction, the business team needs to follow an overall organizational strategy. A successful strategy adds value for the targeted customers over the long run by consistently meeting there needs better than the competition does.
Strategy is the way in which a company orients itself towards the market in which it operates and towards the other companies in the marketplace against which it competes. It is a plan an organization formulates to gain a sustainable advantage over the competition. The central strategic issue: why different companies, facing the same environment, perform differently.
It is very difficult that Dell drive down consumer electronic prices using its model of super efficient manufacturing and selling direct to costumers through Web and phone, products and services that range from plasma TV sets, to download music through the Web to MP3 players because the new products as PC products in the future will low their margins as the first approach to new markets essentially consider a priced base promotion. This approach is a short term policy but then they will need to focus in their costs, it is true that Dell has been very wise from the beginning, by a first mover on the online based selling process as they could leverage their strategy on a low labor costs, delivery chain, supply chain and as many other dot COM companies, you have it all in your web host, this means that they don’t need a heavy structure seller unit. In addition to these advantages, Dell brand is strong in the market of electronics which can be and advantage on the people preference to buy the new products that they are lunching. Also due to their experience on the .COM industry, Dell has an advantage over companies as SONY, Panasonic, etc, which are concentrating their sells channels trough the point of sells type of approach, that make their prices much more higher than Dells.
It is true also that competitor in this matter as Sony, Dot COM industries (Amazon. COM, buy it all by mail. COM, etc), HP, TV set producers, etc, are also retailers that focus their strategies on volume and low costs, Dell’s core competence as the first mover in online retail seller, helps in order to maintain their contact with customers in an easy and fast Just in Time environment. Because of these, Dell has to improve their SCM in order to maintain their low costs and with this maintain a advantage over its competitors.
Every retail product has become focused on the volume considering that most of them have low margins. Much of the advantages over other is that Dell has its price based very well adapted to technological advances and also to trends in culture, companies home and college needs. This trend means that most of the market is acquiring technological devises that are linked form each other, a pack of products will solve the market share that Dell can gain over other companies.
Economies of scale will provide also the advantage to reduce costs, as prices, be aware that margins will be kept low. The technology needs something else than a devise that provides tools, automatization, saving capabilities, high quality resolution, definition, quick response to instructions, wireless devises, etc, because each and one of the products in one or another company is almost the same, price will give some differentiation, reliability other and the most important is the added value that Dell as a technological company will provide to the products. Service is one of the values added and most profitable of all considering better margins, and a close an faithful relation with customers and suppliers.
Much more of the technological companies outputs are similar, in design (put out Apple in design), price, reliability and quality, inputs are more important as they give the product the value added by their cost linked in research and development, know how, people. Nevertheless, the main differentiation that Dell has to look after is the service, the service in the case of electronics is basic to keep your costumers satisfied with your products and Dell’s main advantage over its competitors is precisely the service. So in this case Dell’s model of selling is completely based on service, so they will not have any problem on focusing the service as an advantage to get in to the market of consumer electronics.
Its true, in every Technological company profit margins are quite low in PC, some of them have already stopped producing huge volumes by themselves, and searching overseas regions with low labor costs, where they can face joint ventures in order to maintain the product rather than leaving it. We need to remember that brands cannot afford a loss linked to their historical and first based product in which they build their dreams I’m referring to PCs. So the strategy will be reducing the costs, getting offshore and build create a mix of products that allow to compensate profit margins with the ones that are more profitable, services, maintenance, wide huge servers, etc. One of the main ways to reduce costs in the company will be by the correct management of their value chain by trying to create the correct JV with the companies that will provide them with the materials necessary to produce and commercialize their new products.
IBM as a huge and big company has success only because brand name power of purchasing and adapting to other frameworks and customer needs. Remember that IBM considered one and unique structure that linked all products and services to the brand, being impossible to acquire other devises, servers even software rather than their products. Technology over the years expanded their horizons by giving the market a lot of products and range of possibilities that allowed the customer form personal to corporate to bring low cost and light equipment that where very easy to install and compatible no matter what brand. As the prize war begun in the 90s the only way IBM will succeed was to adapt and bring products that allowed to be implemented with any other system. The quid here is the quick response to changes, adaptability and giving the customer what they need, remember that technology grows rapidly, so the strategies.
Dell approach is very different from IBM’s policies, and objectives, the new strategies have to be build in order to compete with other kind of new competitors. IBM for example has dropt the PC focused product and give other the opportunity to gain in the market, Outsourcing or services to mention. Dell must focus in retail market. Where the marketing strategy will be very important, where the fashion trend will have to be analyzed, where the strategically joint ventures have to born in order to gain knowledge about the market trend in new products, quality standardization and also being present in countries like India or China.
Some of the company’s past side ventures have succeeded. For example, Dell became the largest workstation manufacturer in the world after just a few years in the market. But Dell has stumbled too. One of its first forays into storage occurred via a buyout of ConvergeNet. But Dell closed the ConvergeNet operations after two years. It also sold off a Web-hosting unit. Partenship has been a doble edge advantage, HP for one site was one of the bigges partner and the relationship is over, and Lexmark is one of the companies advantage for adding value to the supplier chain.
While the PC market has stumbled in the past two years, Dell has shown the ability to grow, picking up several points of market share. The company went from having just over 13 percent of the worldwide PC market to owning nearly 16 percent of it between the fourth quarter of 2001 and the fourth quarter of 2002, according to reports from research firms Gartner and IDC.
Still, Dell would have to double its current market share to reach its new goals. And in its attempts to increase its market share, the PC maker has found itself head-to-head in a battle against Hewlett-Packard
Dell expects to win market share in part by lowering its costs. The company reduced its costs by about $1.2 billion in its fiscal year 2003. It expects to more than double those costs savings in its fiscal 2004, which runs nearly concurrent with calendar 2003. Dell typically passes about 75 percent of its cost savings on to customers in the form of lower prices.
Dell will use those lower prices resulting from the cost-savings as a weapon to gain market share against competitors, though Dell said he hasn’t taken aim at a particular company
Instead, the company is focused on expanding its presence outside the United States, where it garnered nearly 30 percent of the PC market in the fourth quarter of 2002. The company’s revenue from Europe totaled $2 billion during the fourth quarter, the first time the figure has reached that mark. But the company also faces competition in Europe from HP and in China from local companies like Legend Group.
The printers represent Dell’s latest advance in a strategy aimed at boosting revenue and diversifying its product line . Dell has already launched a new PDA (personal digital assistant), a line of digital projectors and a family of network gear.
Supplies for the printers aren’t available at retail stores. Instead, customers will purchase them online or via telephone. Dell started to deliver supplies without charge shipping fees as a first aggressive approach strategy to enter the market. Customers who buy multiple ink or toner cartridges will receive discounts. Dell already sells a large number of printers with its PCs, so it’s guaranteed some sales; the measure of success will be if it can sell its printers apart its PCs.
Dell has two goals for its printer push: boost its own sales and hurt archrival Hewlett-Packard. Printers, and consumables such as printer cartridges, remain the crown jewel in HP’s product arsenal. At one time, Dell was one of the largest resellers of HP printers.
Its true that PC market is giving Dell and all tec industry a very low gross profit where margins are being considered as the product big issue, as they consider a huge volumes in revenues but no profit margin. Consider that for selling PC`s all tec companies have to move a lot of administrative and operative processes while receiving a few benefits at the end.
Dell’s new strategy will better position it to:
In ramping up its consulting practice, the company has both created new opportunities for itself and taken on some new challenges.
Serve as a single point of accountability. By assuming the prime contractor role with the customer and being a single source of accountability for end-to-end IT projects, Dell can own more points of the customer relationship than it has in the past;
Become a higher level strategic advisor. By tackling higher-end services projects and taking an advisory role with customers, Dell can expand its position as a thought leader and strategic advisor to customers;
Be more responsive to customer needs. By developing a deeper understanding of its customers’ strategic business objectives and by managing solution design and implementation, Dell can better anticipate and respond to customer needs;
Reinforce Dell’s close ties to its services partners. Dell’s services strategy is still very much partner-centric; in contrast to some its rivals, many of which often walk a fine line between partnership and competition with their service partners. Dell’s model also gives it the flexibility to source services from various third-parties to fulfill global and niche market needs; and
Capitalize on industry-standard expertise and volume efficiencies. Dell’s exclusive focus on Intel-based Microsoft-, Novell- and Linux based solutions enables it to concentrate services resources in these high volume markets and build expertise for them more rapidly. It also negates the need for Dell to invest services resources to build practices to support less pervasive platforms.
But, the proof is in the pudding. No matter how comprehensive or well planned its offerings are, Dell will have to continue to raise its visibility as a services provider and refine and expand its services capabilities. Dell’s leadership in delivering hardware could prove harder to translate into consulting services. Consulting is a high-touch, highly variable activity-not something that can easily be distilled into a standard set of processes and automated or commoditized, as Dell has done with its other offerings.
Dell’s competitors also have more visibility in the services market. Most provide heterogeneous operating-system and platform support, and some are establishing practices in emerging areas such as e-marketplaces, portals, wireless computing, e-services and Internet applications hosting. As Dell ramps up its own services capabilities in these areas, it will need to leverage the expertise of its partners effectively in order to boost its association with these cutting-edge trends.