1. Dell Inc. Case Study By: Dan McLindon Kyle McDaniel Jeremy Smiley
Tom Anderson
Ray Moorman 1

2. Key Question for Dell
Can Dell overtake HP as the world leader in personal computers with its current strategies of Build to Order and Direct to Consumer sales? 2

3. Secondary Questions
What contributed to Dell’s success and rapid growth in the late 1990’s?
Why is Dell choosing to become more like HP?
What does Dell do well and where does it struggle?
Can Dell ever be successful in B2C market in developing countries with Direct to Consumer distribution?
What is Dell? A computer manufacturer? A consumer electronics company? An IT service partner? What is their focus?
What is Dell doing today to set itself apart from the competition in the highly competitive and rapidly evolving personal computer industry?

4. Dell Computer Company Overview
Founded
1984 by Michael Dell
Vision
PC’s could be built to order & sold directly to customers
2 Major Advantages of Business Concept
1. Bypass distributors & retailers eliminated markups
2. B2O reduced risks & costs of having inventory
Sell Direct & B2O Business Model Success
2003 – most efficient procurement, mfg, & dist in PC industry. Gave profit & costs advantage over rivals

5. PEST Analysis for Dell Category Issue Threats/Opportunities Ranking
(1-5)
Political
2008 Economic downturn
Threat – economy also impacting govt. spending 3
Economic
Threat – companies and individuals cut down IT spending
Social
Rising incomes and demand for IT in BRIC countries, especially SE Asia and Eastern Europe
Opportunity - ½ of world’s population 4
Growth in popularity of social networking and mobile society
Opportunity – increasing demand for servers and network gear
Technological
Explosion in data information and content
Opportunity – Dell can provide hardware and services to drive
Global expansion of Internet
Opportunity – requires installation of millions of servers 5

6. What is going on in the PC industry?

7. Industry Overview (Supply)
Porter’s five forces:
Threat of
substitute products
High
Bargaining power
of suppliers
Low
Rivalry among
existing competitors
High
Bargaining power
of buyers
High
Threat of
new entrants
High

8. Porter’s Five Forces Factor Analysis Impact
Threat of substitute products
Growing popularity and sophistication of mobile and smart phones.
Servers need to run the networks behind phones.
Bargaining power of suppliers
Several suppliers of PC components. Technology has become standardized. Dell has decided to form long term partnerships with key suppliers to take advantage of volume-based discounts
Relationship with suppliers may suffer as Dell shifts to outsourcing laptop manufacturing.
Bargaining power of buyers
Many options in terms of what type of computer hardware and software to use. B2B customers can also negotiate prices on hardware, software, and service contracts.
With standardization comes commoditization.
Competitive rivalry
Lots of well established players in all markets that Dell competes in. Majority competing on cost in a race to the bottom
Compression of profit margins . As price decreases sole focus is cutting costs.
Threat of new entrants
Growth of white-label PC makers and resellers, especially in Asian market, shows how easy it is to enter market, as industry moves to standardized technologies.
PC companies need to find a way to differentiate themselves

9. Dell’s PC business model has not translated into global leadership.
2007 PC Vendor Market Share
Dell’s PC business model has not translated into global leadership.

10. What contributed to Dell’s success and rapid growth in the late 1990’s?

11. Build to Order
Advantages
Disadvantages
Selling direct to customers cuts out the middleman, which increases Dell’s margins.
Customers not able to touch and feel the product, which is a large ticket purchase
Mass customization using standard parts allows Dell to control their costs and enables them to pass savings to customer.
Build to order requires innovation and investment in manufacturing technologies and facilities.
Build to order allows for JIT, reducing costly inventories of components, which may quickly become obsolete.
Competitors have been able to outsource to third party manufactures, pushing the burden of component inventory costs onto suppliers.
Conclusion – Dell has spent its time and money on innovation to become an efficient manufacturer of computer hardware. Was that an effective use of their resources?

12. Is Dell’s Build to Order model still a competitive advantage or has it become a liability?

13. Enabled success in late 1990’s
Build to Order
Enabled success in late 1990’s
Dell low cost leader.
Improved reputation for quality. Allowed Dell to control quality and be first to market with new products.
Competitors tried to copy, but with limited success. Long learning curve.
Still works well in B2B
Businesses like to customize a solution that fits exactly what they need.
BTO gives Dell the ability to control quality and the opportunity to sell additional value adds to enterprise customers.
Struggling in B2C
Difficulty with distribution in emerging BRIC countries, especially China.
Competitors have closed the gap on price and product offerings by outsourcing manufacturing.
Dell even starting to outsource laptops

14. What has Dell done to separate itself from the competition?

15. Dell Inc. Product Timeline
Year
Product
Current Position In Market
Success of Failure?
1984
PCs
2nd behind HP (15% market share)
Success
1995
Website
Revenues greater than Yahoo, Google, eBay and Amazon combined
Late 1990’s
X86 Servers
1st domestically, 2nd behind HP globally (11% global market share)
2001
Data-routing switches and Data storage devices
Storage – 5% market share
Routing – 2% market share
TBD
2002
Large Enterprise IT services
<1% market share
Success, rapidly growing revenues
White label PC
N/A
TBD, forecast to achieve $380 million in sales (2003)
2003
Printers
20% market share in US, 5% global
Consumer Electronics
Retail POS systems
Conclusion – Expanding product set into several highly competitive markets with well established players. Strategy is be the low cost leader.

16. Internal Analysis – Core Competencies
Build to order
Direct to Customer Sales
B2B value-adds
Core Competency
Description
Build to order
Build to order business model allows for JIT, keeping inventory costs down. Keeping manufacturing in-house enables control of quality and faster new product releases.
Direct to Customer Sales
Cuts out retail markup. Allows Dell to maintain higher profit margins and charge lower price.
B2B value added services
Services like asset tagging and software downloading differentiate Dell from competitors. Enabled by in-house manufacturing.
Red – Easy for competitors to develop
Yellow – Possible for competitors to develop
Green – Very difficult for competitors to develop

17. What does Dell do well and where does it struggle?

18. Dell's Geographic Performance (Operating Incomes)
U.S. Business & EMEA markets showing strongest growth trends.

19. Internal Analysis – Markets Served
Conclusion – Dell is strong in the US B2B market, but that strategy does not translate to success in B2C. Only 39% of sales generated outside US, compared to 67% global sales by HP.

20. Internal Analysis - Manufacturing
Build to Order/D2C Sales
Heavily invested in facilities and technology
Enables value-adds for B2B
No longer low cost leader due to outsourcing
Already starting to outsource laptops
Hampering growth in emerging BRIC markets
Conclusion – Dell already starting to outsource its competitive advantage. Can it still compete with HP in the B2C market? Will outsourcing manufacturing impact their advantage in B2B market?

21. SWOT Analysis for Dell Strengths Weaknesses Opportunities Threats
JIT, lean mfg practices lowers inventory costs = less risk for innovations & price increases
Desktop manufacturing
Customer Support – focus on 90% customer satisfaction worldwide (Asia 92%, Europe 90%)
Website sales = 50% of sales
Long term relationships with suppliers – picked top 1 or 2 & stuck with them as long as they kept costs down and innovated product
Weaknesses
B2C in Asian Markets – need to touch & feel
Customer support – US satisfaction = 80%
Outsourcing manufacturing – has lead to quality issues before
Limited distribution network
Laptop manufacturing
Opportunities
2nd billion people coming online
Expansion into new products – focus on inefficiencies in supply chain
Listening to consumers – cont. to utilize IdeaStorm to innovate products & support based on customer feedback
Horizontal Integration – acquire software co’s
White Box PC’s – go to market in China where private label/generic PC’s are strong
Threats
Entering retail sales in 2007 as market share to consumers dropped (forgetting competitive advantage of B2O)
Profit pool HP has to compete with, lower costs of PC’s to undercut Dell and make up for loss with profit from other HP products
Standardizations in technology have allowed competitors to outsource manufacturing, enabling lower prices

22. Market Share in PC Sales
Dell V. HPS HP
Dell
Operating philosophy
Build to Stock, outsource manufacturing, large distribution network of retailers and resellers around the world
Build to Order, control manufacturing, direct to customer sales on own website
Key products
Global leader in PCs, servers, and printers. 67% sales outside USA.
US leader in PCs and servers, 2nd behind HP globally . 39% of sales outside USA.
Market Share in PC Sales
18.8% Globally
23.9% in USA
14.9% Globally
28% in USA
Financials
$104.3 billion revenue,
$7.3 billion profit (2007)
$61.1 billion revenue,
$3 billion profit (2008)
Key Acquisitions
2002 – Compaq
2008 – EDS
$7 billion on other software, tech, and service companies
spent $2 billion on software capabilities for value-added services

23. US Market Share – Dell vs. HP

24. World Market Share – Dell vs. HP
Conclusion – From 2005 declining trend in both US & World Market Share for Dell. HP has gained market share during that time. Possible reason for HP’s success is acquisitions (Compaq 2002, EDS 2008)

25. Contributors to HP's Operating Income
HP acquires EDS
Dell should continue focusing efforts on growing IT services business and look for acquisition of IT services company to continue to compete and hold market share against HP.

26. Leading Providers of Information Technology (2007)
Acquisition of CSC would give Dell increased IT services market share of 3.3% vs. HP’s 5.3% combined market share (with EDS)

27. What does Dell need to do in order to take the lead again?

28. Recommendations
Develop a focus. Examine where the company is creating the most value for customers and invest in that business line
Focus on growth in B2B channel and the continued development of value-added IT services
Stay true to the Build to Order business model. Use it as a tool to create value for customers, not as just a cost control tool.
Pull out of retail stores immediately. This goes against every strategy and value that makes Dell what it is.
Fix problems in laptop manufacturing to keep competitive advantage in-house.