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Future of Grow for the Long Run or Die ? Group : Tiphaine Lalonde, Adeeb Munim, Jean-Paul Nicolet, John Soltana IIM – MBA 2006.

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Presentation on theme: "Future of Grow for the Long Run or Die ? Group : Tiphaine Lalonde, Adeeb Munim, Jean-Paul Nicolet, John Soltana IIM – MBA 2006."— Presentation transcript:

1 Future of Grow for the Long Run or Die ? Group : Tiphaine Lalonde, Adeeb Munim, Jean-Paul Nicolet, John Soltana IIM – MBA 2006

2 On 1984 created a company on his own image with 1000 $ & called it AFTER 20 years, Dell built a 60 Billion fortune ! Found “The One Thing” and did stick to it ….. the “ Direct Model ”. Incarnated it in the « Soul of Dell » ….. & could sell PC & Servers … & Earn Profits for years while PC giants, IBM, Compaq, … were in lose. How many quarters separate Dell from DEATH ? Or could EVOLVE to SURVIVE … Or REINVENT its future and LIVE …… Or REINVENT its future and LIVE …… He understood to live one needs to Grow for Long Run otherwise face Death BUT, but since 5 Quarters he could not Grow …. Once Upon a Time, ALICE, Alice from your Wonderland … Could you see FUTURE OF DELL ?

3 Planning Challenges Challenges Dell’s singularity Dell’s singularity Current situation Current situation Failures Failures “Trial & Error” strategy “Trial & Error” strategy How to grow ? How to grow ?

4 1 st Challenge: steam quotation fall down Quotation Charts (NASDAQ 19/11/06)

5 Signs of the stake 1.Quotation lost 40 % of value (43 US$ to 24 US$) since 1 year 2.Investor analysts doubt on Dell’s Recovery 1.Short term: Missed Financial Targets since > 1 year 2.Mid/long term: how to increase sales from 60 to 80 Billion $ by 2009 ?

6 Signs of the stake (Comments) Dell’s quotation (NASDAQ) oValue of action : 22% product + 78% expectation oDell has reached its historic maximum at 64 $ in 1stQ 2001. After 11/09/01 the quotation fell down its minimum at 17 $ and climbed up to 43 $ in 3rdQ 2005. oSince 1 year, quotation has been decreased to 20 $ to stagnate now around 25 $ with buying back actions. oLast announcements of Dell’ board don’t insure investors. Dell delayed third Quarter 06 results oCleary Investors don’t believe Dell’s recovery at short term, even after Dell Business Strategy conference call October16 2006. Dell has announced to be able to gain 20 billion $ to reach 80 billion $ in 2009 but its world wide PC market stagnates or decrease (-6% since Q3 2005)

7 Signs of the stake (Comments) 1.Why Michael Dell is doing world wide marathon ? After years leaving CEO function, Michael Dell is becoming in executive to reassure share holders on the good health of his company. 2.Why Michael Dell is choosing personally his head of service department ? In place of CEO of DELL. 3.Why doubts from investors are spreading on replacing DELL CEO Kevin Rollins ? Investor analysts are questioning: “ what this means for the tenure of Chief Executive Kevin Rollins. Wall Street analysts have speculated off and on for months that the company may need a change in the CEO if Rollins doesn't fix the company quickly. Dell has missed its financial target in four of the past five quarters. “ Business Week, 7/11/2006 4.How to increase share value? These actions are they sufficient to reassure investors and financial analyst. Probably at short term but what’s happen at long term.

8 Dell lost leadership vs HP (3Q,2006) Dell lost leadership vs HP (3Q,2006) 2 nd Challenges

9 Signs of the stake 3.Lost top leadership in worldwide PC sales After 3 years of leadership: HP = 17.23% vs DELL = 17.18% 4.Revenue growth - 6% On PC Desktop (core product) -1% on all product segments

10 Signs of the stake (comments) 2nd challenge oHow to be the leader again ? It is the first time since 3 years that HP passes Dell. It shows that Dell has difficulties to implement is business model in Asia and emerging countries. It is crucial for Dell to adapt it at the context

11 II. What is Dell’s Singularity? “The direct model has become the backbone of our company, and the greatest tool in its growth”, Michael Dell

12 II. What is Dell’s Singularity? (Comments) Until 1984 the reference of US PC’s market was indirect model through retailers with expensive price. Michael Dell found a new angle. He done the anamorphous of the indirect business model and launched direct model. Better product for better price regarding IBM PC. Better gross margin due to short-circuit of retailer. Success was brilliantly until today. Whole company’s spirit is concentrated on Direct model; “Soul of Dell”. Dell corp. became a strong partner of Intel and Microsoft. Dell manufactures directly its computers systems. Dell is worldwide actor by: - 7 Manufacturing plants (US, Europe, Asia) - Enterprise and Contact Command Centers - Regional Offices Dell employs : -35000 people in US -15000 people in West Europe -25000 people in Asia Dell’s development is only internal growth without any external acquisition

13 What is Dell’s Singularity? Business model : “Direct Model” is “To Be Direct in all we do” …. this is “Soul of Dell” 1) Do-it-the-customer’s way => « Virtually integrating » customers into the corporation’s organization 2) Apply ‘Dell Effect’ to a Ripe Market => Jump into the market when it is standards-based before it becomes commoditized 3) Build-to-order => “Cutting inventory is financial imperative”, Kevin Rollins, CEO DELL 4) Culture of Execution =>“Dell Inc. is an extension of Dell the man” & Using ROIC metrics 5) Value information => Information flow: Suppliers + Customers + Employees + Managers + Metrics for « Liquidity, profitability and growth » 6) Get others to Do More of the Work « Choose what you want to excel at, and find great partners for the rest » How Dell Does It, Steven Holzner 1984, starting with 1000 US $ to reach 60 Billion US $ in 20 Years without any acquisition

14 Direct Model Seen from outside NEC’s spokesperson: « The « Be like Dell » model is not working for us Former GE CEO, Jack Welsh: « You have to just say « Michael Dell » has done a hell of a job. No one has pulled the levers of cost, quality and service better than Dell. Harvard professor, Clayton Christensen: Disruptive Innovation is a new business model that doesn’t attack the core market by bringing a better product to established users in direct competition … but rather it comes into the low end of the market through business model that can compete at much lower costs..”

15 Direct Model Seen from inside 1.Do-it-the-customer’s way => « Virtually integrating » customers into the corporation’s organization 2.Apply « Dell Effect » to a ripe market Jump into the market when it is standards-based before it becomes commoditized 3.Build-to-order: “Cutting inventory is financial imperative”, Kevin Rollins, CEO DELL 4.Culture of Execution “Dell Inc. is an extension of Dell the man”= “Soul of Dell” Using ROIC metrics From “How Dell does it” Feb 2OO6

16 5. Value information Information flow: suppliers + customers + employees + managers Metrics for « Liquidity, profitability and growth » 6. Get others to Do More of the Work « Choose what you want to excel at, and find great partners for the rest » From “How Dell does it” Feb 2OO6 Direct Model Seen from inside

17 Products Products 35% 26.3 % 10 % EnhancedServices 15.2 % 3.5 %

18 Market segments Home & home office Small business Medium and Large Business Government, Education & Healthcare

19 Products and Markets segments (comments) Dell is enlarging continually its product proposal with oServers oMobility (notebook, MP3 players) oStorage oPrinters and Printing devices oImaging (TVs, cameras, etc) oand services.… Compatible with his direct model Dell offers a complete product line over the world for oHome and Home office oSmall Business oMedium and Large Business oGovernment, Education and Healthcare.

20 Worldwide Revenue Dell’s revenue is ~60 Billion$ #1 #2 #3 #1 # market position Worldwide Market Share is 17,18%

21 Dell’s revenue (comments) 58% of Dell’s revenue are coming exclusively from US. oToo import regarding Asia and Center/East Europe potentials oWhy Dell doesn’t increase its presence in West Europe when technological, life level, size of population are in same range? Despite of strong positions with its products but poor services level. oPerhaps Dell is stopped by cultural environment. Following slide show potentials revenue are very important at 2010 particularly for Dell, but are they in line to reach this objectives?

22 Forecast in 2010 (comments) -eTForecasts WORLDWIDE PC MARKET

23 IV. Failures of Dell 1.Financial Analysts and consulting offices explain failures of Dell by two thesis Thesis A Operational Excellence is in Question and Product diversity around PC market Thesis B Evolving his own “Direct Model” to adapt to International Markets outside HomeLand “Time to a new model?”

24 Failures of Dell Thesis A Facts Services Quality 1.Poor support External Call centres Temporary People Product quality 1.Exclusive contract with Intel 2.Exclusive contract with Microsoft 3.Laptops Battery Sony explosions 4.Poor R & D in technology 5.Products around PC world Actions in progress Services Quality 1.DELL would hire 1500 call centers workers 2.DELL would recruit a Chief Service Officer Services 21% growth vs. 5% growth for the company overall in Q2/2006 Product quality 1.Integrating AMD only in June 2006 2.Integrating Linux platforms for servers 3.Recalling for 400 000 Laptops 4.Increase R & D Server and Storage. 5.Enlarging products Printing & Imaging Consumer electronics: smart phone, hybrid PDA-mobile phone market Home entertainment business: TV Plat screens

25 Failures of Dell Thesis B Facts Problem of selling PC DESKTOP to home users, China on 2005 => Different Customers’ behavior 2. Slow Growth NOT able to grow in emerging markets oChina (#3, 10%, 3,5 less market share than #1 Lenovo) oIndia (#4, 7% market share, 3 times less that #1 HP) % Central/East Europe ~26% Growth SLOW growth in mature markets US & Western Europe Growth < 5% Actions in Progress New Approach: « Purely You » More adapted for Consumer oriented business 2 “Dell Direct Stores” & 185 “Dell kiosks” in Malls in US Order face to face Delivery directly to customer Could Dell apply it to increase his growth outside US?

26 New Approach (comments) Extracts of Press article 1.« Is Dell’s growth sustainable ? » ZDNET, 2/11/2004,39020445,39172311,00.htm 2.Time for a New Approach That's especially true in the consumer business. A marketing effort started over the summer with an advertising campaign featuring the tagline "Purely You" has not spurred significant sales growth with shoppers, say analysts. Rather, Dell's consumer business, which accounts for about 14% of total revenue, has struggled to make progress. 3.Dell Goes Retail... And Why That's a Tough Sell (July 23, 2006) 4.The company is opening mall locations to restore its lagging sales,8816,1218065,00.html 5.Recall in 1993: SELLING through retailers in US DELL used indirect model: selling through kiosks in malls, DELL corners, through wall mart Results weren’t satisfying for supply chain costs and disturbing the whole company because Direct and Indirect distribution couldn’t run together.

27 What Dell say ? (Comments) ROIC 2010 goals, Dell Business Strategy Conference, 16 October 2006 1) Developing regions Latin America: 20% from EMEA ex-West Europe: 17% Asian Pacific ex-Japan: 13% 2) Developing countries Branding Segment focus for largest addressable profit Being flexible to local practices despite Direct Model Going to services Existing 3 manufacturing, new in India 2007 3 Enterprise Command centers 3) Mature Markets Maintain same strategy and market share Emphasis on services Manufacturing Centers in Ireland and Poland Y 2008 1 Enterprise Command center _30?c=us&l=en&s=corp Dell International Business Strategy Conference Call (October 16, 2006) bs.pdf ROIC= “Return Over Investment Capital” ROIC= “Return Over Investment Capital” Dell has acquired ASC (English IT consulting company 15/11/06)

28 VI. How to grow ? Future of

29 How to Grow ? 1.Extending the “Direct Model” area Dell is in “Trial & Error” strategy to extend toward near neighboring markets to PC Business Consumer Electronics -> Home Entertainment 2.Exporting the “Direct Model” to new markets and New Value proposal to other products outside the PC Business to Services rather than products

30 How to Grow? “Solutions” company: oDeveloping Infrastructure services: helping companies manage their computer operations ~ IBM oAcquiring/alliance making with infrastructure consulting companies (on 15/11/06, DELL has acquired ASC a British based IT infrastructure consulting company) Experimenting Remote tools in US: oDell Connect oDell Support

31 Comments Extending “Direct Model” area The Questions? Could Dell extend in the innovation phase rather than standardization phase? Could Dell extend to far neighbors products rather near neighbors : Smart phones, GPS, portable Video players, medical portable devices ?

32 How to grow ? “Direct Model” 1. Evolving the “Direct Model” itself Example: “Dell Direct stores” Blended approach: Face to face + virtual Would this permit Dell to grow in mature and emerging markets? 2.Product innovation + Customer Relation Innovation 3.Jumping into the market in Innovation phase rather than Standardization phase OR Commodity phase, finding the Anamorphous 4.Grow through acquisitions

33 Comments The Singular model of growth meets of problem of growth volume. DELL has its own culture “Direct Model” applied to PC business at large Dell's company has certain volume which make it more difficult to maneuver with agility. The Big question will be: If DELL in changing some of his executives (see Business Week article, 7/11) could change the culture inside DELL to export “Direct Model” toward services, HOW many degrees of liberty Dell could maneuver with Direct Model ?

34 Comments Dell s'offre une SSII anglaise pour mettre l'accent sur le support aux grands comptes Edition du 15/11/2006 - par Vincent Delfau Dell vient de mettre la main sur une société de services informatiques britannique pour conseiller et accompagner les grands comptes dans leur passage à Vista. L'entreprise acquise, ACS, est spécialisée dans le conseil en infrastructure à destination des sociétés listées sur le FTSE 100 - l'indice de référence de la bourse de Londres. Si Dell n'a pas tenu à communiquer le montant de l'opération, le groupe texan a indiqué qu'ACS, qui sera complètement intégré au sein des opérations du groupe de Michael Dell, assistera les entreprises anglaises dans le déploiement de leurs applications, avec des solutions sur mesure, et les aidera à conserver leurs systèmes à jour. Dell semble avoir entendu les besoins, de plus en plus exprimés, d'assistance et de conseil en virtualisation, en sécurité et en produits estampillés Microsoft. Surtout, porter davantage d'attention aux services fournis à ses clients pourrait permettre au groupe de remonter une pente plutôt savonneuse : les résultats publiés lors des derniers trimestres se sont avérés décevants, le constructeur a dû rappeler plus de quatre millions de batteries pour PC portables et doit en outre se justifier auprès de la SEC sur certains aspects de ses méthodes comptables. Si l'essai est concluant en Angleterre, le constructeur pourrait étendre ce type de services à travers la planète. ACS est présent à Londres, Paris, Glasgow, Edimbourg et Pune, en Inde.Vincent Delfau Dell

35 Scenario A Could Dell Change without Changing ? Scenario B Could DELL reinvent its own future in DELL 2.0 ? Have The “Second” Thing? Or the “One Thing” for second time ? Future of

36 Could Dell compete for the FUTURE rather than competing for the NEAR FUTURE ? Future of

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