Dell Inc. Case Study
By:
Dan McLindon
Kyle McDaniel
Jeremy Smiley
Tom Anderson
Ray Moorman
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?
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?
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
PEST Analysis for Dell
Issue
Threats/Opportunities
Ranking
(1-5)
Political
2008 Economic downturn
Threat – economy also impacting
government spending and
infrastructure investments
3
Economic
2008 Economic downturn
Threat – companies and individuals
cut IT spending
3
Rising incomes and demand
for IT in BRIC countries,
especially SE Asia and
Eastern Europe
Opportunity - ½ of world’s population
Growth in popularity of social
networking and mobile society
Opportunity – increasing demand for
servers and network gear.
Explosion in data information,
content, digital revolution
Opportunity – Dell can provide
hardware and services to drive
4
Global expansion of Internet
Opportunity – requires installation of
millions of servers
5
Category
Social
4
4
Technological
Industry Overview (Supply)
Porter’s five forces:
Threat of
substitute products
High
Bargaining power
of suppliers
Rivalry among
existing competitors
Bargaining power
of buyers
Low for generics
High for key parts
High
High
Threat of
new entrants
Low
Porter’s Five Forces
Factor
Analysis
Impact
Threat of substitute
products
Mobile and smart phones may replace the
common PC for certain segments.
Servers need to run the
networks behind phones.
Bargaining power of
suppliers
Standardized technology.
Long-term value chain partnerships. Key
components suppliers have more power.
A shift to outsourcing may
destroy key relationships.
Bargaining power of
buyers
Commodity status.
B2B customers can also negotiate prices on
hardware, software, service contracts,
bundles.
With standardization comes
commoditization.
Competitive rivalry
Lots of well established players in markets
which Dell competes. Competing on cost.
Compression of profit
margins. Cost reductions
strategies rule.
Threat of new entrants
Slim profit margins.
Commodity status.
Well established players.
Differentiation will be key!
Currently A $1.5 Trillion IT Industry
Services,
$613B
Hardware,
$560B
Software,
$327B
• Explosion of the digital era
• World’s data doubles every 3 years
• Social networking craze
• Blogs, online video, My Space, Facebook
• Emerging markets with ½ the world’s population
• All working together to create DEMAND!
Is There Further Growth Out There in the PC Market?
Shipments of PC’s(millions)
1980 - 2012
450
400
350
300
250
200
PC's Shipped
150
100
50
1980
1985
1990
1995
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0
2007 PC Vendor Market Share
U.S. Market
28%
32%
24%
5%
5%
Worldwide
Dell
HP
Apple
Acer
Toshiba
All Others
19%
47%
15%
8%
7%
6%
HP
Dell
Acer
Lenovo/IBM
Toshiba
All Others
4%
Dell’s PC business model has not translated into
global leadership. But the growth opportunity is there!
Build to Order
Advantages
Selling direct to customers cuts out the
middleman, which increases Dell’s
margins.
Disadvantages
Customers not able to touch and feel the
product, which is a large ticket purchase
Mass customization using standard parts
Build to order requires innovation and
allows Dell to control their costs and
investment in manufacturing technologies
enables them to pass savings to customer. 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?
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.
• 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
Still works
additional value adds to enterprise customers.
well in B2B
• Difficulty with distribution in emerging BRIC countries, especially China.
• Competitors have closed the gap on price and product offerings by
outsourcing manufacturing.
Struggling
• Dell even starting to outsource laptops
in B2C
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
Success
Late 1990’s
X86 Servers
1st domestically, 2nd
behind HP globally (11%
global market share)
Success
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
2002
White label PC
N/A
TBD, forecast to achieve
$380 million in sales
(2003)
2003
Printers
20% market share in US,
5% global
TBD
2003
Consumer Electronics
N/A
TBD
2003
Retail POS systems
N/A
TBD
Conclusion – Expanding product set into several highly competitive
markets with well established players. Strategy is be the low cost leader.
Internal Analysis – Core Competencies
Core
Competency
Build to order
Description
•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 inhouse manufacturing.
Build to
order
B2B
valueadds
Direct to
Customer
Sales
Red – Easy for competitors to
develop
Yellow – Possible for competitors to
develop
Green – Very difficult for competitors
to develop
Dell's Geographic Performance
(Operating Incomes)
$3,500.00
$3,000.00
$2,500.00
$2,000.00
$ (in millions)
U.S. Business
U.S. Consumer
$1,500.00
EMEA
Asia-Pacific/Japan
$1,000.00
$500.00
$-
2000 2002 2004 2005 2006 2007 2008
$(500.00)
U.S. Business & EMEA markets showing strongest
growth trends.
Internal Analysis – Markets Served
Operating Income
Net Revenues
Americas B2B
Americas
B2B
14%
12%
US Consumer
25%
51%
US Consumer
25%
EMEA
10%
62%
EMEA
-1%
AsiaPacific/Japan
AsiaPacific/Japan
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.
Internal Analysis - Manufacturing
Heavily
invested in
facilities
and
technology
Hampering
growth in
emerging
BRIC
markets
Already
starting to
outsource
laptops
Build to
Order/D2C
Sales
Enables
valueadds for
B2B
No longer
low cost
leader due
to
outsourcing
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?
SWOT Analysis for Dell
Strengths
•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
Threats
•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
•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
Elements of Strategy
Cost
Efficient
Build to
Order
Dell’s
Strategy
Competition has tried to emulate with limited
success
Although other vendors have not replicated Dell’s
strategy, they’ve done enough to close the cost
advantage gap.
Dell’s lean manufacturing techniques work best in
production of desktop PCs. Consumer tastes have
shifted to laptops.
Contribution towards a future competitive advantage…
Cooling
Warming
Elements of Strategy
Partner
with
Suppliers
Dell’s
Strategy
IBM, HP, Sony, Toshiba, Fujitsu abandoned
vertical integration for strategic outsourcing of
components in the early 1990s.
Partnering with suppliers to utilize their expertise is
a given at this point, no contribution to competitive
advantage.
Contribution towards a future competitive advantage…
Cooling
Warming
Elements of Strategy
Direct
Sales
Dell’s
Strategy
Competitors have not been able to shorten their
supply chain as effectively as Dell
Competitors have had difficulty implementing the
sell direct strategy because it cannibalizes other
sales channels.
Disadvantage in some foreign markets where
small business and individual customers want more
of a hands on shopping experience.
Contribution towards a future competitive advantage…
Cooling
Warming
Elements of Strategy
Expansion
of products
and
services
 Industry is evolving with new products. Dell has
demonstrated success in entering product
segments and succeeding as the low cost provider.
Examples are servers and networking equipment.
Name recognition from desktops and notebooks
gives consumers confidence to try other products.
Dell’s
Strategy
 Opportunity for growth is large outside of PCs
and servers where Dells market share is negligible.
Market share is ≤5% in data storage, networking,
printers, and IT services.
Contribution towards a future competitive advantage…
Cooling
Warming
Elements of Strategy
Customer
Service
and
Technical
Support
Dell’s growing pains with off shoring support
services are behind them. Processes and best
practices standardized world wide.
Voice of the customer – regional forms,
IdeaStorm
Dell’s
Strategy
Custom websites for large customers, product
design services, value add services
Below customer satisfaction goal in Americas
Contribution towards a future competitive advantage…
Cooling
Warming
Elements of Strategy
R&D
focused on
customer
needs
Advocate for customers needs – useful, cost
effective technologies
Quality Control streamlines the assembly process
and reduces costs
Dell’s
Strategy
Growing budget -- $600M in 2008
Facilitates entry into new products and services
Contribution towards a future competitive advantage…
Cooling
Warming
Elements of Strategy
 More cost effective than proprietary technology
Use of
Standardized
Technologies
Standardized technologies are upgradeable
Strategy is easily replicated
Dell’s
Strategy
Contribution towards a future competitive advantage…
Cooling
Warming
Elements of Strategy
Cost
Efficient
Build to
Order
Partner
with
Suppliers
Use of
Standardized
Technologies
Dell’s
Strategy
R&D
focused on
customer
needs
Direct
Sales
Customer
Service
and
Technical
Support
Expansion
of products
and
services
Contribution towards a future competitive advantage…
Cooling
Warming
Dell vs HP
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
2005-2008 - $7 billion on other
software, tech, and service
companies
2007-2008 spent $2 billion on
software capabilities for valueadded services
US Market Share – Dell vs. HP
40
% of Market Share
35
30
25
Dell
HP
20
15
10
5
0
1998 2000 2002 2004 2005 2006 2007
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)
Contributors to HP's Operating Income
$5,000.00
$4,000.00
HP acquires EDS
$3,000.00
Printing and Imaging
$2,000.00
Personal Computing
Systems
$ (in millions)
Enterprise Systems
and Software
$1,000.00
HP Services
$-
2001 2002 2003 2004 2005 2006 2007
$(1,000.00)
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.
Leading Providers of Information Technology (2007)
IBM
7%
Accenture
EDS
3%
3%
Fujitsu
3% HP
2%
CSC
2%
Dell
1%
All Others
79%
Acquisition of CSC would
give Dell increased IT
services market share of
3.3% vs. HP’s 5.3%
combined market share
(with EDS)
Recommendations
Acquire a larger IT services company to supplement Dell's current
IT services department - CSC is a possibility
1.
Gain immediate market share

Focus on critical customers by creating dedicated department
head's with authority to meet the demands of the following
groups:
2.
 Large Companies (larger than 400 employees) (already exists, continue
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current services)
- Small-Med companies (less than 400 employees)
- Government Agencies
- Higher Education Universities
- K-12 Primary School Systems
Focus on speed of service, customization to meet needs of each
organization, build loyalty with groups who have more frequent
demand and servicing needs.
Recommendations
3.
Hire product development specialists from
product/branding focused companies.

4.
Helps Dell to get a fresh perspective on their product and new
ideas for development.
Redesign laptop and PC brands to make them more
exciting for personal use consumers.
Dell's competing with HP and Apple who are creating
products customers desire.
 Financials indicate consumer products are struggling vs.
competition.
 Increase R&D budget to create more exciting models.

Recommendations
5.
Sell only a couple standard model PC's and laptops in retail
centers like Wal-Mart and Best Buy – out of sight, out of mind
mentality for consumers.

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6.
Allows Dell to appeal to everyday customers who don't desire
custom computers.
Use suppliers/manufacturers to build these standard models with
no changes to the specs – keep costs down.
Continue to build PC’s and custom laptops in-house to take
advantage of logistics and efficiencies
This also builds brand awareness with consumers who may want
custom computers.
Allow current marketing programs to target higher-end users who
desire personalized PC’s.
Acquire Chinese PC/laptop maker to enter Chinese market –
Increase revenues from Asia-Pacific/Japanese market.