WHO IS BETWEEN YOU AND YOUR CUSTOMERS?
NO ONE
The Analysis of Dell Computer and its use of Information Systems
in
CUT THROAT
PC Industry
Simon T. Lau
Table of Contents
Analysis Paper Objective
Section I : Industry Analysis : The Personal Computer Industry
A.
B.
C.
D.
E.
Personal Computer (PC) Industry Profile
Porter Competitive Model for PC Industry Structure Analysis
Business Strategy Model and Representative Business Strategies
Globalization of the Industry
Importance of the Information Technology to the Industry
Section II : Company Perspective : Dell Computer in the PC Industry
A.
B.
C.
D.
E.
Business Leaders and Company Profile
Competitive Strategy Statement
Dell Computer Financial and Market Performance
Significance of Information Systems at Dell Computer
Strengths and Weaknesses of Dell Computer
Section III : Structured Analysis of Information Systems at Dell Computer
A.
B.
C.
D.
E.
Strategic Option Generator
Roles, Roles and Relationships
Redefine and/or Define
Significance of Telecommunications
Success Factor Profile
Section IV : Final Analysis – The Success of Dell Computer in the PC Industry
A. Success of Business Strategy and Information Systems Use to Day
B. Is Dell Computer effectively positioned themselves for the Future?
Bibliography
Three Outstanding Articles
2
Analysis Paper Objective
The objective of this paper is to analyze Dell Computer Corporation (Dell) business
strategies and the effective use of information systems to gain competitive advantage in
the personal computer (PC) industry. Because of the highly competitive nature in the PC
industry, information systems become a crucial tool for companies to compete with each
other. However, having information systems in a firm do not automatically guarantee a
success. The true power of information systems lies with the firm’s ability to integrate it
into core business processes and strategies; together they will gain competitive
advantage. Dell Computer’s success in the PC industry is related to its ability to
effectively integrate information systems into daily business processes, and more
importantly, to create more values for the customers primary through the innovative
direct sales business model.
Dell Computer is a global business with different products and services that span across
continents around the world. As a result, the scope of this paper will mainly focus on
Dell’s personal computer in the computer hardware market in the United States.
This paper is divided into four sections. Section I will provide an overview of the PC
industry in general. Section II and III will present Dell Computer and its presence in the
PC industry and the role of the information systems in gaining competitive advantage.
Section IV will focus on the successes of Dell Computer in the PC industry and other
future implications of Dell Computer.
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Section I: Industry Analysis: The Personal Computer Industry
A. Personal Computer Industry Profile
Our Personal Computer (PC) industry is part of the boarder computer hardware and
peripherals industry that includes every device with processing and computing power.
The definition of a Personal Computer has broadened over the years because of the
advancements in computing power. Today we have small handheld devices that pack
computing power that equals to mainframes in decades ago. Therefore, it is necessary to
define our PC industry accurately. As a result, our PC industry refers to computers
designed for personal users and business employees in homes and businesses
respectively. These PCs include a variety of desktops, portables, tablets, and
workstations. Each PC can also be customized to fit the needs of an individual or a
business. Generally, the price of the PC is determined by the functionalities, processing
power and expandability.
Traditionally the PC industry depends heavily on the software industry. That is, people
buy PCs because they need to run the software. There is no reason for people to get a PC
without the appropriate software installed; hence, it is the software that creates the value
for the PC. Therefore, PCs often act as a tool and customers are bounded to it because of
the software. However in recent years, PCs have evolved into a hub for all the digital
peripherals such digital cameras, mp3 music players, and video recorders. With the
multimedia evolution, the PCs become a connecting-hub for all the digital devices. In
other words, the PC industry has reinvented itself as a connecting-hub in the digital
entertainment devices industry.
The PC industry is one of the fastest growing industries in the world. According to a
research done by eTForcasts1, the yearly worldwide sales of PCs will double every six
years. By 2006, the PC sales will be at 216 million, comparing to 128 million in 2000.
This is a staggering increase at the rate of 9% compound annually. Another noticeable
trend is the number of PCs in-use2. In 2000 over 500 million units in-use and it is expect
to surpass 1000 million units by 2006.
1990
1995
2000
2005
Worldwide
Computers in-use
105.2
238.3
545.2
910-940
(units)
Worldwide
24.2
70.1
128.5
216
PC Sales (units)
Figure 1: Worldwide PC Sales projection. (data in millions)
1
2
2010
13501400
400+
etforecasts.com
etforecasts.com
4
The figure above shows the PC industry has a lot of growth potentials. These growth
potentials are powered by old machines upgrades, new business growth around the world,
and PCs reinventing as a connecting-hub of all digital devices.
To get a clearer picture of the PC industry, looking at the broader Computer and
Peripheral Industry as a whole will be useful. This computer and peripheral industry
includes products that are computer-related and inter-connected to PCs, and these
products are indicators of how well the entire industry is doing in terms of new
innovations and future development because peripherals are often consider as valueadding to the PCs.
Computer and Peripherals Industry
21.4
2004
366
16.8
2003
333
14.4
2002
303.785
Year
15
2001
289.506
24
2000
310.114
19.4
1999
276.038
0
Net Profit
Sales
50
100
150
200
250
300
350
400
Dollars (in billions)
Figure 2: Computer and Peripherals Industry 1999 – 2004 (projected 2003-2004)
Figure 2 is a good indicator of the huge potentials in the computer and peripherals
industry. Although the industry had a minor setback in 2001, the projection remains high
for 2004. According to data from Value Line Publishing3, the economy is in a process of
recovering from the recession. There are some clear indications of increasing consumer
confidence, and further spending is also expected from the average consumers. These
conditions create a good environment for the computer and peripherals industry. As
mentioned in the previous section, PCs have become a connecting-hub between computer
peripherals. There will be a greater demand in networking because computers are more
connected to each other. Wireless technology will continue to grow in range and speed
for more and more information need to transmit between computers and across networks.
The major players in the PC industry are Dell Computer and Hewlett-Packard (HP).
Together they claimed the first and second place in worldwide PC shipments4. On an
annual basis, Dell still remains as the top PC provider in the industry. Other players
3
4
Value Line Publishing Data
Hp.com, Dell.com
5
include IBM, Gateway, Sony, Toshiba, and Apple. The following chart will present each
company and its characteristics.
Dell Computer
The innovative Direct-Sales Business Model eliminates
the need for a retail chain. The ability to customize PC
on an individual customer basis.
Hewlett
It merged with Compaq Computer to compete against
Packard
Dell. This computer giant still relies on the more
traditional retailer channel business model. HP also
offers variety of computer products such as printers,
scanners, and digital cameras.
IBM
Traditionally IBM is in the mainframe and large scale
computing market. It holds the most patents in the
world as an attempt to stay ahead in the competition.
The PCs from IBM are gear towards corporate and
business use.
Gateway
It attempted to duplicate the Direct-Sales Business
Model from Dell. However, they were unsuccessful and
posted loss for the company.
Toshiba
A computer maker focuses on portable computers.
Their computers offer a balanced between price and
performance.
Sony
A Japanese consumer electronic giant becomes a
computer maker. Their computers gear toward the
consumer market and offer tools for video editing. It is
aiming towards the overall design and appearance of the
computer.
Apple
Last major PC maker that is not using Microsoft’s
Windows operating system. Apple has moved from
competing directly with the Wintel market to a more
leisure computer market. Their computers focus on
design and user-friendliness. The customers for Apple
are personal users, educational institutions, and graphics
design firms.
Figure 3: Leading PC providers and their characteristics.
Though the PC industry is huge, the competition is fierce, especially between the Dell
and HP. This is because the PC industry is merely profitable. Although the demands for
computers are high, there is also a pressure to drive the prices down. It is often down to
the level where profits are questionable. PC suppliers also have to deal with fast product
cycle because computer technology changes so rapidly. As a result, companies have to
keep their costs down and try to maximize their market share. Hence, the use of
information systems to gain competitive advantage becomes very attractive to the
companies in the PC industry.
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B. Porter Competitive Model for PC Industry Structure Analysis
The Porter Competitive Model is used to understand and evaluate the structure of an
industry’s business environment and the threats of competition to a specific company.
This model helps to avoid viewing the competition too narrowly by breaking the industry
into logical parts. Then it will proceed to analyze each logical part individually and put
the parts back together to form an overall view of the industry. In figure 4, this Porter
Model has Dell as the Strategic Business Unit. The industry is divided into five logical
forces, and they are intra-industry rivalry, potential new entrants, bargaining power of the
suppliers, bargaining power of the buyers, and substitute products and services.
Therefore, it is important to understanding how these major forces work and how it
affects the SBU in the industry.
The Porter Competitive Model for Dell
PC Industry: US Market
Potential
New Entrants



Computer Hardware
Manufacturers
Computer Software
Manufacturers
Inbound/Outbound
logistics Providers
Production
Equipment
Providers
Foreign PC Manufacturers
Established electronic
manufacturer shifting to
manufacture PC
Intra-Industry Rivalry
Bargaining
Power of
Suppliers



Bargaining
Power of
Buyers
SBC : Dell
Rivals : HP, IBM,
Gateway, Apple
Substitute
Products and
Services



PDAs and Web-Enabled Mobile
Phones.
Network-based Software
Electronic Devices with computing
capability





Consumers
Businesses
Educational
Institutions
Government
Foreign
Consumers
Figure 4 : The Porter Competitive Model for Dell
Intra-Industry Rivalry
With Dell being the strategic business unit in this Porter Competitive Model, the logical
rivals of Dell are HP, IBM, Gateway, and Apple. Their primary strategies are product
differentiation or low cost and with some combinations of innovation, growth, and
7
alliance. The overall competition in the industry is fierce. Among the industry itself,
there is a trend to drive the prices of the PC down and heighten the standard of customer
service. Dell’s strategy will be further analyzed in the section III of this paper, but its
rivals will use other strategies or combination of it to aim directly at Dell.
Potential New Entrants
The PC industry is very vulnerable to potential new entrants, especially from foreign PC
manufacturers. Without much in hardware modifications, they can enter the US market
easily. PC manufacturers like Sony5, Toshiba6, and Samsung7 put huge emphasis on the
design of their PCs. Their computer designs are more visually appealing than the US
counterpart. As the demands for computers are going up, this will attract many foreign
competitors to join the projected 216 millions computer sales in 2006. The US based
computer manufacturers have to compete globally with better design and functionality on
their PCs.
Bargaining Power of the Buyers
In the PC industry, the bargaining power of buyers comes from its customers. However,
the degree of power varies greatly on the size of the customer. For instance, a home user
will have far less bargaining power with Dell compare to a global enterprise with
thousands of PCs. The larger customers often have the power to negotiate price with Dell
because they are willing to commit millions of dollars in the transaction. As for the
regular home customers, they will have to follow the price set by Dell. Although the
bargaining power of the buyers is relatively weak in this industry, it is important for the
PC industry to keep a good relationship with its customers. Like other electronic devices,
PCs need constant upgrades and maintenances to stay current and error-free. The ability
to retain a customer is important for the PC industry. Excellent customer service and
repair will translate to brand loyalty and even multiple return purchases in the future.
Bargaining Power of the Suppliers
The suppliers in the PC industry have the most bargaining power with the PC
manufacturers. Most PC manufacturers have to rely on their suppliers for computer
hardware, software, and production equipments. Therefore, both the suppliers and he
manufacturers tend to work in close relationship through an alliance or an agreement.
Such relationship is to bring the cost down on the final product. For instance, the close
relationship between Dell and Intel is good example of the PC manufacturer is working
closely with its supplier. For instance, Dell is using Intel’s microprocessors in all the PCs
they manufactured. Because of the volume of Dell, Intel is able to provide the
microprocessor at a very competitive price, and this saving will pass on to the customers.
As a result, a close relationship with the suppliers in the PC industry will enable the
manufacturers to lower the cost of their PCs and hence lower the price of their products.
The agreement will also benefit the suppliers. By forming alliances in the PC industry,
they will be able to gain market share and brand image on their hardware.
5
Sony Vaio website
Toshiba’s laptop website
7
Samsung’s laptop website
6
8
Substitute Products and Services
Substitute products and services are always threats to the PC industry. PDAs and the
next generation 3G8 mobile phones are small handheld devices that position themselves
as a PC alternative. These portables devices have enough computing power so average
users can communicate and do work on them without using a PC. However, these
devices also have some weaknesses. Portable devices are small in size and often rely on
battery power. This will create a problem for people that need to use the device for a
long period of time. Furthermore, in order to stay portable these devices often lack
expandability. As bandwidth continues to increase, web applications will become a
reality. As a result, most processing will be done on the server and only the data will be
transmitted through the network. This will eliminate the need for a powerful PC on the
customer side. This will lead to decrease in sales and less motivation to upgrade the
current computers.
Conclusion Based on the Porter Competitive Model
The five forces present in the Porter Competitive Model make it difficult for firms to
compete in the PC industry. The companies have to put their main focus on the buyers
and the suppliers, and at the same time keep its agility with the new entrants and
substitute products. Among the forces in the Porter Model, the intraindustry rivalry
remains the top priority for most PC manufacturers. The main competition is between
the manufacturers themselves, and they have to produce quality products and services to
its customers time after time. Firms in the PC industry have to choose between product
differentiation and low cost as primary strategy. The right choice of business strategy
will propel growth and sustain market share in the industry. The next section is a more
in-depth analysis of the business strategy in the PC industry. In this competitive
industry, the real challenge is to deal with all these forces simultaneously in the
increasing complex PC industry.
C. Business Strategy Model and Representative Business Strategies.
As suggested by the Porter Competitive Model and Industry Profile in the previous
sections, the competition in the PC Industry is fierce and global. These conditions force
the PC manufacturers in the industry to stay competitive using well thought out business
strategies and tactics. And it doesn’t stop there. The firms in PC industry have to
constantly adjust its strategies to response to pressures from customers, competitors in the
market, and IT vendors. The strength of the company lies with the ability to deal with all
the changes and the rapid re-position of its strategies.
Figure 5 will present a Business Strategy Model for the PC industry. The model is
divided into categories of focus, and each focus will provide several options that a firm
can choose to implement as strategy. Different firms will have different strategies and
combinations. Such differences will enable them to compete in the same industry while
vary in focus and capabilities. The primary strategies are low cost and product
differentiation, and the supplementary strategies are innovation, grow, and alliance. Any
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one firm in the industry has to pick at least one primary and perhaps some combinations
of the supplementary strategies. For example, Dell’s primary strategy is in product
differentiation. It tries very hard to differentiate itself from the rest of the PC
manufacturers through better performance and customer service. Through Dell’s own
brand image, it tries to convince the customers that their computers are superior than their
competitors.
In order to implement the low cost strategy as the primary strategy, the firms have to
notice a few important points9. In the least-cost competition there is only one winner,
and this is to say there is only one company that can achieve the least cost in the
production. Low cost strategy emphasizes on economies of scale, and it means the firms
have to sell a lot of the same products to sustain the extremely low profit margin on each
item. Internally the firms need to use information systems to exploit cost reductions and
from strong business alliances with suppliers and other logistics providers. Besides, the
low cost strategy tends to focus on homogeneous products that can drive the cost down
with fewer options for the customer to choose.
On the other hand, the differentiation strategy focuses on separating the product from the
industry standard. This is a strategy that focuses on unique products that exceed the
industry average in terms of performance and design. The product must be highly
customizable so it caters to individuals rather than having a generic form. Firms using
differentiation as a strategy need to constantly make adjustments to the product because
of the competitor’s imitation. The premium price has to be justify with a uniqueness that
is not present in the industry
The PC industry offers a wide range of products. Desktops and laptops are computers
that target at home customers. For business, government, and educational customers,
they will find the tablets and servers both very attractive to fit their needs. As mentioned
in the industry analysis section, the PC industry is truly global. Computers can be
shipped to different places around the world with the minimal modifications. The
computer itself is the same for all countries; however, the documents and manuals that
come with the computer will have to be localized to the specific countries.
When it comes to sales and distribution in the PC industry, there are two major
categories. Direct sales are the customer pull strategy where customers are the primary
focus. Retail sales are the manufacturer push strategy where firms control the
specifications on the computers.
9
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Business Strategy Model: PC Industry
Products
Desktops
Laptops
Tablets
Servers
Customers
Corporates
Education
Individuals
Government
Markets
US
Europe
Asia
Latin Amercia
Manufacturing Strategy
Customized
Fixed Features
Sales and Distribution
Direct Sales
Retail Chains
Company Structure
Alliances
Independent
Information Systems Strategies
SCM
TQM
Figure 5: Business Strategy Options
CRM
e-Commerce
e-Business
Besides a clear primary strategy, a good combinations of the supporting strategies are
also important. Innovative use of information systems in Supply Chain Management
(SCM) will enable the firm to cut costs to support the primary strategy. Total Quality
Management (TQM) allows a company to provide and sustain a good customer service
time after time. Strong Alliances are formed to foster a closer relationship with the
suppliers and logistics providers. Alliances can also drive the costs down and increase
the profit margin on each product.
The options for strategy are limitless. The goal for all firms is to make a well-balanced
choice. A choice that will ensure the competitive edge of the firm in the industry.
Failure in doing so will result in loss of market share and perhaps the end of the business
opportunity for the firm.
D. Globalization of the Industry
The popularity of PCs is phenomenal because it has revolutionized the way people
communicate, how information are stored, and our ability to access knowledge at our
fingertips. In 2003, the number of PCs sold in the US was rougly about 30% of the total
worldwide sales10. This data indicates that the remaining 70% of the PC sales happened
outside the US. This shows that there are many opportunities yet to be discovered by
10
etforecasts.com
11
firms around the world. Besides, PCs have beome a necesscities in the corporate world
simply because business processes involve heavy use of computers and Internet.
According to etForcast11, Asia will be the region with the fastest growth in computing
devices. This trend is confirmed by the rapid urbanization and modernization of China in
recent years, and expected to continue to grow in the next decade. Therefore, it is
logicial to move the PC manufacturers in the US into the global arena.
QuickTime™ and a
TIFF (Uncompressed) decompressor
are needed to see this picture.
Figure 6: Worldwide PC Sales12
The US PC manufacturers have some advantages over firms in other countries. With
Intel as the world top’s microprocessor manufacturer and Microsoft as the world’s top
operating system provider, the PC manufacturers have a good supply of both hardware
and software within the country. In addition to thousands of successful software
companies, PCs competition is fierce in the US. Therefore, there is a strong focus on
using information systems to gain competitive advantage and streamline business
processes.
As a matter of fact, huge PC manufacturers in the US have already moved to compete in
the global market. Their interational sales have been very encouraging. Globalization of
the PC industry is in progress and companies from different countries are in fierce
competition with each others.
E. Importance of the Information Technology to the Industry
By looking at the size of the PC Industry, anaylsts will conclude that it is impossible to
run business efficiently without the use of Information Technology. The entire business
will be supported by three major aspects of IT use in the Industry; they are the use of IT
in the manufacturing, the use of IT in customer support and service, and the role of IT in
strategies that enable the firm to gain competitive advantage.
11
12
etforecasts.com
etforecasts.com
12
Suppliers
Manufacturing
Retail
Services
Customers
Information Technology Support
Figure 7: PC industry Value Chain13
The PC industy Value Chain shows the logical components that support the day-to-day
business operations. Information Technology support is throughout the value chain. For
the purpose of this paper, we will focus on manufacturing, customer support, and
competitive advantage.
IT in manufacturing
In the manufactacuring stage, a firm has to be able to track the inventory of all the
components that goes into a computer, and they need to do it in with millions of
computers on a daily basis. It is close to impossible for any PC manufacturer to do this
without the use of IT to support the manufacturing process. IT helps to automate a lot of
the mundane daily task and leaves the resources free for other tasks.
IT in customer support and service
PCs are highly customizable in features and processing power. Therefore, it is important
for the manufacturers to customize any PC to fit the needs of any customer. To
accomplish it efficiently IT will support the ordering processes and customer service
processes. All the information will store into a database, and the manufacturer can look
up the any information on any PC that they have ever built for its customer.
IT in strategies that enable the firm to gain competitive advantage
IT is often used in the forming the strategy for the PC manufacturers. For example, IT
enables a manufacturer to manage their global sales and customer services. With the
support of the e-Commerce website, PC manufacturers open up unlimited business
opportunity that can span the entire world.
Section II: Company Perspective: Dell Computer in the PC Industry
This section of the paper deals with Dell Computer in the PC industry in terms of how
they fit in the global PC industry, their business leaders, financial and market
performance, their competitive strategy, the significance and the roles of the information
systems, and the strengthens and weaknesses of Dell Computing in the industry.
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A. Business Leaders and Company Profile
In 2003, Dell posted $35 billions in sales and employed 39,100 people worldwide in
production, development, and customer support of the operation. Dell is truely a global
business with products range from desktops, laptop, workstations, servers, networking
devices, and computer peripherals such as printers, cameras, LCD TV, mp3 music
players, and PDAs. Each Dell’s product can be further customized to meet the needs of
the customers. Dell’s direct sales business model has been refined and modified to
support the changing product line and customer service. However, the main idea behind
the direct-sale business model remains unchanged. From a statement on Dell’s website,
“Dell is doing business directly with customers, one at a time, and believe we can do it
better than any one else in the industry.”14 The successful direct-sales business model
puts much emphasis on the customers. From the beginning to the end of the transaction,
Dell understands completely what are the needs of the customers. This translates to a
satisfied customer with the potential to do business again and again in the future.
After two decades of growth, Dell has become the world leading direct-sale computer
vendor in the PC industry. As a relatively young company, Dell finds themselves
constantly competiting with old, more established companies like Hewlett-Packard and
IBM. In 2003, Dell reclaimed the title of the number one PCs supplier in the industry.
The success of Dell Computer is not possible without the vision of Michael Dell and his
innovative direct-sales business model. The following is a brief history of Dell Computer
and Michael Dell himself.
In 1983, Michael Dell was a pre-med student in University of Texas. In his dorm room,
he started his computer hardware retail business by selling hard drives and RAMs for
IBM PCs. Dell bought his products from IBM dealers at cost, and later resold it through
newsapaper and magazines to individuals and businesses at lower cost than the retailers.
By April 1984, his dorm room computer business was already making about $80,000 a
month, and the success was strong enough to persuade him to drop out of college. As a
result, Dell founded Dell Computer with $1,000 and his direct-sales business model. In
the next few years, he was making IBM clones computers under the name PC-Limited
and sold it to customer directly without retailers. This approach allowed PC-Limited to
sell computers to its customers at 40% of the price of the IBM computers. The directsales business model propelled Dell Computer to the leading PC supplier in the industry.
However, the direct-sales business model is merely a tool for Dell to do business. If the
success of Dell is based solely on this model, Dell would have lost its competitiveness a
long time ago. The competitors of Dell can duplicate the model and do business the same
way as Dell. The direct-sales business model of Dell is supported by several key
elements. The most important one is the business vision. This is a driving force for the
model because a vision influence business strategies and tactics. Another driving force is
the management team of Dell. Leaded by the Michael Dell as the CEO, Kevin B.
Rollins as the COO who handles the daily operations of the company. Together they
14
http://www1.us.dell.com/content/topics/global.aspx/corp/background/en/brochure
14
make sure the company is in the right track with its vision and keep steering the company
towards growth and new business opportuntity. Last, but definitely not least, the
information systems support througout the entire direct-sales model. Headed by CIO
Randall Mott, information systems help to transform the model into a reality. Without
the use of information systems, the model can never offer the level of customization to
the customers and keep the costs of the manufacturing process low.
Top management has an important role in the success of Dell, in November 2003
Michael Dell and Kevin Rollins became the co-CEO of the Dell. According to Michael
Dell and Kevin Rollins15, “We consider ourselves to be co-CEO, and that requires
frequent, unfettered communications, even when speaking on personal calls.” This level
of collaboration enables Dell and Rollins to work in a close relationship. Dell focuses on
the vision and the direction of the company while Rollins will make sure the vision can
actually be transformed into business processes. As Dell Computer is moving towards a
multi-products, multi-national, and multi-services business, it becomes impossible for
one entrepreneur to have all the right skills in managing the company. The collaboration
combines the talents of two people in a company that is growing at a tremendous rate.
In addition of the direct-sales business model, the statement “The Soul of Dell16”
represents a strong corporate culture within Dell. It is a vision from the founder, Michael
Dell, and senior management like the President and COO Kevin Rollins. “The Soul of
Dell” is a statement of corporate philosophy that defines the environment in which the
company is aspire to become. The statement focuses on five elements, and they are
customers, the Dell team, direct relationships, global citizenship, and winning.
Below are the core elements of the Soul of Dell:
Customers: We believe in creating loyal customers by providing a superior
experience at a great value. We are committed to direct relationships, providing the
best products and services based on standards-based technology, and outperforming
the competition with value and a superior customer experience.
The Dell Team: We believe our continued success lies in teamwork and the
opportunity each team member has to learn, develop and grow. We are committed
to being a meritocracy, and to developing, retaining and attracting the best people,
reflective of our worldwide marketplace.
Direct Relationships: We believe in being direct in all we do. We are committed
to behaving ethically; responding to customer needs in a timely and reasonable
manner; fostering open communications and building effective relationships with
customers, partners, suppliers and each other; and operating without inefficient
hierarchy and bureaucracy.
15
16
http://www.chiefexecutive.net/mag/193/index.html
http://www1.us.dell.com/content/topics/global.aspx/corp/soulofdell/en/index
15
Global Citizenship: We believe in participating responsibly in the global
marketplace. We are committed to understanding and respecting the laws, values
and cultures wherever we do business; profitably growing in all markets; promoting
a healthy business climate globally; and contributing positively in every community
we call home, both personally and organizationally.
Winning: We have a passion for winning in everything we do. We are committed
to operational excellence, superior customer experience, leading in the global
markets we serve, being known as a great company and great place to work, and
providing superior shareholder value over time.
Figure8: The Soul of Dell
Dell is a company that strive to provide the best value to its customer. With the help of
its innovative direct-sales business model, visionary leadership by Michael Dell and
Kevin Rollins, it grows into a business that generates $35 billions of sales a year. This is
no easy task in two decades. It requires a good understanding of the industry, innovative
use of the information systems to support the day-to-day operations, and a strong
corporate culture that constantly steers the company to focus on the customers. With the
help of Porter Competitive Model, the competitive strategy statement becomes clear.
B. Competitive Strategy Statement
From analyzing the Porter Competitive Model, we can derive the competitive strategy
statement for Dell. As primary strategy, Dell is using product differentiation in the PC
hardware. Through the direct-sales business model, Dell is able to offer high degree of
customization to its customers on their PCs. Other PC suppliers have a hard time to offer
such customization because they are depending on the retail chain to sell their products.
Traditionally, it is the PC manufacturers’ decision of what specifications to put on their
PCs. With Dell’s direct-sales model, the specifications are decided by the customers.
Dell can offer the customers more flexibility in terms of computer components and price.
In recent years, the PC industry is driving the price of the computers down. As a result,
Dell shifts some of its strategies towards low cost to compete with other manufacturers.
For the supporting strategies, Dell uses all three in innovation, growth, and alliance. To
maximize profit, Dell has to find innovative ways to implement information systems to
cut operating costs. The growth of Dell can be visualized by the diversification of Dell’s
product line. As for alliance, Dell maintains a good relationship with all of its hardware
suppliers. A good relation will enable them to get computer components at a very
competitive price. The combination of these strategies enable Dell to stay extremely
competitive in the PC industry and constantly provide the best values for its customers.
C. Dell Computer Financial and Market Performance
The fiscal year 2003 was an impressive year for Dell in terms of sustaining growth and
increasing market share. In the midst of a slowdown of economy, Dell managed to
increase the total revenue to $35.4 billions dollars, which resulted in the net income at 2.1
16
billions dollars. According to Dell’s own projection, the total revenue of the current
fiscal year will exceed 40 billions and 60 billions by the year 2006. This projection is
backed by the consistent growth of Dell in the past. The following is a chart containing
Dell’s previous revenue from 1999 to 2003.
2002
2001
2003
Net Revenue
31.1
31.8
35.4
Net Income
1.2
2.1
2.1
Figure 9: Dell Financials 1999-2003 (in billions)
2000
25.2
1.6
1999
18.2
1.4
Dell’s solid financial position has allowed the company to not be affected drastically by
the changing economy. The financial success of Dell has caused HP and Compaq to
merge in order to counter them.
Dell’s direct-sales model focuses on a keeping a lean inventory. In 2003, Dell reduced
the inventory down to just three days, comparing to the industry average of 40 days. 17
This move dramatically increases the return on invested capital(ROIC) for Dell. Dell’s
ROIC is at 38% and the industry average is 2.3%18. This high return allows Dell to
maximize its invested capital and minimize costs in operation. This translates into higher
profit margin for Dell and lower cost for its customers.
Year
Earnings per share
Jan 03
0.80
Jan 02
0.46
Jan 01
0.79
Jan 00
0.61
Jan 99
0.53
Jan 98
0.32
Jan 97
0.17
Jan 96
0.09
Jan 95
0.05
Jan 94
(0.02)
Figure 10: Dell Stock Earnings (1994-2003)19
Dell’s greatest financial strength is be able to sustain the growth year after year. This
becomes visible in the earnings per share on Dell’s stock. The earnings per share is
increasing year after year with the exception of 2002 because of the global industry
slowdown. Dell was able to recover from 2002 and posted a 0.80 per share increase in
2003.
Dell’s strong financial performance propels the business into the new globalized market
while Dell continues to focus on values to customers and high returns to the investors.
17
Data gathered from Hoovers.com
Data gathered from Hoovers.com
19
Data gathered from Hoovers.com
18
17
D. Significance of Information Systems at Dell Computer
As mentioned in the previous sections in this paper, the PC industry relies heavily on
information systems to gain competitive advantage, and Dell is no exception. However,
information systems play a more important role at Dell. Dell’s direct-sales business
model eliminates the need for a middle-man(retailers); it becomes a bridge between the
suppliers and the customers. Therefore, there is a need for Dell to maintain a relationship
with the supplies and another relationship with the customers. This is done through the
use of an information systems. On the supplier side, Dell collects information from their
suppliers. These information will feed into a database for storage. At any time if Dell
needs to analyze a component from a specific suppliers, Dell will have a complete profile
of the product, such as the reliability, price, and performance. On the customer side, Dell
wants to know what their customers want. All that information will be further analyzed
and used for future products, customer service, and better marketing strategy.
Information Systems become significant when Dell relies heavily on e-Commerce and eBusiness to operate on a daily basis. On the e-Commerce aspect when a customer places
an order from Dell online, it initiates the manufacturing of a new PC. The information
systems will contact the warehouse to start the assembly process, billing department to
process the transaction, and the shipping department for outbound logistic support. These
are all done without interferences. Information Systems also play an important role in eBusiness. Information and data can now travel through the company with greater speed
and efficiency. This is important for a company that has offices in thirty countries and
operations that span continents.
E. Strengths and Weaknesses of Dell Computer
The strengths of Dell are mentioned throughout the section I and II or the paper. For
instance, the leadership in the PC industry, strong financial performance, and the
innovative use of information all help Dell to stay competitive in the PC industry. Before
we go into analyzing the information systems at Dell, it makes logical sense to
summarize the strengths and weaknesses of Dell Computer so we have a better
understanding of Dell in the PC industry.
Success in the Direct Sales Model
The direct-sales business approach has given Dell a very strong lead over its competitors.
While others are still focusing on inventory control, Dell is already running the business
with low inventory or no inventory in warehouse. Components are gathered only when
the consumer places the order. Because the PCs are not prebuilt in the factory, Dell can
offer full customization on their PCs. Customers can choose a specific processor, the
amount of RAM, different graphics card and other add-on peripherals. The result is a
extremely efficient production with the customers know exactly what they are getting
from Dell. The greatest benefit of having a direct-sales model is the lower cost becase it
completely eliminates the need for a retailer. Therefore, the savings will pass on to the
customers through lower purchase price.
18
The strength of the direct-sales doesn’t stop here, because Dell is the only one leading PC
manufacturers that can successful implement and harness the power of the direct-sales
model. Ones might argue that Dell’s success is because they have been doing direct sales
from day one of their business, and the entire company is at stake. The direct-sales
model requires absolute precison on production, inventory control, and customer service.
Any mistake will lead to a potential delay on the PC production. Dell is able to achieve
all these through the use of information systems.
Rivalries as weakness
Industry rivalries are perhaps the greatest weakness of Dell. As the top PC manufacturer,
Dell has everybody as a competitor. When you are at the top, rivalries come with the
territory. HP and Compaq have merged to counter the strength of Dell. The new merger
can lower their costs significantly so they can continue to use the retail approach to
compete with Dell. Another potential problem for Dell is from the suppliers. Dell relies
on the suppliers to provide them with the necessary components to build a PC. If the
suppliers cannot deliver the components to Dell, Dell will face with a delay in
production. It will create a ripple effect to the rest of the business processes.
Overseas Competition
Unless Dell runs into strong overseas competitors, especially from China, it will continue
to be one of the leading PC manufacturers in the world. From previous industry section,
asia will be the area with the highest demand of PC in the next few years. Therefore, it is
quite possible that some asia based computer manufacturers will compete with Dell. For
instance, Japanese and Korean consumer electronics makers are switching to manufacture
PC in recent years. Their advantage is the abundant of cheap and skilled workers. They
focus on product designs as a differentiation strategy. In this global PC industry, Dell
will meet these competitions head-on.
Dell’s direct-sales business model enables it to become competitive and stay competitve
in the changing economy. With stong domestic sales and growth, Dell will continue to
expand globally and dominate a bigger market share in the PC industry.
Section III: Structured Analysis of Information Systems at Dell Computer
Section III is an intricate part of this entire paper because it analyzes the use of
information systems at Dell. Section I and II presented an overview of the PC industry in
general, and the background information of Dell Computer in the PC industry. Section
III will focus on the use of information systems at Dell to gain competitive advantage in
the PC industry. The analysis will be divided into five different steps. These are
Strategic Option Generator, Roles, Roles and Relationships, Redefine/Define Concept,
Significant of Telecommunications, and Success Factor Profile20.
20
Callon
19
A. Strategic Option Generator
Strategic Option Generator is a tool to identify business strategic opportunities involving
the use of information systems. For the purpose of this paper, it will be used to analysis
the successful implementation of information systems at Dell. At the end, these strategic
options will turn into competitive advantage for the company. The Strategic Option
Generator starts with the target layer and continues to thrust, mode, direction, and
execution. The figure below depicts a tailored version of the Strategic Option Generator
for Dell Computer.
Strategic Option Generator
(Dell)
TARGET
Supplier
Customer
Competitor
THRUST
Differentiation
Cost
Innovation
Growth
Alliance
MODE
Offensive
Defensive
DIRECTION
Use
Provide
EXECUTION
Strategic Advantage
Figure 11: Strategic Option Generator
Target
”When in doubt, think Customers.”21 The primary use of the information system at Dell
is for its customers. Information systems support is throughout the entire direct sales
business model that provides value to customers. However, the use of information
systems doesn’t focus on customer only. For Dell, information systems also provide
links to suppliers, which provide the parts and components for their computers.
Thrust
This layer is the same as the Porter business strategy. The two primary strategies are
differentiation and low cost, and the other supporting strategies are innovation, growth
and alliances. Section II of the paper briefly introduced the primary strategy of Dell as
product differentiation. According to an article from Chief Executive22, Dell’s primary
21
22
Jack D Callon
Chief Executive
20
customers are businesses around the world. In 2003, business purchases accounted for
61% of the entire sales at Dell, and home customer accounted for 21%. Dell’s direct
sales business model is driven by information systems in both front and back end. For its
primary business customers, Dell differentiates itself from other PC manufacturers by
offering very high level of customization for the customers. Businesses can now get PCs
that are unique and different from the standard model. Information systems also pioneer
growth and innovations. Dell has been a leading PC manufacturer that drives the price of
computing down, and it allows Dell to gain significant market share in the PC industry
through product innovation and automate business processes using information systems.
Mode
As mentioned in the thrust layer, Dell is a leading PC manufacturer that drives the cost of
computing down. Dell’s use of information systems to support its direct sales model is
an offensive strategy. The direct sales model skips the traditional retail chain approach
by selling the PCs directly to the customers. Dell’s link to its customers is primarily
through the company’s e-Commerce site. Dell’s e-Commerce website (Dell.com) allows
customers to browse components, order PCs, and get support and services for all Dell’s
products. This indicates information systems played a crucial role at Dell, and Dell is
using information systems to compete in the PC industry.
Direction
This level represents the use of the information systems. If the users of the information
systems are within the corporate boundary, then the direction is use. If the users are
outside the corporation, then it is provide. For Dell, information systems use is both use
and provide. Dell’s customers use the website to place order, check on the status, and get
service and support. On the other hand, Dell’s own employees manage inventory,
provide services to customers, and maintain business processes through its information
systems infrastructures. Besides, Dell’s information systems are linked to its suppliers so
there is a strong partnership between Dell and its suppliers.
Execution
Execution is the last layer of the Strategic Option Generator. The execution will lead to
strategic advantage for the firm through the correct implementation and integration of
information systems into the business processes. For Dell, information systems play a
crucial role in the company. In fact, Dell’s direct sales model will not be able to function
without information systems support. Strategic Option Generator is a tool to identify the
possibility of integrating information systems into business strategies. The correct
implementation of such strategies will result in gaining competitive advantage for the
business.
B. Roles, Roles and Relationships
The concept of Roles, Roles and Relationships refers to the roles of information systems
in a firm, the roles of senior management, and the working relationships between the two
to sustain the successful use of information systems to complete. The concept helps to
evaluate the significant roles of senior management; particularly how information
21
systems can be integrated with business strategies to gain competitive advantage in the
industry. Besides the roles of the senior management and information systems, the role
of the users is also very crucial to any successful implementation of information systems.
At the operational level, they turn visions and strategies into real results. This section of
the paper will focus on the roles of Dell’s information systems and the senior
management, and more importantly the close relationships between the two.
Roles of Information Systems
In the previous sections, the significance of information systems was emphasized to
support Dell’s business strategies. Dell’s core business process is its direct sales business
model and it is supported by extensive use of information systems. The primary strategy
of Dell is product differentiation and the secondary strategies are innovation and growth,
and information systems help to solidify these strategies to actually implementations for
Dell to gain competitive advantages. For instance, Dell’s information systems driven eCommerce website (Dell.com) is the core of the direct sales business model. Because of
Dell’s strategy to eliminate the middleman in the sales, Dell.com becomes a physical
presence for Dell. Although it exists only virtually on the Internet, Dell.com
accomplishes everything a regular store plus a whole lot more. The roles of information
systems in direct sales business model will be further analyzed in the subsequence
sections.
Through information systems, the business strategies of product differentiation, growth,
and innovation are supported. Even before the customer orders the computer, Dell’s
supply-side information systems are at work by correctly estimate the demand of
computer components. These links to the suppliers are vital because the prices of the
computer components can change rapidly. Moreover, technology is also constantly
evolving and hard to keep up. Therefore, lowering the inventory in stock at Dell can help
them to have a high return on invested capital (ROIC). As mentioned in the company
section, Dell has a higher ROIC compared to the rest of the PC manufacturers. Supplyside management is important because it allows Dell to stay competitive by offering the
highest customization for its customers, and have the parts ready only when they need it
to put in the PC. This translates into product differentiation in business strategy by
offering efficiency.
Dell.com e-Commerce website is the virtual storefront for Dell. In a physical store, there
are limits on how many customers they can serve at a given time due to the number of
staffs and equipments. Dell’s direct sales model eliminates all these limitations by using
an e-Commerce website. Customers can customize their PCs directly from the website
without need of an assistant. The entire ordering process is automated and it is easily
scalable as the demand increases. For a regular store, the increase of productivity means
putting more employees in the store. This poses challenges because it takes time and
training for new employees to work efficiently in a new environment. However, Dell can
just increase the number of servers to handle to extra transactions. Furthermore, Dell can
provide the same service to its customers every time. The information systems support is
a crucial element in the direct sales business model. It propels growth in the business
strategy by offering quality customer service.
22
The value of Dell’s e-Commerce website doesn’t stop after the customers have received
their PCs. PC support and service are also built-in components of Dell’s e-Commerce
website. Customers can order services and talk to Dell’s repair technicians directly
through the website. This is a huge advantage for Dell because traditionally PC
manufacturers require its customers to send in their computers or bring it into an
authorized service center for repairs. Dell eliminates all the hassles, and the customer
will receive replacement components in the mail. This rapid service allows Dell to
service the minor problem quickly and reserve the capabilities to service more complex
issues. The innovative way of support and service at Dell earned an award from
Computer Shopper Magazine23. The technical support and service at Dell cannot
function properly without information systems support. It is the link between the Dell’s
employees and the customers.
Roles of Senior Management
The successful integration of information systems into business strategies would not
happen at Dell if there weren’t the influential role of the senior management. Introduced
in section II of the paper, Michael Dell as the Chairman of the Board and the CEO of the
company. He provides the vision for the company. He sets the direction of the company
and what the company would look like in the future. He is the pioneer behind the direct
sales business model. Since his college days, he and his company was doing business
directly with its customers, and this made him understand what are the needs of his
customers and how to provide values to them.
As the COO of Dell, Kevin Rollins recently named the co-CEO with Michael Dell.
While Michael Dell acts as a visionary leader for the company, Kevin Rollins focuses on
turning those visions into reality for the company. According to Rollins himself24,
“Michael will go out on a limb, showing his entrepreneurial exuberance. He’ll
want to do a million things. He’s a tremendous optimist. I generally end up being
the pessimist in those situations. I’ll say, ‘No, no, no. Those are great things, but
let’s figure out the one or two we can really do. ”
Figure 12 : Kevin Rollins on Dell.
transforming something abstract as a vision into reality is no easy task. It is often easier
to say something than actually implement it in action. When Rollins came to work for
Dell, the company was in serious trouble. In 1993, Dell lost money in a quarter and the
sales was around 2.5 billions. Rollins introduced the “Soul of Dell” campaign to define
the prevailing corporate culture at Dell. As Dell grows in size, management strategies
need to be more established and defined. Businesses processes also need to be scalable in
nature. The core ideas of direct sales business model remain the same, but it is important
to expand the capabilities. To do this, information systems are integrated into business
strategies to support the expanding business at Dell. Under Rollins, Dell has made some
23
24
Computer Shopper Magazine
Chief Executive
23
important changes to the direct sales business model with information systems support to
better position themselves in the industry.

Supply-Side Management through the use of information systems
Dell’s revolutionary direct sales business model already has a very lean inventory.
Through better demand estimation by supporting information systems, Dell can
further reduce it to virtually no inventory. When customers initiate an order,
components are gathered and the technicians will use those components to build
the PC. As a result, business processes are simpler, and the customers can receive
the order faster.

Fine-Tuning the Direct Sales Business Model.
This model eliminates the middleman in the industry; however, this is not entirely
true because Dell itself becomes the middleman. Dell needs to understand what
are the needs of the customers. Information systems were introduced to track the
buying habits of customers and provide support. Direct Sales Business model has
become a total package that involves sales, customer service and support, and
support various business processes.
At the top, Michael Dell provides visions and directions for the company, and Kevin
Rollins focuses on management issues in the company. These ideas are important
because it sets the basis for steering the company into the direction. However, they are
still at a very conceptual level. Much of the real implementation issues have been the
work of the CIO, Randy Mott. Mentioned briefly in the company profile, Mott is the
head of the information systems at Dell. He foresees the implementation of the
information systems at Dell. There is without a doubt that the direct sales business model
needs to support by information systems, but the real challenge lies with selecting the
right systems to implement. Right systems can streamline business processes and reduce
costs. These savings result in higher profit margins and better value to the customers, a
striving goal for all businesses.
The success of Dell is not created by few people in the top management. Other
information systems executives also contribute to the implementation at Dell. For
instance, former CIO Jerry Gregoire changed the perception that information systems
should under the finance department. Instead, the information systems should act as a
peer to all departments within Dell. During his years at Dell, sales were growing at one
billion every six weeks; therefore, there is a need to realign the company on an on-going
basis in terms of business strategies and information systems. This is still true today for
Dell, particularly its direct sales model.
Each component of the Roles, Roles and Relationships concept have to exist mutually or
there will be no competitive advantage. There is an on-going relationship between the
information systems and the senior management. Senior management provides the vision
and the direction, and it is the information systems to realize those goals and results for
the company. For instance, Dell cannot achieve the success with just the information
systems, specifically its direct sales business model. On the other hand, senior
24
management will not be able to accomplish as much in such a short period of time
without information systems support. The relationships between information systems
and senior management are important to the success of any companies using information
systems to compete. The next section is a more in-depth analysis of how information
systems changed and clarified business processes at Dell.
C. Define/Redefine Concept
The Define/Redefine concept is the second of the two core concepts in analyzing the use
of information systems to gain competitive advantage. Define, by definition, is to clarify
competitive position. On the other hand, redefine is to change so it helps the company to
sustain competitive advantage. The ultimate goal of any information systems is to
provide value to customers. There are three areas in which organizations can achieve and
sustain value-to-customer goal through the use of information systems. These are the
business itself, products and services, and business processes. The following section will
analyzes Dell Computer using the Define/Redefine concept in all three areas.
Redefine/Define The Business at Dell
The business area is the most difficult to analyze because this involves significant
changes in the company to do business. In the Michael Dell’s early dorm room era, the
direct sales business model is merely a concept to do business with the customers. There
wasn’t any significant use of information systems to facilitate the business process. As
the company grows, information systems show its importance. Every time a new
technology comes along it changes the scale of Dell’s business strategy. In the early days
of Dell, businesses came from mailed catalogs and telephone orders. This worked fine
with regional sales; however, the cost of mailing the catalogs, and the conversation in the
telephone calls limited how much information can convey to the customers. When
Internet came along, Dell moved towards e-Commerce. Dell.com allowed the company
to do business with a lot of people simultaneously and globally. Information systems
make Dell’s business completely scalable. The capabilities can now match
proportionally with the growth of the company. The successes of Dell in the United
States and around the world are good indicators of how information systems redefine the
ways Dell do business; these changes are positive for Dell in gaining competitive
advantage.
Redefine/Define Products and Services
Not only Dell has redefined and defined its services and products, but also affected the
entire PC industry significantly. Dell allows people to customize their own PCs in details
that haven’t seen in the PC industry before. The level of customization is down to
individual component and peripheral, so the customers can choose in terms of processing
power and functionality that will fit their needs. Dell is the company succeeded in
implementing the direct sales model that generates competitive advantage. This is both
“redefine” and “define” of Dell’s products. It changes the way the PC manufacturers do
business in the industry and clarifies the requirements of their products in business
strategies.
25
Traditionally, computer support and repair service are through mail-in or authorized
service providers. Dell’s support goes a step further. Instead of spending valuable
technician time on repairs and troubleshoots, better design of PCs and the increase of
customer-installable parts are significant value to the customers. Dell provides support
primarily through their website and its online knowledge base. It also offers technical
help for customers to identify the problems on their PCs. If the customers can replace the
parts, Dell will send it out directly to the location. This practice saves time and cost on
both Dell and its customers. The support service of Dell fundamentally changes the
support in the PC industry.
Redefine/Define Business Processes
Like many organization, Dell has to address the internal operations of the business.
Dell’s core business is to provide solutions for enterprise size corporations. Therefore, it
is reasonable for Dell to support its own information system needs with its own solutions.
This is summarized and referred to as “Dell-on-Dell25”. It has five different components
and each address a part of information systems in Dell. These are Dell e-Commerce
website, DellStar, DellServ, DSi2 Supply-Chain/Manufacturing, and Email.
Dell e-Commerce website (Dell.com) is one of the most busiest websites on the Internet.
It serves as a virtual storefront for Dell. Customers can customize their PCs, place and
order, order extra component, and obtain service all through this website. This is the
vision of the direct sales model where customer is in control of what goes into the PCs.
Dell.com receives about half of the sales of the company26, and this makes Dell.com on
the frontline of the company.
DellStar is the software that tailored for the enterprise customers that allows the highest
level of customization. It allows Dell to serves this group of customer more effectively
by understanding what their needs and customizes a viable solution for them in a
structured setting.
DellServ is backbone of the customer service at Dell. It handles everything from
managing knowledge base, setting up service tags on computer to repairs and
maintenances. It also keeps track of the customer information they can later be analyzed
to enhance future service.
DSi2 Supply-Chain/Manufacturing is another important component of the direct sales
business model. It handles inventory control and connection to the suppliers.
Information feed into the database so it can be further analyzed to estimate demand and
supply of the Dell’s PCs. This system also oversees the entire manufacturing process to
ensure the fastest delivery time.
Last but certainly not least, email system makes sure communication within the company
is effective and efficient. With offices and operations that spans the
25
26
Dell-on-Dell
Dell annual reports
26
globe,communication becomes crucial for Dell to compete. Emailing is widely used in
the corporate world, and Dell is no exception. As a result, email needs to be reliable and
speedy for Dell to sustain its competitive advantage.
All three aspects of redefine and define can be summarized using a value to customer
chart. It combines Dell’s changes in business through the support of information
systems, the clarification of products and services at Dell, and the various information
systems components at Dell that change and reshape the core business processes. The
goal of all these information systems is to meet and exceed the expectations of customers.
This will steer Dell towards sustainable competitive advantage.
Figure 13 depicts the Value to Customer chart of Dell Computer. It separates what the
customer buys from the delivery process. The model will make it clear that the delivery
process actually becomes part of the buying decision.
Value to Customer Analysis
Dell Computer

Build to Order
Single Point Accountability
Scalable inventory control
EDI with the Suppliers
Dell-On-Dell: Dell.com,
DellStar, DellServ, DSi2,
Email
Value-Add Process
P P rocess
Personal Computer




Delivery Process
Dell PCs
Product/Service
Value to Customers





Highly Customizable
Products
Outstanding Customer
Service/Support
Personal Service
Latest Technology
Competitive Prices
What the Customer
Buys
Figure 13: Value to customer chart for Dell
On the left side of the chart, it shows the value-add processes of Dell. These are the
information systems components that go into the product to create value for the
customers. Each process is part of the direct sales business model that drives Dell’s core
business strategy of product differentiation, innovation and growth. The most significant
use of information systems is the Dell-on-Dell strategy. Using its own solutions to
support the internal business processes, Dell proves the direct sales business model
worked very well in the PC industry. This is also a good example of information systems
being run as a business within a business.
27
The right side of the chart lists the customers’ expectations on the products and services
from Dell. These are requirements and standard that customers are looking for in the new
PCs. Each of them is a criterion to define what represent value to a customer. Dell’s
strategies on the left often meet or exceed the requirements of the customers. As a result,
this translates into value to customers and profit for Dell as a successful business entity.
Redefine/Define concept looks at how information systems changed and clarified the
business, products/services, and processes at Dell. From the two core concepts, Roles,
Roles and Relationship and Redefine/Define, it is hard to not know that information
systems are the “glue” that holds all the business strategies together. It promotes
efficiency, effectiveness for Dell in all aspects of the business. As a result, information
systems bring customers closer to Dell, and because of this Dell can achieve and sustain
its competitive advantage time over time.
D. Significance of Telecommunications
In 2003, Dell.com website generated more than half of the total revenue for the
company. This is a staggering 18 billions worth of computers and peripherals business
through an e-Commerce website. The benefit of the Internet is only part of the equation.
The real challenge lies with Dell’s ability to integrate the Internet into its business
strategies and specific areas in the direct sales model. In other words,
telecommunications are important tools that allow Dell to sustain competitive advantage
through better linkage to its customers, and act as a medium for Dell to do business with
them.
Even before the Internet, telecommunications have played a vital role at Dell. Phone and
catalog orders are the primary sources of linkage between Dell and its customers. Direct
sales model of Dell eliminates the middleman in the business so it is important for the
manufacturer to understand the needs of the customers. Telecommunications serve as a
direct link between them. The popularity of the Internet fills Dell with extra capabilities
on top of the regular phone and catalog sales. Through the Internet, the link is more
interactive. Dell can provide information on their products and service almost instantly
to the potential customers. Customers’ feedbacks are transmitted to Dell in nanoseconds
so Dell can make changes accordingly. The Internet also allows Dell to do business
regardless of time zone differences because it provides a 24/7 access for people around
the world to browse the store. As a result, Dell is always doing business when their
customers need it. Apart from these added capabilities, the most important is perhaps the
scalability issue. Before the Internet, the number of phone sales representatives and
catalogs limited Dell’s sales capabilities. With the help of the Internet, Dell can now do
business without these physical limits.
Internally, telecommunications also play a vital role to link business processes together.
The best example from Dell is its own Dell-On-Dell service suite. The five components
all require telecommunications support and linkage because they cannot exist solely.
They are systems on top on another systems, and there are enormous data that need to
exchange between all of them. For instance, Dell.com e-Commerce website have a direct
28
link to its DSi2 supply and manufacturing systems, so at any time it will know which
parts to order from the suppliers and when to deliver the components to the
manufacturing staffs. Furthermore, Dell is global company that is doing business in
many different countries. Information needs travel across continents rapidly. As a result,
the Internet becomes a medium for email to exchange between Dell’s employees. These
are just few internal processes that require extensive use of telecommunications to
function. Telecommunications provide the network for information to pass through
internally within Dell and externally with other business entities.
The significance of information systems can never be under estimated. Dell uses
telecommunications as a tool to bridge external and internal business processes that drive
the direct sales model. Telecommunications and technologies complement each other
and together they fuel business competition in terms of enhanced capability and
coverage. Better products and services will be delivered to the customers, and this is the
top line of what business competition is all about.
E. Success Factor Profile
Success Factor Profile can be used to examine the factors that were the major
contributors to the successful use of information systems to compete in a company. The
analysis includes sixteen distinct factors in the profile. However, this paper will focus on
five factors that are absolutely critical for the success of using information systems to
compete at Dell. The factors below are ranked according to its importance to the
company.
Business Vision
Michael Dell’s vision started it all. His revolutionary direct sales model has changed the
way people and corporations buy PCs. He is the founder, chairman, and the CEO of Dell
Computer that is currently the number one PC manufacturer in the United States. His
vision continues to steer the company into direction that provide the best value to the
customers, and at the same time stay ahead of the competitors in the entire PC industry.
Culture
Culture is “the way we do things around here”. Under the leadership of Kevin Rollins,
Dell introduces the “Soul of Dell”. It is a corporate statement that defines the culture of
Dell as a company and also serves as a guideline. The statement focuses on customer,
management, relationship, passion, and how Dell positions itself as a global company.
This represents the core ideas and values of the company. Together with business vision,
they set the foundation, and the need to using information systems to compete in the
industry.
Information Systems Integral to Business
This paper has stressed numerous times that information systems support is a must for the
success at Dell. From supply side management all the way to customer relationship
management, the entire direct sales model is driven continuously by tailored information
systems. By correctly positioning these information systems, information and data can
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flow through the value chain with maximum efficiency and effectiveness. Information
systems also become a part of the business strategies that allow Dell to gain competitive
advantage over the competitors in the industry.
Linkage to Customers
Dell’s success is largely based on the Direct Sales Model, and the basis of the model is
focus on the needs of the customers. Dell understands the demand of the industry and the
needs of its customers. Because Dell has a very clear picture of the requirements, it can
target those needs and shape products and services accordingly. As a result, Dell is able
to retain much of its customers and expand its market share in the industry. Dell is
always forward looking in the PC industry, and it is always looking for potential areas to
do business in the industry.
Linkage to Suppliers
Dell is an assembly oriented PC manufacturer. It does not manufacture the components
in the computer itself. Therefore, Dell needs to have strong links to the suppliers in the
industry. Due to the high volume and inventory turnover rate of Dell’s PCs, it can get a
substantial discount from the suppliers on computer components. Dell has information
systems that link directly with the major suppliers, so inventory can be filled quickly
when needed. On the other hand, Dell has very tight inventory control to support highly
customized products and services, and it is always looking for ways to streamline the
value chain to provide more value to the customers.
The Success Factors Profile is the fifth and the last part of the structured analysis of
information systems use at Dell. This completes the analysis of Dell Computer and its
use of information systems as an integrated part of the business strategy to gain
competitive advantage. The analysis can put the Dell’s success into perspective and see
how information systems can drive the business into new frontiers and boundaries. The
success of Dell is through excellent leadership, innovative use of information systems,
and the will to do better things for its customers. Lastly, Dell is able to sustain all of
these competitive advantages.
Section IV: Final Analysis – The Success of Dell Computer in the PC Industry
A. Success of Business Strategy and Information Systems Use to Day
This analysis paper starts with one goal, that is, to analyze Dell’s business strategies and
the effective use to information systems to gain competitive advantage in the PC industry.
Through a series of PC industry analysis, we have a clear picture of Dell’s position in the
entire PC industry, the competitions it faces, and the information use of the industry.
Then, we move into analyzing the specific of Dell in terms of business leaders,
competitive strategies, the significance of information systems use, and the
strengths/weaknesses of the company. The center of the analysis is the five step
approach to analysis the information systems at Dell Computer. Each of these five
concepts focuses on one important area of Dell’s business. The Strategic Options
Generator looks at business strategies with the use of information systems. Roles, Roles,
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and Relationship concept focus on the roles of information system and the roles of senior
management. Redefine/Define concept looks at how information systems can change and
clarify business processes and strategies. Significance of Telecommunications concept
looks at the tools that drive information systems. Lastly, the Success Factor Profile
focuses on the major contributors to the success of the company. We can draw a
conclusion that implementing information systems at Dell allows it to expand at a rapid
rate, and at the same time increase the value for the customers through better service and
higher customer satisfaction.
Information systems are fully integrated into Dell’s business strategies and processes.
These are the building blocks of the Direct Sales Model, and only through information
systems support, it will achieve and sustain competitive advantage for Dell. The
integration will not happen if the senior management is not pushing the idea. The
leadership of Michael Dell, Kevin Rollins, and Randy Mott is the driving force of Dell’s
success. Starting from a simple idea of selling PCs directly to the customers, Dell’s
Direct Sales Model has been modified numerous times to fit the growing needs of the
company. This simple concept, supported by information systems, generated about 35
billions of sales in 200327 for the company.
Without information systems, Dell will not be able to achieve the success today. The
Direct Sales Model is a simple concept, but in reality it is hard to implement, as the
business grows larger in size. Many Dell’s competitors have their own version of direct
sales website, and many of them have failed and went back to the more traditional retail
approach. So far, Dell is the only one PC manufacturer that can harness the power of the
Direct Sales Model. The reason might be because Dell is doing business using this model
from day one, perfect it along the way, and continue to do so into the future.
B. Is Dell Computer effectively positioned for the future?
The answer to this question can be Yes and No. For those who argue No, it is because
Dell is the No. 1 manufacturer in the PC industry. When you are at the top, every one is
the competitor of Dell. Dell has to face challenges from all directions. People have to
realize that Dell’s Direct Sales Model is a way to do business, not the only way.
Therefore, competition will rise to challenge Dell in the industry. For those think Dell is
effectively positioned for the future, it is based on the past history and financial strengths.
Dell is known for its effectiveness to modify the Direct Sales model. If the demand
changes, then Dell can steer the focus of the model to capture the opportunity. Dell
projects that by 2006, the company will reach the annual revenue of 60 billions. This is
an ambitious task. However, with the growth demands in Asia and enterprise driven
upgrades in the next few years, Dell is set to achieve that goal in 2006 or even sooner.
Based on the industry projections, we think Dell is going to lead the industry in terms of
innovation, growth, and effective use of information systems. As an industry leader,
perhaps Dell can really leave “NO ONE between you and your customers”.
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Dell annual reports 2001-2003
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Three Outstanding Articles.
The three articles below are the best source for information on Dell’s information
systems as part of the business strategy. They help to understand the reason to implement
information at Dell. Though they are not cited directly from the paper, these articles
provide significant background information for IS at Dell.
1. Dell’s Magic Formula
This article describes Dell’s Direct Sales Business Model and the reason why Dell need
to go with this approach. It emphasizes model as a cost cutting initiative and provide
value to the customer. Lastly, it concludes with some wrong implications of the model.
This article provides a good general overview of Dell’s Direct Sales Business Model.
<http://www.wired.com/news/business/0,1367,12564,00.html>
2. Dell admits Direct Sales Vulnerabilities
Everything is not without flaws. This article shows the problem with Dell’s Direct Sales
Business Model. The problem in the supply side management will create a ripple effect
to the rest of the value chain. The result may be serious. Dell is forced to cut jobs to
compensate the loss. This is a look at the problem of Direct Sales Model. There are too
many articles about the success of the model, and this article provides good perspective
for the whole problem.
<http://www.computerweekly.com/Article112408.htm>
3. Dell’s Model fails in other Arena
Other manufacturers have attempted to duplicate Direct Sales Model from Dell, but they
have failed. This allows Dell to capture an even bigger PC market share. This article
goes into the details of why others have failed in doing business through direct sales.
While others are trying to copy what Dell has, Dell is already expanding the application
of direct sales to include other computer peripherals and related products. Direct Sales
Model has growth and expandability potentials that shouldn’t be underestimated.
<http://www.computerworld.com/hardwaretopics/hardware/story/0,10801,75231,00.html>
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