Dell has experienced tremendous growth over the past twenty years. Throughout this period, Dell has continued to raise its standards of excellence. The values, mission and vision of the company facilitate the achievement of these illustrious goals. Dell had 46,000 employees as of Jan. 30. About 22,200 of those, or 48. 3 percent, were in the United States, while 23,800 people, or 51. 7 percent, worked in other countries, according to a filing with the Securities and Exchange Commission.  Dell is listed at #38 on the Fortune 500 (2010).
Fortune also lists Dell as the #5 most admired company in its industry. Dell has grown by both organic and inorganic means since its inception—notable mergers and acquisitions including Alienware (2006) and Perot Systems (2009). As of 2009, the company sold personal computers, servers, data storage devices, network switches, software, and computer peripherals. Dell also sells HDTVs, cameras, printers, MP3 players and other electronics built by other manufacturers. The company is well known for its innovations in supply chain management and electronic commerce.
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On May 3, 2010, Fortune Magazine listed Dell as the 38th largest company in the United States and the 5th largest company in Texas by total revenue. It is the 2nd largest non-oil company in Texas (behind AT&T) and the largest company in the Austin area. Current situation Dell is weathering a downturn in consumer demand by emphasizing its business and enterprise customers. The pickup in its enterprise business has helped Dell outshine rival Hewlett-Packard Co. for the second straight quarter. The trend is a reversal for Dell, which has lost its consumer edge to HP, but consumer sales now only represent 20 percentage of Dell’s revenue.
Strategic Posture The key competencies of Dell are customer focus, manufacturing processes, supply chain management, customer selection, acquisition and retention, customer service and human capital management. Dell’s strategy has been to match its core competencies with key industry success factors. The strategy for Dell is to reinvigorate its differentiation advantage. Ultimately, the company must get back to basics. This requires the firm to realign its core competencies with the needs of a global marketplace. EXTERNAL ENVIRONMENT MACRO ENVIRONMENT
The PC industry is facing increasingly strong worldwide competition – leading to reduced differentiation among competitors and increased price sensitivity among consumers. Although Dell has seen considerable growth, the company is beginning to lose its competitive edge in critical business segments. Specifically, Dell needs to improve in the following areas: customer service, customization options, increased marketing presence and retail solutions tailored to the global environment. Dell’s ability to adapt in these business segments will ultimately determine its ability to maintain its predominant position.
Dell is facing multiple external environment issues which may impede on the company’s top position in the computer hardware market. First, Dell faces slow growth for its primary product: the personal computer (PC) in a saturated U. S. market. The majority of U. S. corporate and education PCs will be replacement units affected by a technological upgrade cycle within the next two years. Therefore, as Dell attempts to maintain its dominant position, the company should focus on product customization and superior relationships with suppliers. This strategy enables Dell’s past success but had become diluted over the last five years.
The company should continue to improve itself in these areas in order to remain the top computer hardware differentiator. Second, the erosion of Dell’s brand value continues due to the perception of declining customer service. Although the company prides itself on superior customer service, recent surveys suggest that Dell’s results recently declined in this business segment. Dell’s executives are aware that quality customer service is a key element of the company’s success and are reportedly working towards improvements. Third, Dell’s inability to serve all market needs due to the current strategy of limited vendors in its supply chain.
Dell brings few products to market and leverages technology created by other companies effectively and efficiently. Dell also remains committed to chip supplier, Intel. Although this enables Dell to offer PCs at high value to consumers, it also limits the company’s ability to supply diverse customers. The company should consider enabling itself to offer more customized products by increasing relationships with more diverse suppliers. MICRO ENVIRONMENT Threat of New Entrants: MODERATE * Low capital investment for independent stores? * Low product differentiation Brand name may be a barrier to entry? * Low economies of scale * No legal or governmental barriers ? Decreasing profitability shows that there is a threat of new entrants Rivalry: HIGH * High concentration * Price War: Low Margin * Decreasing profitability * Low differentiation * However, in the midst of severe competition, Dell can still gain market share from other competitors. That proves Dell’s business strategies have been successful. Threat of Substitutes: LOW? * Strong presence of PC’s throughout society * substitute for PC: Apple Computer, HP, Lenovo, IBM etc…. However, high price, and lack of software support prevent people from switching to Apple system. Bargaining Power of Buyer: High * ? Highly price sensitive * ? Reliability and customer service become important factors. * ? Dell’s products are very reliable and customer service is outstanding. * These two factors help Dell to create certain brand royalty. But that’s given the fact that the Company set the prices very low. * If the prices are raised too high, customers will not hesitate to switch. Bargaining Power of Suppliers: HIGH? * Large number of suppliers for components like hardware, keyboards, etc. But two major inputs are monopolized Microsoft standard for all PC’s and Intel standard for most PC’s * High switching costs INTERNAL ENVIRONMENT Dell, Inc. has experienced tremendous growth since Michael Dell founded the company with only $1,000 in his University of Texas dorm-room. Today, Dell has global revenues of nearly $50 billion and employs more than 55,000 individuals. Despite this tremendous growth, the organization has remained committed to its core values. The “Soul of Dell” creates an ethical framework in which people are the common thread which links the organization’s current position and future aspirations.
The organization’s mission is “…to be the most successful computer company in the world at delivering the best customer experience in the markets we serve” (Soul of Dell, 2006). The vision of the company is: “…to lead in all regions we serve. The foundation of success is the same in the United Kingdom and France, China and Japan, Canada and other countries. Customers want technology products that are relevant to them, offer great value and can be easily purchased and used. That’s what Dell’s team around the globe consistently delivers” (Fiscal 2005 in Review, 2005).
Considering variations in customer preferences throughout the world, this vision may not allow Dell the flexibility to meet varying customer needs throughout its global marketplace. Dell is a flat organization which operates on open communication and demands results. Employees at every level are given the freedom to pursue and develop new and more efficient ways of completing tasks without prior approval from upper management. If successful, new strategies are shared and initiated across the organization. Likewise, open communication creates a results driven organization.
The organization believes that each employee should know exactly where he/she stands with regards to meeting organizational goals. To facilitate this, employees are rated every six months by their peers. These surveys are instrumental for accountability. Those employees that earn excellent ratings on their surveys are rewarded with high appraisals. Conversely, those that receive poor ratings expect substandard appraisals. Dell’s culture is a meritocracy in which leadership rewards achievement. As noted, Dell leadership relies heavily upon surveys to evaluate, reward, retain and promote high performers.
The organization feels that this method provides an honest, open assessment of employee accomplishment and potential. This assessment, which is based upon open communication and honesty, creates a culture that is competitive, hardworking and loyal to the organization. Dell utilizes key strategic partnerships to maintain efficiencies in its operations. Dell currently partners with Intel for 100% of its chips. While this single source partnership has allowed Dell to contain its costs and maintain consistent supplies, it has also limited the customer choice.
Many analysts believe an additional partnership with AMD would provide Dell significant price and performance advantages. Dell also partners with Costco, Sam’s Club, QVC Inc. and Target in an effort to broaden its customer base. Additional production partnerships include Lexmark, Fuji Xerox, Kodak, Samsung and EMC. Rather than spend significant dollars on R&D, Dell relies heavily upon the technological developments of its partners and competitors to recreate successful technologies. Dell’s value chain is considered to be the gold-standard of the industry.
The organization’s model relies heavily on technology and its employees to achieve its success. With regards to inbound logistics, the organization maintains just-in-time inventories through shared EDI systems. The organization’s ability to maintain four day inventory levels are among the most cost effective of any company. The organization also looks to its employees to maintain efficiencies. As noted, Dell’s culture encourages its employees to develop more efficient ways of doing business. Within operations, employee developed initiatives have saved the organization billions of dollars and quadrupled productivity over the last 4 years.
Dell’s direct-selling business model revolutionized the computer industry. The organization has maintained a massive marketing budget to push its customized PCs. Although most orders are placed via Dell’s website, customers may also place customized orders by phone, fax or through limited retail locations. Those orders, which now include printers and consumer electronics, are then shipped within one week for significantly less cost than its competitors. Over the last decade, few competitors have matched Dell’s legendary customer service.
Although customer service is considered to be a differentiator in the computer industry, recent surveys have shown a decline by Dell. This decline has resulted in the similar decline in the brand’s inferred value. Increased outsourcing is a suspected reason for the firm’s decline in this business segment. SWOT ANALYSIS Strengths * Biggest PC maker in the world. * They deal directly with the customers with no use of a middle man. * They design the computer to the customer’s specifications. * Their assembly is done at a fairly inexpensive cost. * They offer their customers the ability to track their delivery. They ship around one hundred and forty thousand computers in a day. * They have very good branding and are one of the most known computers in the world. WEAKNESSES * Dealing with a large amount of supplies from many different countries can cause a large issue when products are recalled. * They build computers, not develop them. * Their supply orders are so large that they become limited to dealing with a small few supplies that can handle the volume. * They have weak business relationships with many computer retailers. * They do not have unique technologies to offer the market. Opportunities Maintaining the excellent lead that was taken by the founder, Michael Dell will be challenging. * The introduction of new and enticing products to the customers. * Branding their lower cost, lower priced computers that are sold anonymously throughout the world to open other avenues of branding opportunities. * Maintaining and expanding the one stop shopping abilities that are offered to their customers. * Continuing to market on the internet to gain larger market bases. * Broadening their scopes in Europe, India and China. * Expand into government and education markets. Threats * Increasingly popular brand names in the competition. Strong relationships that are held between competition and the retailers. * Competition can basically create the same computers since Dell builds computers, not designs them. * Fluctuations in the currency markets can make global business operations more open to losses in certain areas of the supply chain. * Tariff trade barriers affecting their positions in multiple countries. * Increasingly lower prices for products amount their competitors. PEST ANALYSIS Political One of DELL? s biggest threats is involving the fourth element of the external environment, the political/legal environment.
The Chinese government prefers to promote national PC vendors to foreign companies. There is a lot of red tape involved in securing government contracts. The Chinese government not only favours local firms but also local companies. Government control of internet usage in China is another threat to the growth of the internet. Economic The economic environment refers to the nature and direction of the economy in which a firm competes or may compete. A primary threat that computer companies encounter is the problem of software piracy. India has a shortage of skilled labor, even though the country has many economic opportunities.
Computer companies have to acknowledge that the average consumer could not afford the investment and very few had a bank account. DELL is aware that India customers go for the cheapest System. Social The socio-cultural segment is concerned with a society? s attitudes and cultural values. The potential for Internet growth is huge in India, giving foreign computer companies, DELL the opportunities to expand into a new market. Computer companies have to acknowledge that in the Indian culture, people are still unsure about card sales because of the huge expense of computers in India.
DELL has to invest in door- to-door or face-to-face operations to gain consumer faith and consumer trust in the company and product Technological The technological segment includes the institutions and activities involved with creating new knowledge into products, processes and materials. In the computer industry, technology continues to be smaller and faster than ever. Providing access to technologies developed by institutions has proven a key government resource. The internet is a great opportunity for companies to get their name into the public domain as well as a fast way to tailor services to its customer segments.