After a sloppy 2 year period without Michael Dell, How could Dell revitalize his struggling company that had long, defined success in its industry?

Structure of Presentation What are the components of the personal computer industry – Business Models – Customers – Manufacturing, R & D, Marketing What was Dells approach-through mid 2000’s – Customers – SWOT Analysis – Dell’s Value Chain – Products and Services

Structure of Presentation Competitors-IBM/Lenovo, Compaq/HP, Gateway – How does the PC Market look? Was it the best thing for Michael Dell to return to the company? Why Does Dell want to get away from their trademark Direct Sales program? Where does Dell Go from here? – Recommendation

What are the components of the personal computer industry?

Business Models Dell and Gateway-Direct IBM and Compaq- Indirect through Retailers Build mass amounts of generic computers Ship to retailers Customer takes home computer and sets up themselves Customer Order Specifications Builds computer to customer specifications Ships Computer, Sony Ships monitor and other hardware Customer Receives all pieces on one date Dell Competitors

Dell’s Approach Dealt directly with end user Served Primarily Corporate Customers with High end computers at low costs Assembly started after order was placed

Relationship Buyers Large Organizations Repeat Orders Outside and Inside Sales Reps for each account Customized Web based stores Transaction Buyers Small-to-Medium Businesses Home computer users Online or called in specified order Encourage more advanced PC’s to buyers Avoided inexperienced buyers Two types of Buyers Dell wanted to work with up to 2000, they need to expand their horizons to maintain growth

DellHP/ Lenovo/ IBM/ Compaq/ Gateway HardwareIntel and competitive global market SoftwareMicrosoft Windows Final ProductVaried due to customer specifications Non Customized Even though they sold the same product, Users felt they had control over how “good” of a computer they were getting for their money

2008DellIBM/LenovoHP/CompaqAcerApple US Market Share 29.4%4.1%24.7%9.3%7.9% World Market Share 14.7%7.6%18.9%10.9%3.5% StrengthsUS Market Direct Sales Model Strong US Indirect Retail Model Market share consistently on rise Sleek design of computers, own UI WeaknessWorld Market Expensive, not direct sales route No Direct Sales route, some customers won’t work with them Not any good brand recognition Consistent decrease in market share Supply Chain Direct, introduced to retailers Indirect Retail Direct Retail PriceRetail-700 Direct- Varied ModerateHighLowHigh

Customers Customer2008 Dollar Share in Market Large Business and Government20.2 Small and Midsize Business22.9 Home Consumers45.9 Education11.0 Total market size(billions of dollars)50.9 Education needs to be focused on, every other market has been capitalized on. The focus needs to be on education and customer retention for the business’ you have currently.

Consumer Ratings (100 point scale) Brand2009 Apple84 HP/Compaq74 Dell75 Gateway74 All others74 Dell needs to improve its brand image and surpass their highest rating on 80 in 2000

Marketing and Sales HP- 1billion,2008 Apple-500 million,2008

What was Dell’s Approach through the mid-2000’s?

SWOT Analysis Strengths Direct Model US Market Share “Reseller Certification” Weakness No solid distribution route or reseller Poor Consumer Rating Slow Innovation Opportunities Overseas Market Share Distribution in Retailers Expand Market Segment Threats Apple Market Share Overseas Dell Has room to grow in the retail segment

Dell Value chain Customer Specifications BuildOS Burn-In Monitor /Other componen ts Shipping Mkt & Sales Microsoft Windows Dell FedEx Dell controls all parts of the Chain, saving time during shipping and keeps inventory low having monitors shipped directly to customer. Dell Sony, Global Market Dell Testing

Production and Logistics Tailored to each customers needs Holds no finished goods inventory Only took hours rather than days Carried 4 days inventory vs days of competitors Shipment went from Dell to pickup monitor to customer, no need to have extra inventory Dell’s Direct Model was superior to all other competitors

Competitor’s IBM/Lenovo, Compaq/HP, Gateway

IBM and Lenovo Relied on Channel partners- Distributers and Resellers Tried shipping heavily configured PC’s AAP-Authorized Assembly Program – Lightly configured PC’s – Other companies finished the computer Poor logistics for building PC’s caused higher prices – Tear downs and rebuilds cost time and money Ventured into direct sales

Compaq and HP 1994-Worlds Largest maker of PC’s through full line of PC’s Individual ConsumersBusiness Customers Standard PC’s sold through retailers Failed Magazine Failed Phone orders Own Forecasting Delivery of 65-day old PC’s

Optimized Distribution Model PC’s were built only after an order was received Deliveries continued to go through distributers and resellers-SLOW Direct Plus Program-designed to sell directly to small and mid size businesses. Tried to keep everyone happy By 1999 Compaq had shot itself in the foot and reported significant losses trying to please everyone

High Quality and High Performance 75% PC’s sold through distributers and resellers Aimed at the high end user HP Sticks with resellers and distributers Average computer sold was 35 days old

Gateway/Acer Very similar to Dell Focused on home users and small businesses rather than large corporations Acer became 100% Indirect and “Un-Dell” Very inexpensive PC’s sold through retailers to consumers. 2 nd Largest Producer of PC units

Apple Sleek Design High Cost Ease of Use Opened on retail stores in 2008 Increased market share by ~5% in one year after release of iPod and iPhone

How does the PC market look? Apple Lenovo/ HP Compaq/IBM Acer Dell Differentiation Cost Low High Low High

Was it the best idea for Michael Dell to return to the company?

Rollins sticks to Dell’s Historical Strategy and kept missing expected earnings. Pricing Mistakes, Bad Sony Batteries, Poor customer service ratings, poor accounting practices, no volume increases. As soon as Michael Stepped down, problems surfaced that had been going on before he left the company

Michael Dell’s Return Brings in outside talent – Ronald Garriques from Motorola – Mike Cannon, from Solectron – Brian Gladden, from GE – Ed Boyd, from Nike Direct Model was a revolution, not a religion. Opened channels to retailers Launched a new line of laptops Purchased Perot Systems Decreased Sales, Decreased Returns

Why Does Dell want to get away from their trademark Direct Sales program?

Market Share for Each Distribution USEuropeAsiaJapanRest of World Retail Distributor Direct Inbound Outbound Internet Dell needs to shift to Retailers in the US and Globally. People want to see and touch what they are buying

Dell’s New Value chain Fixed Configuration BuildOS Monitor /Other components Shipping Mkt & Sales Microsoft Windows Retailers Dell gave up all parts of the Chain, saving over $3 billion dollars on costs. Contractors Global Market

Where does Dell go from here?

Optimally Dell would continue growth with new/ hip generation while innovating products around their new team Dell would expand into the global market via retail sales Dell would expand into the global market via better customer service and scrapping their direct end user sales model While also breaking into the retailing world and creating Dell stations rather than Dell vs. HP vs. Acer Possibly look to buy Acer to take more of the market

Recommendation IssueAction Boring BrandBecome more innovative, Appeal to more groups, offer more models in stores ChannelIncrease Distribution, sell more models in stores, take out Acer as a growing, cheap brand, Cut Direct Sales approach World Market ShareIncrease sales and distribution in growing markets such as Europe, and Asia FocusShould be to all age groups, multiple models in stores, educate vs. expect Value ChainCreate checks and balances to create great products PriceDo not compete on Price, compete on number of models Customer ServiceHave in multiple areas of the world