The most critical shifts in Dell’s contextual factors, including industry dynamics, trends, technology changes and shift of the competitive landscape are following: The industry has changed significantly over the last 20 years. The traditional business model in the PC industry was inside-out, supplying machines based on orders from distribution, resell and retail channels, thus following the indirect selling concept. Dell’s direct model was at this time a new, challenging concept, taking orders directly from the end-consumer, and thereby, eliminating the middleman, costs and time.
This was the initial crucial shift away from the traditional schema, allowing Dell’s quick and tremendous growth. In 1993, however, Dell reached a point where it had grown too large, without making the necessary internal improvements to stay profitable. Therefore, by bringing in four new ‘seasoned’ managers to focus on specific aspects of the business, Michael Dell hoped that Dell could become a synchronized, efficient, and profitable business again.
This was another critical shift for Dell, because the resulting improvements led to Dells competitor-killing concept of “virtual integration,” which goes a significant step further than traditional integration by connecting the right parts together in the business and thereby, enhancing its efficiency in management and operation processes. Additionally, the strong trends within PC customers towards customized devices increased Dell’s success even more, and contributed significantly to its ultimate triumph over IBM as the 2nd largest market shareholder globally.
However, Dell’s “vaunted Direct Model” for distribution and the focus on innovative marketing led to further critical shifts, particularly within the competitive landscape around Dell. Giants, such as IBM, Compaq and HP challenged Dell’s standing through following actions: a) IBM: After steadily losing market shares, IBM – who in contrast to Dell, heavily relied on distributors, resellers and retailers (90% of sales in 90’s), attempted to challenge Dell with two distinct new product models.
The first one was “Enhanced Integration” – the idea of heavily configured IBM PCs, then sent to authorized middlemen, who added specifications and eventually sold it to the consumer. The second attempt was the AAP, which sent ‘lightly configured’ PC’s to downstream partners. The goal was to enable IBM to deliver customized PCs rapidly without holding large amounts of inventory – just as Dell did. However, IBM’s hope was crushed fairly soon after severe struggles with quality issues and ‘tear down’ costs.
Finally, IBM anticipated cracking the direct market by boosting direct sales of ThinkPad laptops with halting retail sales. This failing move by IBM was critical for Dell as it had shifted dynamics in favor for Dell, as it eliminated IBM (at this point of time, late 90s) as a potential threat. b) Compaq & HP: Before the merger of Compaq and HP, Compaq surpassed IBM in ’94 to become the world’s largest maker of PC’s. Its dominant focus was on indirect selling through distributors, resellers and retailers.
Aligned with this traditional concept, Compaq’s production and operation process was ruled inside-out, developing production plans by forecasts of channel members. In terms of competitive dynamics, Dell was challenged by Compaq when Compaq started its approach to enter the direct sales market and ran into conflicts with its indirect selling partners. HP was more careful by announcing direct selling only through an online store. However, Dell’s key competitive advantage here was that Compaq’s production and inventory times were significantly higher / longer than Dell’s.
In fact, no player in the PC industry appeared to be able to live up to Dell’s speedy processes. After suffering steady losses, Compaq agreed to the controversial merger with HP, which – after initial struggles, did very well, becoming the largest IT company in 2006. c) Gateway: Gateways Fall was another profitable competitive dynamics shift for Dell. After a series of confusing initiatives and consequent losses, it was acquired by Acer, leading to the next dynamics shift, which critically affected Dell later on (mid 2000s), but in a much less fortunate way.
Acer praised itself with 100% indirect selling, entirely contrasting Dell’s business model. Acer established its competitive edge with its portfolio of brands, offering an extensive line of less expensive products. In fact, in 2009, Acer passed Dell to be the world’s largest PC provider in unit terms, as its sheer size allowed the company to “tailor brands to customer segments and geography, while having the volume to demand discounts from component suppliers and contract manufacturers” (p. 12). d) Acer: Acer’s rise and Dell’s consequent decline were largely reliant on the hift of interests of industries and consumers. Firstly, the PC industry shifted more and more towards outsourcing production, and thereby created lower priced products, which were welcomed by customers, as their needs shifted more and more towards cheaper products, which were acquirable in retail stores. Since the market in the US has become fairly saturated, the dynamics of the PC industry shifted increasingly towards cheaper products, as emerging countries such as India or China demand for PC’s (and laptops) vastly outnumbers any other market.
In addition, younger customers (i. e. school kids) have become a rising market segment as well, as technological devices such as the laptop are getting more and more integrated into the education system of today. As a consequence, ‘hipper designs’ and accessibility through retailers moved into the spotlight again, and Dell’s customized products for ‘savvy techs’ lost attractiveness. e) Apple: When speaking of spotlight and sleek designs, Apple has to be identified as the dominant player in this category.
However, even though its market share “ hovered at low levels”, a series of moves in the 2000’s, i. e. launching complementary goods and services, like the iPod and iTunes or the iPhone catapulted Apple right into customer’s sight and favor. In addition, Apple also opened its own retail stores and thereby successfully sells it products directly and with the traditional indirect way to customers.
As a conclusion, Dell’s competitive edge of direct selling has abraded gradually as a consequence of various trend changes in the PC industry and shifts of competitive dynamics, as elaborated upon above. In summary, we believe that three major contextual factors account for Dell’s current decline: Firstly, the market (especially the less saturated, emerging markets) leads to a shift towards cheaper, but yet hip products, and available in retail stores, which Dell simply cannot offer. Secondly, Dell has not anticipated enough the movement towards and importance of retail accessibility.
Finally, a chain of negative incidents, including poor leadership by Rollins, growth decline due to bad customer support reputations (which initially was one of Dell’s core competencies), the dramatic recall of 4 million laptops, as well as legal issues regarding its financial accounts, all contributed to Dell’s tough times. The problem of lacking leadership in this period, led Michael Dell to come back into the business, approaching new strategies such as indirect selling through superstores (Wal-Mart, Carrefour etc. ), and a major cquisition of Perot, raising hope for Dell to move into great future opportunities, as the role/significance of data becomes increasingly crucial in business today. Question 2: Dell’s major competitive edge clearly was that in the early days it was able to address its problems associated with rapid growth, and build itself into a lasting profitable company. Michael Dell has realized that proper management was crucial in order to create this lasting profitability and a sustainable business. Dell achieved this with three fundamental concepts: 1. “Virtual Integration” 2. Real value customer service features 3.
Tailoring Manufacturing to customer needs. This idea of the outside-in, direct selling – model was Dell’s key competitive advantage and was a critical move from Dell for it’s ultimate huge and fast success, since the PC industry was predominantly focusing on a inside-out, indirect selling business concept. The key difference between Dell and other major player such as IBM or Compaq, were that “most PC makers supplied machines based on orders from distributors, resellers, and retailers. ” Dell however, shifted from this indirect to a direct model, taking orders from end-consumers, cutting out any potential middleman.
This allowed Dell to become unbeatable in terms of production efficiency and inventory turnover time. Virtual integration, as mentioned above was the essential element to achieve this competitive advantage. Key integrations formed, included a symbiotic relationship with its suppliers; that customers were linked directly to the manufacturer; and that end users were linked to proper customer service assistance. Each one of these measures enabled Dell to significantly cut costs, deliver in record time, and provide a reliable, price-competitive finished product.
These integrations led to the shift number of days a PC sat in inventory from 32 days to 7 days and by customizing orders Dell’s customers received a product perfectly tailored to their desires, while Dell saved money and time on manufacturing. In addition, tailoring manufacturing customer’s needs enabled Dell to integrate production schedules with sales flows, assemble all parts of the product on site, and install the specific software that the customer requested. These manufacturing interactions sped up the final products completion time to record holding 36 hours. As a conclusion, we believe hat Dell’s business structure of “virtual integration” allowed it to stand out in this highly competitive industry. Its competitiveness resulted in an extremely efficient business model that sought out every opportunity to enhance its operations, without compromising the quality of their product. Production efficiency lowered cost, which in turn provided Dell with stronger profit margins, and allowed Dell to become so tremendously successful by the end of the 90s. Question 3: The leadership in Dell has faced several challenges over the years, which have evolved into significant changes within the company, its structure and organization.
The very first notable leadership challenge –ironically- was Dell’s unexpected, uber-fast growth. Michael Dell and its small entrepreneurial team simply did not anticipate the growth potential Dell quickly revealed. Thus, in the early 90s, Dell had to shift its entrepreneurial spirit towards a much more organized and structured leadership composition, when “growth pains culminated in a net loss, and Dell’s supply of cash fell to $20 million”(p. 8). Therefore, Michael Dell decided to hire four “seasoned managers from Motorola, Apples, Sun Microsystems, Intel” (p. ) who gave Dell structure and turned its overall focus to return on invested capital. Later on, Michael Dell decided to change its name from Dell computer to Dell. Inc, demonstrating that Dell’s products are more than PCs, as he expanded his company in different directions: He moved upstream with a new line of servers and storage systems that would compete with Sun Microsystems’. And he moved sideways into services- such as Web hosting and storage to drive new revenue streams. Through these transitional changes, his company was now competing not just in the PC market but also in the entire $800 billion a year information technology market.
As a consequence of a few years of delightful success, Michael Dell eventually decided to step down as CEO in 2004, passing the lead to Alex Rollins. However, after four fairly critical years, declining business performance, losses and fatal incidents (i. e. Bad public reputation of Customer Support, recall of four million laptops, and legal issues), Michael Dell decided to come back to the company as the CEO in order to fix the problems and move the business towards a sustainable future. He soon realized that he could not do this on his own, and therefore hired professional help (managers) from outside.
In fact, Michael Dell has been making sweeping changes in almost everything: From personnel, and partnerships, to distribution and new acquisitions. In a NYT article, he recently was quoted saying: “There’s been a pretty ginormous shift in our business over the last several years,” (…) “We can do, and must do, more. ” Consequently, he has restructured the company to sharpen the focus on customers and new focus of branching out into services, software, and new hardware categories, including smartphones and tablet-like devices.
However, when analyzing Michael Dell’s leadership competency, we conclude that his visionary character, entrepreneurial spirit and determined business instinct prove to be crucial and effective leadership capabilities. Because even though Dell is facing difficult challenges, being in this industry of rapid changes, he shows competency of coping and tackling them, demonstrating transformational leadership in a time where it is most needed. II. Invent With decreasing market growth on the PC market during the last 3 years and 73% of its revenue generated through the sale of Desktop and laptop computers, Dell is forced to move in a new direction.
For us the two most important influential factorsaffecting Dell at the moment are the data revolution(the exponential increase of data) and the challenges that come from that, and the growing level of individualization that is happening to consumer products. The latter already lies within Dell’s core strengths and is therefore the perfect angle to look at for increasing success. To improve its current position Dell should rely on its competitive advantage and not try to be something it’s not.
Excellent logistics and supply chain management, being the master of JIT Production, fast processes and reduced inventory level, and consumer-focused processes are its main strengths. Hence the company should not try to copy competitors such as Apple and try to compete with them on the technology level, but try to exploit its knowledge of the consumer, on the individual and on the business level. We know what kind of company Dell is, but we also need to focus on the kind of company Dell is not. Many people have been critical of Dell’s attempts to tap into the smart phone and tablet PC markets.
Although Dell can make a lot of money by being a late entrant into this space providing low cost, the company needs to understand that it is not an innovative company per se. Being the first mover in the consumer electronics market requires resources, better investments in R&D, and a highly skilled creative team, which Dell just does not have. Now that Dell has acquired Perot Systems, it can offer its big business customers services such as data management, IT system planning, and consulting. Dell should leverage this new acquisition when trying to attract corporate clients.
The Perot acquisition has already opened doors for Dell to set foot in new promising industries, as it generates 48% of its profits in the health, and 25% of it in the public sector. For a broader and also more international presence in the data industry, Dell, once it has realized and fully integrated this new business activity, will have to expand inside of the US and into other countries. The best way to do that for Dell to do this will be through the acquisition of up and coming established enterprises nationally and internationally.
On a customer level we have seen unsuccessful attempts from Dell in the past to deviate from the direct-sell model. However, as seen in the case, Dell has received a lot of backlash for its lack of quality customer service post purchase. To enhance the customer’s experience before ordering the actual products and to solve the problem of customer dissatisfaction towards Dell help centers, we suggest the opening of proper Dell retail stores that give customers the hands-on experience and customer support needed. This would also allow the creation of a much stronger, tangible Dell brand name.
Further discussion of these retail stores can be seen in the change plan below. Dell, being the only company who can boast a high level of computer customization, has the resources to even consider taking this customization to the next level. They should make it possible for people to really create their own computer. Dell should offer not only distinctions from within the computer but also aesthetic changes such as offering parts of the PCto come in different colors that can be combined in any desired way, and the possibility to put even your own pictures on the cover.
The opening of proper stores, would take this creating and designing experience to another level by providing things such as simulations of your customized design so people can have a clear idea of the product they are to receive. III. Execute Change in Advertising Strategy: Currently Dell’s ads are dull. They lack the character and “cool” factor that its competitors’ ads, such as Apple and HP, possess. As mentioned in the case, Dell’s competitors spend an exuberant amount of money on advertising while Dell lags behind in that category.
As part of Dell’s change plan, we’re suggesting that Dell should focus on its strengths and try to relay those to its consumers. Dell boasts a 36-hour turnover from the moment computer order is placed to its complete assembly. Dell should leverage this fast manufacturing time and also its ability to customize its products according to consumer preference. Since its inception, Dell has been the only computer company to boast a high level of customization for its customers. Dell should stick to what it’s good at, but take that level of customization to the next level.
For example, in addition to the software and hardware customization that Dell offers, they should offer customization when it comes to the look of a computer as well. Dell’s products are missing that “cool” factor that companies like Apple have been able to embody. Dell could also use its new acquisition of Perot to further enhance its customization capabilities. For example, if an already existing user of a Dell computer wants to upgrade to a new model, Dell can use information collected about that particular consumer in its data center to predict and possibly preload this new computer with features that customer might like.
As we will mention later, Dell can also strategically begin advertising to a younger demographic through an alliance with business schools. Currently Dell’s company strategy is outside-in meaning that the feedback and results it gets from its users outside of the company are what impact the decision making within Dell. It focuses on the needs and preferences of its users. This is an open-minded approach, which allows Dell product developers to be flexible when they approach the creation of a new product. The company should continue this strategy because it is one of the things that sets it apart.
Dell will never be that initial market penetrating company who is the first to invent innovative products. Dell should continue to practice what it is good at and provide great consumer electronics at a price that rivals any competitors’. The timing and pacing of this initiative is difficult to predict because it would involve several factors. First it would depend on the amount of money that Dell is willing to spend on a new advertising campaign. Since Dell will be advertising things that it is already good at providing its customers with though, the mentality behind which the Dell employees operate will not have to change.
Secondly the length of the advertising change initiative will depend on how long it takes Dell (or a marketing company hired by Dell) to create and implement a campaign. This advertising strategy should start off nationally in the US and then transitioned into other parts of the world. The US and British markets respond well to Dells customization driven business but other cultures might not value this type of business strategy. Leverage Acquisition of Perot: As previously mentioned, Dell can begin to leverage its acquisition of Perot by using data collected about consumers to predict preferences and trends.
However, that is one of the most basic ways in which Dell can exploit its newly acquire strength. With a 65% customer base that comprises of big businesses, Dell can now offer client data service management, website hosting, computer infrastructure design, software development and consulting advice. These services are particularly useful and designed for big businesses; however, we believe that Dell should extend these world-class services to the 45% of its individual users. As seen in the case, Dells customer service and help centers leave a lot to be desired.
At the Dell retail stores/show rooms that were mentioned above, Dell can provide customers with in person help with their computer problems. Having trained technicians on sight would eliminate angry telephone customers whose issues can be easily resolved with an in person consultation. A major long-term way in which Dell can leverage its acquisition of Perot is integrating its technology into the medical industry. No other computer giant has been able to tap into this market. Currently most health care industry archives are hand written, on paper and stored in file cabinets.
Hospitals and doctors have failed to make a transition to data stored technologically because of the high costs associated with that transition. However, if Dell creates a long-term initiative focusing on this very transition, they can be an industry leader and first mover, which would have several positive implications. Form Alliances with Business Schools: In the past few years we have seen a massive shift of student computer use from PC to Mac. This is partly due to Apple’s growing popularity as a “cool” and innovative company, but also because of Apple’s simplicity and easy to use operating system.
A strength that Dell does have in this market is that it offers significantly lower prices than Apple. Students with less disposable income will opt to purchase Dells if they cannot upgrade to Mac. However, there is a segment of the student market that will be forced to continue to use PCs throughout their lives. Currently most financial services companies use PCs to run financial models and conduct trades. Students studying finance and business are a segment of the market that Dell should target because these students will be exposed to PCs for the rest of their lives.
Our suggestion is that Dell form a strategic partnership with undergraduate and graduate business schools to foster a love and need for the company. By offering things like classes in how to use high tech trading software, Dell can really instill a loyalty to the company into these students who are potential lifetime users. As the professor alluded to in class, Dell can also donate or offer electronics to the school at a reduced price with an agreement that the school will promote and advertise Dell’s products to its students.
For Example, a large screen in the lobby of Stern donated by Dell could potentially periodically feature an advertisement for Dell while displaying current news for students. Dell Opens Its Own Retail Stores/Show Rooms: One major backlash that Dell receives is that customers are wary of their products because they are unable to physical touch and play with the computer before they order it. Our suggestion of opening Dell retail stores/show rooms solves this problem. If Dell opens these stores, they can display different computer models on the floor for consumers to physically interact with.
In this way the spaces would act as show rooms. However, Dell can also opt to offer customers to make on the spot purchases at these show rooms. If a customer sees a model they like, they don’t have to wait until they get home to go online or call Dell over the phone to place an order – they can do that straight through the retail store. Dell can offer its customers to have those products delivered straight to their residences or can offer customers to pick up the computer at their nearest Dell retail store.
Another feature that Dell can offer those customers who opt to pick up their PC from a Dell retail store is free installation of the computer so the customer is essentially “ready to go” once he/she leaves the store. Another problem that these retail stores would solve is that of Dells unpopular customer service call and online help centers. As previously mentioned, Dell can host several in-house IT specialists who can assist customers who have problems with their PC and bring it in to be examined by said specialists.
These specialists can also help in consulting with those consumers who are very high-tech focused and have specific technical needs. In terms of taking customization to a next level as introduced in our “Invent” section, customers can go into these retail stores and choose from thousands of colors and patterns to customize their computers. The people working in the store can be trained to help customers use scanned pictures or create designs of their liking. These looks can be simulated into images that consumers can go through to be able to preview their own customized computer before purchasing it.