Dell Case Study:
Executive Summary
Since its conception Dell Corporation has seen growth rates that were envied in other
industries, while its competitors struggled to stay on their two feet in the trail of smoke
left by Dell’s skyrocketing sales and total market domination. Dell did not invent the
microprocessor or the hard drive or the system bus that connects all these pieces of
hardware together and neither did they had a core competency in manufacturing any of
these or other components that are collectively called a computer – so how did they
manage to become a $12 billion company in 13 years, market leader and trendsetter in the
assembled computers industry.
Dell’s core competency has not been in assembling computers, but computer assembly
activities in moderation coupled with heavy doses of a constant effort of discovering new
value in the face of changing customer demands and evolving market. Dedication
towards the customer, increased customer attention by segmenting based upon sales to
forge stronger relationships, build trust, loyalty and to sense customer needs to predict
demand. Integrating the supply chain into a value network – a network of trust and
reliability built by sharing demand forecasts and nurturing a sense of partnership –
blurring the corporate boundaries.
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Dell Case Study:
Corporate Strategy
Execution! - The key word around which the entire philosophy and secret of Dell
revolves. If we look at how Dell deals with its customer the only differentiator that
appears is how they execute their dealing with their customers. The way they interact
with their suppliers is again a perfect example of their excellent execution. It’s the art and
science of execution that has given Dell an edge over their competitors. But the big
question is if it was just an execution how come other big players and many small
competitors of Dell couldn’t emulate the kind of game Dell was playing in the market
place. Was it the time factor and economy that worked with how Dell executed its
strategy? In order to truly understand the deep secrets of how Dell become a $49 billion
company in 21 years we need to view different aspects of how Dell grew over time and
how it has kept elevating its execution performance.
Dell Computer Corporation, a $49.2 billion company (2004 10-K filing), was formed by
Michael Dell in 1984. The concept was simple but very innovative at the time when it
was introduced. Sell Computer products directly to customers without dealing with
intermediate distributors. Later on this concept in business was coined as direct business
model. At that time the only philosophy of this innovation was to reduce the total cost of
computer products to make them more attractive for buyer. Over the time, other benefits
such as customer understanding and targeting each segment of customer according to
their requirement become apparent. Dell offers a wide range of enterprise systems
(servers, storage, workstation and networking products), client systems (notebook and
desktop computer system), printing and imaging systems, software and peripherals, and
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Dell Case Study:
global services. During the calendar year of 2004 Dell was ranked number one in selling
personal computers both in US and worldwide.
Essentially, at the beginning it was lack of resources that led Michael Dell to innovate
and market the concept of custom-built computer systems. That was the time when giants
like IBM, Compaq and HP were building each single component of computer systems
themselves. Michael Dell realized why he needs to build each of those components when
he can buy each of them from different vendors and assemble them according to the
requirements of customers. That led him capitalize in activities that matters most to
customers i.e. cheap and better computer systems. So the two important concepts –
eliminating distributors and selling value-added computer systems to customers – that
were very new at the time when Dell started executing them returned them big profits.
With the passage of time these concepts become common in the market place but Dell
kept an edge on others by start leveraging internet transaction technology (eCommerce)
on top of its direct and customer centric business model.
The biggest secret behind Dell’s edge on its competitors and big profit margins is how it
executes its transactions, manage its suppliers and cater a unique value to its customers. It
is easy for others to understand Dell’s simple direct business model and tempting to
imitate that but hard to derive value out of that business model. Dell succeeded deriving
value out of direct business model by remaining customer focused and investing heavily
on internet technologies. Most of the time customers place their orders from Dell’s portal.
That order hits Dell’s inventory in minutes and after appropriate verification gets
transmitted to different suppliers and logistics operators who put together different pieces
of the same order and ship a value-added system to customer. For example Dell tells
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Dell Case Study:
Airborne Express and UPS to come to Austin and pick 10, 000 computers a day and go
over to the Sony factory in Mexico and pick up the corresponding number of monitors.
Then while they are sleeping, they match up the computers and monitors, and deliver
them to the customer. By relying on internet technologies, they have reduced their
inventory, operational and human resource cost. With these reductions they have reduced
a drag affect and made themselves more agile, flexible and responsive to adapt
unpredictable market shifts. For example, if they are dealing with two suppliers and if
one of them loses its credibility or productivity then it is easier for them to consume more
from the other remaining supplier compare to building another manufacturing plant and
then hiring personnel for that. That is one of the reason why Dell has responded so quick
for its customers unique demands compare to its giant competitors.
Another reason why Dell has been so successfully playing in the market place is how
they have recently refined their customers and have provided unique value-added
solution to each of them that matches their requirements. In 1994, Dell was a $3.5 billion
company when it was focused on two types of customers – Large Customers and Small
Customers (Business and Consumers). In 1996, it became a $7.8 billion company when
they further refined their large customers into large companies, midsize companies and
Government and education segments. In 1997, it became a $12 billion company when
they further refined large company segment into global enterprise accounts and large
companies, and government and education into federal, state and local and education
segments. This segmentation has helped them truly understand their customers’ demands
and cater them accordingly.
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Dell Case Study:
Dell’s Business-to-Business Web-Site Strategy
By leveraging the superb strengths of its internet transaction capabilities, Dell has not
only reduced its own cost but has also helped its clients to achieve the same kind of cost
savings. Dell provides Premier pages to almost any organization with about 250 or more
employees. These Premier pages enable authorized employees to place any order. These
pages keep track of their accounts, their billings and their history of orders. For customers
this is a great advantage since they save all the bookkeeping cost. Since March 2000, Dell
has made 242 B2B deployments of these Premier pages across 150 companies; most of
them are large or very large. Ninety percent of these deployments have been in the United
States, with the balance in Western Europe, Japan, and Australia. Companies with B2B
deployments have come from almost all industries. B2B Premier pages is Dell’s another
major sales channel whose sales volume growing 20% quarter over quarter since 2000.
This kind of mutual cost savings helped Dell to gain respect and reputation as of
customer caring firm. Dell has put tremendous capital in every point of interaction they
have either with their customers or suppliers, though, the point of interactions they have
chosen are least expensive compare to traditional channels. For example, internet, direct
phone-calls, mass catalog mailing, and B2B website compare to intermediate distributors
and retailers. On client side, with the help of CRM systems they have provided clients a
single point of contact to solve their any kind of technical or issue oriented problems. For
example, each Dell product has a customer tag with the help of which customer support
representative often pull more knowledgeable information from their CRM systems about
owner’s product than herself, which in turn solve customer’s problem fast. This increase
customer satisfaction and loyalty. On the supplier side of their firm, their tightly coupled
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Dell Case Study:
integrated systems capture various important streams of data from various front ends;
integrate those data and pass to each different vendor corresponding unique valuable
information almost instantly. This excellent management and instant distribution of
information has helped Dell taking advantage of different vendors instead of
manufacturing those pieces by themselves. That has eliminated manufacturing cost as
well as reduced its inventory cost.
SOURCES
Rob Rosenthal, “Vendor Needs and Strategies: Dell’s Business-to-Business Web-Site
Strategy” (October 2003, IDC#30202, Volumes: 1)
Joan Magretta, “The Power of Virtual Integration: An Interview with Dell Computer’s
Michael Dell” (HBR OnPoint March-April 1998)
Dell’s 10-K filing for Fiscal year 2005 - http://biz.yahoo.com/e/050308/dell10-k.html
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