Direct in your Face
An analysis of a company using
strategic information systems
to sell products direct.
Devon Taylor Ward
Information Systems 158
Professor Jack D. Callon
February 5, 2004
TABLE OF CONTENTS
Introduction
Section I - An Analysis of the Personal Computer Industry
A.
B.
C.
D.
E.
Industry Profile
Competitive Strategies within the Industry
Porter Model Evaluation of Industry Forces
Globalization of the Industry
Importance of Information Technology to the Industry
Section II - Company Perspective: An analysis of Dell
A.
B.
C.
D.
E.
F.
Company Profile
Business Leaders
Competitive Strategy Statement
Market and Financial Performance
Significance of Information Systems
Strengths and Weaknesses of Dell
Section III - Information Systems at Dell
A. Strategic Option Generator
B. Roles, Roles and Relationships
C. Redefine and/or Define
D. Significance of Telecommunications
E. Success Factor Profile
Section IV - A Final Analysis of Dell
A. Success of Business Strategy and Information Technology Use
B. Is the Company Effectively Postured for the Future?
Bibliography
Introduction:
This business analysis paper on Dell will be broken down into four sections. The first
section will be the analysis of the industry in which Dell represents, followed by an
analysis of Dell as a business entity, then a description and examination of its information
systems, and finally an overall evaluation of each section with an emphasis on Dell’s
competitive position for the future.
Dell’s customer direct business model and overall astounding customer service has led it
to be one of the top companies in the Computer Industry, primarily selling PCs. Through
its use of strategic and most certainly required Information Systems, Dell has positioned
itself as the number one retailer of PCs in the world.
Over the past decade Personal Computers (PCs) have found its place in just about every
market known. With increasing technological capabilities and functions, PCs have been
seen as an effective tool for creating efficiency. This has lead to its use in homes,
hospitals, automotive centers, engineering development firms, research centers,
government facilities, schools, restaurants, and almost all businesses rely on a computer
for one reason or another. This creates a huge demand for products and services relating
to computers.
Section I: Analysis of the Personal Computer Industry
A. Industry Profile
The PC industry will be strictly referring to PCs and not the many other objects
associated with its use. IDC, a premier global market intelligence and advisory firm in the
information technology and telecommunications industries, defines the PC market to
include desktop PCs, notebook PCs and x86-based servers, but not handhelds. The
market that will be analyzed will include the definition by the IDC along with services
geared towards PC such as custom application development.
The PC market is dependent on several variables which are used to sustain customer base
and increase growth without losing out to competition. The key factors are price,
availability, performance, and quality. There are definite tradeoffs between the variables
but the main focus will be on availability and quality. These two categories stem directly
from the business strategy that a company implements. The most successful strategies in
the market for availability have been customer direct business models, while for quality,
enhanced customer service has been used to support already reliable products.
The competition in the PC industry is fierce. The major players who are all trying to
increase market share and bring more product to the marketplace are Dell, HP (HewlettPackard and Compaq are reported as one company), Gateway, IBM, Fujitsu, Toshiba and
Apple. Apple will not be looked at in the same light as the rest of the competition because
they offer a product that is similar in technology but maintains a conflicting definition of
the PC industry (ie. They offer non-x86 based systems and are competing with different
objectives for the industry). Apple will be used for reference when possible to display
similar characteristics and strategies in comparison to the direct competition in the PC
industry. Other players in the industry such as eMachines will be included in some trends
because of their increasing growth, but do not maintain a significant enough portion of
the market share and will be considered minor threats to the major players at this time.
The numbers that imperatively guide the industry are market share and number of
shipments made. Market share represents a company’s share of total sales of all products
within the PC industry in which all companies compete. Number of shipments is the total
amount of computers shipped during a given period. To analyze these figures the industry
must be broken down into two markets, the worldwide and U.S. market. The top five
vendors worldwide for 2003 were Dell, HP, IBM, Fujitsu and Toshiba, while the top five
U.S. vendors were Dell, HP, IBM, Gateway and Apple. An interesting trend in the U.S.
market, is that Gateway had a nearly 30% decline in growth which has been a
continuation from the previous year, while eMachines took up some slack and gained
20.8% in growth in the same scenario.
Company
Dell
HP
IBM
Fujitsu
Toshiba
Worldwide Market 4
Shipments (thousands)
26028.0
25780.4
9069.2
6234.8
5290.8
Figure-1
Market Share (%)
15.3
15.1
5.3
3.7
3.1
Total shipments made worldwide: 163.4 million units
Company
Dell
HP
IBM
Gateway
Apple
U.S. Market 4
Shipments (thousands)
14439.8
10223.8
2424.2
1739.1
1581.0
Figure-2
Market Share (%)
27.4
19.4
4.6
3.3
3.0
Total shipments made worldwide: 52.7 million units
In 2003, worldwide PC shipments increased 10.9% to an estimated 163.4 million units,
and U.S. PC shipments increased by 10.8% to an estimated 52.7 million units. The
similar increase in shipments between the worldwide and U.S. markets is no coincidence.
Year-end results were largely due to home and small business markets. Consumers in
these markets are taking advantage of falling prices and having more needs for computers
where-as large corporations have systems in place and have not pursued huge budget IT
initiatives in the last year because of the poor financial market situation. Although record
4
Gartner Inc. - http://www3.gartner.com/RecognizedUser
shipment numbers are coming in, the top companies have not seen higher revenues which
usually relate to the corresponding figures.
“People are buying cheaper PCs so revenue is basically flat.”
Roger Kay, technology analyst at IDC 2
This statement is completely untrue if you were to look at Apple’s product line. Apple is
taking a different approach in the industry by concentrating on the high-end of the
consumer market. By selling higher priced computers Apple has realized its highest
revenue level in just about three years. Also another oddity of Apple’s market is that its
sales tend to significantly respond to new products such as the G5 where as the rest of the
industry only see slight changes when newer products come out like the P4. The reason
for this is that most of the time new Intel x86 based processors that come out are nothing
revolutionary but more evolutionary in terms of speed and technology. The speeds just
slowly get bumped up and when a new version comes out an extra boost in sales is seen,
but not compared to the boost that comes from a new Apple line. Since they are the only
suppliers of the Macintosh personal computer when new technology is released it is seen
as a must have amongst enthusiast in the high-end market.
Figure-3* International and Domestic
Year Ending 2003
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
-10.00
M
Fu
jit
s
To u
sh
ib
a
G
at
ew
ay
A
pp
le
IB
H
P
D
el
l
Revenue
Profit
Inexpensive PCs are here to stay, so companies will continually have to fight to pull
higher revenues and generate growth in earnings. But with that said the industry is
optimistically predicting the potential growth in the number of buyers upgrading over the
next year. This creates an opportunity for the industry to continue to increase PC
shipments, but depending on the worldwide economic situation the actual activity that
takes place is still up in the air. The expectations for U.S. economic recovery are looking
good, which will result in an overall better global economy and hopefully a boost in the
PC industry.
* Data for graph was compiled from yahoo.com financial reports and individual
companies’ annual reports
2
News.com.au - http://finance.news.com.au/common/printpage/0,6093,8405479,00.html
The PC industry has not yet reached its peak yet, so the next five or ten years will be
crucial to implement an industry strategy that works well and is stable during economics
fluctuations. The current leaders of the industry with the exception of Gateway are doing
well and with trend of the globalization of computers more worldwide marketplaces will
open up and more growth will be seen.
B. Representative Competitive Strategies within the Industry
The individual competitive strategies used in the PC industry combine together to create
a business strategy model which defines a measurement of competitiveness among the
leading companies. The competitive strategies will be listed, explained and then
analyzed.
According to Porter there are only two basic strategies identified and a company must
pick one or the other as a primary strategy. For the PC industry a low-cost strategy is
becoming necessary. Cost is the primary factor on which a strategy will be based.
Competition for PCs is established by trying to get similar products, in this case
computers, to the consumers at the lowest price both in terms of the price the consumer
pays for the PC and for the cost the companies must pay to manufacture and sell the PC
to the consumer. By using this strategy there is only one low cost leader at a time. It is
completely measurable and realistically speaking, impossible to have two companies that
are the cheapest and sell the most PCs at and given time. Dell and HP have been fighting
for the top spot ever since HP merged with Compaq on March 19, 2002, with Dell
recently edging HP out for the hot seat.
It currently it looks like the market is forcing a low-cost strategy in order to succeed, but
lowest cost is not what brought the major players to the table. A form of differentiation
takes place which provides PC buyers several options which cater to their needs. By
developing business strategies which offer these options companies had a way of pulling
different markets in. HP and IBM offer high end UNIX servers along with technology
guidance to implement the solutions which are untouched by other competitors. They
placed a firm hold on a portion of the market that is very hard to break into. But this is
being combated by Dell’s strategy of “scale out” which is a way of purchasing several
low-cost Intel servers and clustering them together to form the processing power
provided by HP and IBM’s high end servers. This constant struggle of differentiation is
forcing new business and marketing strategies, but in the long run will be forcing all
competitors into a low-cost boundary which dictates how much differentiation can occur.
Differentiation is still the primary strategy in the industry but cost reduction will occur
from time savings, more efficient inventory control, and by minimizing employee size.
Information Systems will play a major role in both primary strategies. To maintain in the
top seats of the PC industry supporting strategies must be implemented in order to fully
take advantage of opportunity.
Innovation is a staple for a successful company. The most effective strategy for
innovation has been the customer direct business model which has provided costs savings
and differentiation all around the board. It allows the companies to have complete control
of the entire process of manufacturing computers to calculating the precise time a
computer will be ready and shipped. This business strategy allows innovation to take
place in each division of a company by placing information at their fingertips.
Information can be looked at from different angles with specific objectives at hand,
providing proof for strategy changes and the insight for expansion.
Growth is one of the supporting strategies which allows for close competition in the
industry. New markets are still popping up and companies must be prepared to expand
into those markets so they do not lose out to other companies. Another aspect of growth
is being able to provide customer service to the increasing consumer base incurred from
expanding into new markets. Being able to meet the changing needs of all new customers
around the world is definitely a strategy directly tied to growth which will make or break
a company.
PC Industry Business
Strategy Model
Figure-4
Products and Services
Desktops
Notebooks
Servers
Customers
Home
Small Business
Corporate
Government
Schools
Geographic
Worldwide
National
Manufacturing
Virtual Integration
Vendor Emphasis
Outsourcing
Sales/Distribution
Direct
Retail
Component Based
Company Structure
Alliances
Independent
Outsourced
Information Systems
Inventory control
Business
Manufacturing
CRM
Support
While trying to expand its customer support services, Dell built offices in India, but
recently many complaints have been piling up regarding the level of satisfaction with
technical support calls re-directed there. Now Dell must try to revise its strategy for the
growth of its technical support, while taking on a slight temporary disadvantage from its
competitors. Growth is also a motivating factor behind increasing volumes. If a company
in the industry can increase its volumes it will then raise revenues and profit margins.
Companies are not only attempting this strategy, they are forced to strategize growth.
The other supporting strategy that is very useful in the PC industry is building Alliances.
They can directly support the low-cost strategy by combining resources with other large
firms to provide significant price advantages that other companies without these
resources could not utilize. This takes a huge toll on local computer builders such as
“mom and pop” stores that have to buy from wholesalers and cannot pool resources
because they are not capable of producing the sheer numbers that larger conglomerates
can. Alliances are one of the main factors that provide the industry with the primary
strategy of differentiation. Alliances allow for companies to work together to safely
stabilize a business process so that they can both work on other objectives. By tying in
with software companies like Microsoft the competitors in the industry can take
advantage of the network externalities by offering specialized configurations and
implementations thoroughly supported by Microsoft’s operating system.
Now, Apple should be looked at in relation to the PC industries competitive strategies.
Apple employs a separate differentiation strategy from the rest of the competitors in the
PC industry which basically means they are creating an environment where it can charge
a premium price for its PCs instead of competing with a lost-cost strategy and trying to
have the cheapest computer out there. Its motto is “Think Different”. By creating a sleek
looking computer case, pretty graphical user interface, and by making the operation of its
systems easy to use, it can cater to the people that would like to pay for a better product.
The only problem is that in Apple’s case it is a deception. Through great marketing
schemes like the “switch” advertisements, people have come to believe that Apple’s
computers are going to allow them to do things that are not possible with your average
PC. So with its strategy of differentiation Apple has become top five in the U.S. in terms
of market share while the rest of the companies in the PC market use the differentiation
strategy with a low-cost emphasis.
C. Porter Model Evaluation
The Porter competitive model provides a broad analysis of an industry in relation to a
single company based on competitive forces, company alliances both with suppliers and
buyers, power implications over the company, and threats of new entrants and substitutes
in the market.
The analysis of the PC industry shows that there is a significant amount of competition
going on but with only a handful of overwhelming companies that hold the majority of
the market share, namely Dell, HP, IBM, Fujitsu, and Toshiba. All the companies share
in the PC market while some cater to specific markets within the PC market.
The Bargaining Power of Suppliers
The suppliers in the industry do not have much power when it comes to dealing with the
top companies in the PC industry. The industry usually dictates the quantity and prices
that need to be supplied which leaves the suppliers in a very tight spot. They must make
solid relationships with the big PC manufacturers in order to ensure their future, which
usually means very low prices. The main reason why suppliers have almost no power in
the industry is because they have such severe competition amongst themselves.
Companies like Dell, HP, and IBM can pick and choose who they want to deal with
because they produce such high volumes. Suppliers are constantly being pressured to
lower prices so the PC manufacturers can lower there prices and be even more
competitive in the industry.
Figure-5
Porter Competitive Model
Personal Computers Industry Analysis - Worldwide Market
Potential
New Entrants
 Alliances
 Technology Suppliers
 Partners
 Suppliers for
manufacturing parts
Bargaining
Power
of Suppliers
 Local Manufacturer
Conglomerates
 Suppliers turn Manufacturers
Intra-Industry Rivalry
SBU: Dell
Rivals: HP, IBM, Fujitsu,
Toshiba, Gateway
 Sun, SGI
 AMD
 Local retailers
(Mom and Pop)
 Ebay (Auction sites)
Substitute
Products
and Services
Bargaining
Power
of Buyers
 Individuals have no
power
 Individuals as a whole
can influence
technology usage
 Corporate vs small
business
 Mass buying from
companies like Boeing
Intel is one of the biggest suppliers to the PC industry. This isn’t only because they are
one of the largest semiconductor manufacturers in the world but because companies like
Dell only use Intel products in its computers. So one would think that the biggest
semiconductor company in the world would have some bargaining power because they
have such a huge market share in its own industry, but they wouldn’t have quite the same
market share if the top PC Manufacturers decided to switch to AMD based products.
Some of the competition is switching to AMD products, like HP. They are realizing even
cheaper prices compared to Intel, so Intel has to make deals with them and extremely
decrease prices in order to compete with AMD. A prime example of this is Intel’s
Pentium 4 processor. And average model costs about $200 retail, but the Dell computer
that has that processor in it costs about $400 with everything included. Intel has to be so
price competitive that they are sacrificing profit margins for pure revenue.
The Bargaining Power of Buyers
The sides have not flipped completely but PC manufacturers have lost quite a bit of
power when it comes to buyers. When it comes to individual consumers, there is no
power over the market in terms of pricing, but they might have some when it comes to
developing new products and using new technology. If a trend is taking place where more
consumers feel AMD is a better product, business might be lost to competition supplying
that technology. This is usually not the case, because corporations buy the most
computers compared to any other market, around 75%, and they do not care what makes
up the internal components as long as they are fast, reliable, and get the job done. Intel
has made a reputation for themselves as being the fastest and highest quality technology
out there, so having Intel components in a system is normally expected. This leads to
more power for Intel as a supplier than it does for buyers having power over the
manufacturers.
Staying on the topic of corporations, one must look at the power they have over the
manufacturers in terms of quantity. Whether a formal relationship is constructed with a
manufacturer, corporations that consistently purchase large amounts of computer can
easily strike discounted deals and force lower prices to be offered. Companies like
Boeing have alliances with manufacturers, such as Dell, which allow them to get huge
discounts because of the quantity they purchase. Just as the suppliers have to cater to the
manufacturers because of volumes sold, the manufacturers have to cater to the large
buyers.
New Entrants
New Entrants are existing or new companies entering the industry to compete. The
barriers to enter this market seem fairly large, because of the dominance in market share
already out there. It is hard to directly compete with the top manufacturers based and
price. And it is hard to compete because of reputation. But these things are not
impenetrable barriers, merely large goals and motivating factors. Companies like
eMachines are growing in the right direction and in a matter of time the will have an
opportunity to position themselves up top with the major players. It is currently not
employing a customer direct business model, but after they get a solid foundation build
and have taken up a fair piece of market share, there should be no reason why they cannot
compete directly in the customer direct market.
Other related new entrants could be smaller local manufacturers that spread through
group purchases and work together to strike similar discounted supplier deals. There are
thousands of them out there, it is just a matter of better organization and business
strategy.
The one potential set of new entrants that might pose the biggest possible threat to the PC
industry is suppliers that change business strategy and become manufacturers. If suppliers
were to work together or independently, they already maintain a portion of the
components needed to build a computer which would allow them to sell PCs for a lower
price at the same profit margin as their competition or sell at the same price but with
higher profit margins. Say an Intel supplier decided to make computers based off the
same customer direct business model as Dell, it would not have to buy motherboards and
processors through a supplier, which would mean it has the lowest cost for parts
compared to any manufacturer out there.
Substitute Products and Services
Substitute products and services are alternatives to what the competition in the industry
offers. There are many other resources for purchasing computers. Not only are several
outlets available for buying computers but there are also an assortment of types. The PC
market that has been defined excludes specialty computer that perform in niche markets.
These types of computers include those made by Apple that were expressed as being
geared towards high-end consumers, as well as systems produced by Sun Microsystems
which are used by programmers and software developers, and Silicon Graphics machines
used by scientists, engineers and creative professionals to create and visualize data. The
majority of these computers do not compete for the same functions that PCs are used to
execute. They are substitute products but in some cases overlap a little, as is the case of
the server market. Both Sun Microsystems and Silicon Graphics make high-end servers
that compete for market share with HP and IBM, but once again only normally seen in
specialized roles.
Along with various types of computers there are various type of purchasing mechanisms
as well. One of the most popular places for purchasing a computer or components is
eBay. It is based on an auction scheme where bidding occurs to win products. This is
certainly not the best place to purchase computers for the whole company, but specialty
products, rare legacy computers, and low end workstations can be purchased at very
reasonable prices. As speed continues to go through the roof we will soon reach a point
where older systems are plenty fast to accommodate for the majority of the business
functions performed throughout a company.
Porter Analysis Conclusions
Substitute products and service are available in the current marketplace but the majority
does not pose as much of a threat to the PC industry as do other aspects of the Porter
model such as the Power of Buyers and New Entrants.
Not every company may be as successful as the major players in the PC industry but all
can follow similar business strategies such as Dell’s customer direct business model. So
new entrants have a lot of the work cut out for them, but they still have to compete in an
ever changing industry and cannot survive by mimicking the competition. Companies
need to harness strategic relationships with suppliers and buyers while still keeping an
eye out for possible threats coming from any within or outside of the industry.
D. Globalization of the Industry
Globalization is already a major factor in the PC industry. New markets are opening up
all time, and the competitive forces of the industry must be prepared to take advantage of
new opportunities as they are presented. Without a plan for global growth there is no
possible way for a company to maintain its market share both nationally and worldwide.
As third world countries develop and look for a means to build a sound infrastructure, the
PC industry can provide to these fresh markets new tools and technology that they
currently distribute at extremely competitive prices. A couple of examples of expanding
worldwide markets would be China and Thailand. China had an estimated 14.2 million
shipments in 2003, and with a population base close to 1 billion they have a huge
potential for computer sales. In terms of pure growth Thailand witnessed a 75% growth
in shipments for the third quarter of 2003. This is only quarterly growth, but it
demonstrates the potential in the worldwide PC market.
E. Importance of IT to the Industry
The key factors to taking advantage of the primary business strategies are to have
Information Systems which will reduce the core business costs associated with running a
consumer direct business model and create improved efficiencies.
PC Industry Value Chain
Research
And
Development
Engineering
Production
And
Manufacturing
Marketing
Sales
And
Distribution
Support
Buyer
Information Systems are used to connect suppliers to manufacturing, provide buyers with
an outlet to directly purchase their computer, and give internal management the ability to
look over all the business processes while being able to make strategic decisions about
the expansion, consolidation, and progress of the company. These systems provide
inventory control, accounting information, manufacturing data, and structure which link
processes together. Having the best Information Systems among competitors allows costs
to be kept at the lowest possible value which offers a competitive advantage. Efficiency
is created through the distribution of information to the proper hands. Upper management
will be able to build reports based on desired analysis which can lead to optimization and
more effective business strategies.
Information systems also play a huge role in the support aspect of the PC industry.
Customer satisfaction can make or break a company and systems that support knowledge
bases and telecommunications redirection provide a backbone for this extended service.
Section II: An Analysis of Dell
A. Dell Company Profile
Dell is one of the most dynamic, technically versed companies and is currently the
leading suppliers of PCs to the world. It offers a wide range of IT and network solutions
to meet the needs in every market from in home workstations to corporate storage
servers. The majority of the computers that it sells are individual workstations for
corporations that provide employees means to accomplish daily tasks such as: email,
Internet browsing, document and presentation creation, file transfers, and other forms of
communication functions. These are all considered to be systems that utilize the IT
infrastructure of their company. Dell also presents affordable infrastructure solutions
such as Intel based servers and networking switches.
A lot of companies sell the same products and services that Dell does, but the one thing
that makes it stand out from the crowd is its perfect implementation of a customer direct
business strategy. Dell sums this up the best with a quote from its website.
“Dell's climb to market leadership is the result of a persistent focus on delivering
the best possible customer experience by directly selling standards-based
computing products and services.” 1
Dell allows customers to log on to its website or call a toll free number to personally
customize a computer of their choice and have it shipped to them direct. Customers can
configure and price systems, order it, and then track it through the entire process from
manufacturing to shipping. Dell has the manufacturing capabilities to build each
computer one at a time and make sure it is of the highly quality standards. By selling
computes direct Dell has the ability to understand customer needs on a “personal level”,
which allows them to create efficient solutions to effectively meet their needs.
The competitive advantage to the direct business model is gained from bypassing the
middleman. By not going through retailers Dell saves time and money, and keeps
customer information close to the business. Dell see higher profit margin when selling
direct because they don’t have to compensate for retailer mark up. Also if Dell were to go
retail this would mean it would have to pre-manufacturer a lot of computers which takes
the personal customization aspect out of its strategy. Furthermore the time it takes to get
the product into the hands of the buyer is reduced to the limitations of shipping and build
time versus distribution to retailers, possible on-shelf periods and aging of technology if
not purchased right away.
Dell secures the ability to utilize any new technology available. After their team of
engineers has verified the stability and quality of a new technology they do not have to
wait for a new product line to include it. It can simply replace current hardware in the
customization phase of the purchase or be an addition which can be had for a premium
cost. This allows Dell to make sure it can provide real time improvements in the industry.
Other competitors might not be able to implement technology as quickly because most
have computer sitting in retail stores with the older technology I would like to sell those
off before releasing new products.
The other aspect of the direct business strategy is customer information. If it was going
through a retail distribution channel it would not be able to maintain information about
who is buying the computer, what purpose it will serve and the choice of one technology
over another. Through the direct model information is directly accessible by internal
management, research and development, and senior management so when it is time to
take a new direction there is valuable information that can be analyzed to realize current
trends taking place in both its company and in the industry.
Orders over the phone make up a good deal of sales, especially for customers that need to
ask question and need to feel the satisfaction of customer service that Dell provides. But
Dell’s online website is what triggered its success, which was launched with e-commerce
capability in 1996. Since then Dell has applied adapted its entire business strategy around
the efficiencies that the internet has to offer. It is sometimes interesting to notice that
some companies that sell servers and network devices don’t even use their own products
to run their online business. Dell’s website is run off of its own products, the PowerEdge
servers, which displays extreme confidence and shows the effectiveness of its own
products and services. In one quarter its servers serve over one billion pages from 86
country sites in 28 languages and 29 currencies. 1
Not only does the Internet provide a place to sell its products and services, but also
allows Dell to realize internet related efficiencies that can be implemented throughout the
business including procurement, customer support and relationship management.1 It also
uses the internet to connect suppliers to share information about product quality and
inventory, along with providing customers with industry leading support which is one of
its biggest strengths as a business.
Dell hasn’t always been providing such a wide range of products and services. The
company was originally started in 1984 by Michael Dell in his college dorm room. A
funny rumor was that he would hide computers in his roommates bathtub when is parents
were visiting. Besides bathtub computing, in 1985 Dell offered its first PC of its own
design. It was an extremely fast, 8mhz computer based on Intel’s 8088 processor. Within
two years of starting, Dell had become a company of over 250 employees, and within
three years it had become an international company with an office in the United
Kingdom. During the next ten years the company has expanded tremendously. It opened
offices in 33 countries and created manufacturing centers around the world. Incoming
calls when from 1,700 in 1987 to nearly 300,000 contacts a day. Dell went public in 1998
and went from a company of about 650 to approximately 44,000 employees throughout
the globe. In terms of product line, Dell went from simple workstations to notebooks, to
powerful servers and networking equipment.
Today Dell has reached well over $50 million dollars in sales per day via the Internet and
has become number one in worldwide workstation shipments as well as being ranked
number one by consumers as a computer systems provider.
B. Business Leaders
Dell would not be the company that is today without the leaders that form structure and
guidance in such a competitive industry. The two major executive that have made Dell
the number one PC supplier in the world are its founder and CEO Michael Dell and
President, COO, and recently named co-CEO Kevin Rollins. Dell provides the following
bios of its executives.
Michael Dell, born in February 1965, is the chairman and chief
executive officer of Dell, the company he founded in 1984 with
$1,000 and an unprecedented idea - to sell computer systems
directly to customers. Michael Dell became the youngest CEO
of a company ever to earn a ranking on the Fortune 500 and is
now the longest-tenured CEO in the computer industry. The
company currently ranks No. 4 on Fortune magazine's "Most
Admired" lists, both globally and in the United States, and in
2003 was named among the top 10 most trusted and respected
companies by a Wall Street Journal poll. 1
Kevin B. Rollins serves as president and chief operating officer
of Dell. He is responsible for the day-to-day global operations of
the company and, with CEO Michael Dell, sets the company's
strategic direction. Before becoming president and COO in
March 2001, Mr. Rollins served as vice chairman of Dell, and
prior to that, was president of Dell Americas, managing all
company operations in the United States, Canada, Mexico, and
Latin America. During his tenure at Dell, the company has seen
its most dramatic growth, with revenues increasing from $5
billion in 1996 to $39.7 billion in its most recent four quarters. 1
Randy Mott serves as senior vice president and chief information
officer. In this role, Mr. Mott is responsible for managing Dell's
global information-technology infrastructure, including the backbone
of its extensive Internet and Web-based capabilities. Mott joined
Dell in March 2000 from Wal-Mart where he held numerous
technical and management positions. 1
Although a majority of Dell’s success can be attributed to these top
executives, they have a lot of support from global leaders that run
operations in other countries.
C. Competitive Strategy Statement
Dell’s customer direct business model gives it the biggest competitive advantage over the
entire industry. Strategies chosen along with that business model are what separate Dell
from other using the customer direct business model. Just because a company decides to
go direct does not mean they will be able to create an effective overall strategy that works
quite as fluidly as Dell’s. Referring to industry strategies diagram in figure-4 Dell’s
overall strategy can be discussed with a bit more detail than that of the generic PC
industry. The strategies diagram is that of a top down approach where a company must
choose at each level what strategies they would like to focus on. Being the leader of the
industry, Dell set standards in terms of strategy so when referring to the diagram for the
most part the business model represents Dell and the other options available are those that
competitors have chosen.
Dell has chosen to compete with all products in the PC industry, including desktops,
notebooks, and servers. It sells its products and services to every all markets that need
information technology, nationally and globally. The purchasing structure chosen by Dell
is the direct method which has proven to be the ultimate strategy thus far. This choice ties
in with its pricing strategy of differentiation, but is leaning towards low cost as more
competitors try and copy its direct business model. The final layers of the model are the
glue that holds together the entire structure. Dell relies heavily on its business
relationships in order to maintain low costs and rapid service. Though none of this would
be able to work, with out the proper information systems in place. Through supporting
strategies; innovation with its customer direct business model, growth in expanding
worldwide, and alliances which have built strong relationships, Dell is a very powerful
company and will remain a top player in the industry for quite a while.
D. Market and Financial Performance
The bubble burst for most companies a few years ago, and even giant corporations like
HP or IBM have seen hard times or sub par performance but for Dell, it has been riding
an upward trend for the past five years. Revenues are at record highs, operating expenses
are at an all time low in terms of a percent of revenue, and the overall profits incurred
have been outstanding. This all boils down to Dell’s ability to ship more computers at
lower costs than any of its competitors.
Figure-6
Figure-7
Net Revenue
Operating Expense
Billions
Percent
12.00
35.00
11.50
30.00
11.00
10.50
25.00
10.00
20.00
9.50
9.00
15.00
'99
'00
'01
'02
'03
* Data for graphs taken from Dell’s annual reports
'99
'00
'01
'02
'03
During Dell’s best year in history, it has seen its competitors decline in both shipments
and revenues. The attributing factor to this is customer satisfaction.
“Nearly 80 percent of U.S. and European chief information officers surveyed said
Dell was winning their server spending.” 1
One might see this as a typical feat for an industry leader, but that is without looking at
the status of the economy. Not only has Dell increased in every aspect of its business, but
has done so during a slumped economy where industry trends have suggested that overall
spending on Information Technology is going down.
Figure-8
Figure-9
Worldwide Growth - Percent
U.S. Growth - Percent
Dell Shipm ents
Dell Shipments
Industry Grow th
350
Industry Growth
350
300
300
250
250
200
200
150
150
100
100
50
50
0
0
'98
'99
'00
'01
'02
'98
'99
'00
'01
'02
In order to sustain superior operation results in the long term, Dell continues to refine its
extremely efficient business model. In 2003, it cut out nearly 1.2 million dollars in costs,
allowing it make more progress in key areas such as product leadership, international
growth, and exception customer experiences.
E. Significance of Information and Information Systems
The role of Information Systems at Dell is the most important thing in order to hold up its
customer direct business model. Without strategic systems to link together the various
business processes, the direct business strategy would be inefficient, ineffective, and the
competitive strategy would be lost.
Multiple systems are used with varying levels of information technology in order to
maintain the streaming process from customer through Dell then back to customer. To the
customer it may seem like a fairly easy task, because they are dealing with just the front
end.
The first step for Dell is to place an available product line on its website which monitors
what technologies are being used and for what prices. Next after a customer customizes a
computer and places an order. The order is sent directly to the nearest manufacturing
* Data for graphs taken from Dell’s annual reports
facility. The order sits in a build queue with up to two thousand other computer’s
specifications, and then the system sends out a parts list to its supplier to have them
delivered to the facilities within 90 minutes. This delivery of parts is done by nearby
third-party logistics centers, because the factory itself only stores about seven hours
worth of inventory at a time. Once the build queue has all of its resources which include
labor and parts, it will issue a build sequence that takes up to two hours to complete the
manufacturing of the computers. The computers are then tested, boxed and shipped.
Throughout the process the computers can be electronically tracked all the way to
shipment to the customer. The manufacturing process relies heavily on the information
systems set up with the suppliers to ensure the proper quantity of inventory reflects the
demand. Dell uses a mix of off-the-shelf and custom-built programs in order to share
information with everyone. This close integration allows everyone from plant managers
to salespeople to get the information they need such as how long it will take to get an
order built and shipped. 3
Manufacturing is not the only one of Dell’s operations that takes advantage of
information systems. The sales force has a system called Symphony which as many as
3000 salespeople use to help customers build systems. These systems allow salespeople
to see the different profit margins and each product or service so that they will know
when and what to sell certain customers that will bring in the best return.
In a data driven environment like Dell information systems must be in place in order to
warehouse all the information that proceeds from one process to the next. Dell has a huge
data warehouse which provides management with an interface to create reports based on
central information. It allows reports to be created that display sales and margins of
certain customers or production performance. 3
As shown Dell’s Information Systems are very efficient and vital to its success. It
maintains an expertise in development that reaches far beyond the strategy of its
competitors.
F. Strengths and Weaknesses of Dell
Dell most certainly has more strengths than weaknesses as a company, but that just
means it needs to keep a closer watch on its weaknesses.
Strengths
Customer Direct
Dell’s number one strength is its firm belief in upholding the direct business strategy. As
long as it continues to pursue viable developments in this strategy, its current business
processes will hold strong. This form of innovation has pushed it from the bottom all the
way to the number one supplier of Desktops, notebooks, and server in the world.
Leadership
And where would Dell be without leadership? Dell takes on some of the top executives in
the nation including its own employees such as Kevin Rollins who manages its day to
day operations and helped develop strategies around the direct selling of computer
systems and services that propelled Dell into its current global leadership position. 1
Financial Stability
Financially Dell has seen a steady increase in revenue in the past years along with
tremendous cutbacks in costs which allow for higher profits to be had. Its success in
efficiency has lead to growth in other areas of business, namely its globalization in the
industry.
Expansion
As Dell further expands into markets both old and new the demand for its products and
services will increase which will grow the company size well beyond its current 44,000
employees. Dell is not a company that carries the burden of a typical industry
conglomerate. It is a developing company that does not have to restructure because of
fluctuations in the economy. It is currently building its structure.
Information Systems
Lastly, one can not further express the importance of Dell’s Information Systems as a
competitive advantage. Information Technology has been around for some time now and
is available to everyone at fairly low costs, so it only makes sense for a company to have
one. But by just having Information Systems you do not inherit a competitive advantage.
The advantage comes from strategies built around solid business models. And Dell’s
overall implementation of the customer direct business model which uses Information
Systems is one of its most powerful competing forces.
Weaknesses
Limited Technological Selection
A minor weakness that Dell is faced with is its choice of technology. Dell has the
opportunity to employ technology as soon as it comes out, but usually waits to verify how
a technology will pan out in the market before implementing it. Dell’s internal system of
manufacturing allows for the inclusion of new technology, but Dell’s wary nature of
adoption could possibly lead to a loss of market share to other companies willing to take
a risk. And sometimes it is not necessarily a risk that it would be taking. Dell has
relationships built with Intel, but a growing source of fast, reliable hardware is coming
from AMD, who can offer significantly less costs than Intel. If Dell doesn’t at least
seriously look into a possible inclusion of AMD hardware it might see an opportunity slip
through its grasp.
Strategy Mimicking
Another weakness which occurs in Dell’s domain is not necessarily something that it can
prevent. Dell’s strategy of customer direct is well known and its business processes can
be duplicated by any company. This is not seen as a direct weakness of Dell but an
indirect weakness of Dell’s in relation to the market. Dell’s main operating strategy was
jumping the middleman, the retailers, but if Dell does not maintain mutual relationships
with its suppliers, I do not see why the suppliers couldn’t skip Dell, implement a direct
business model themselves and become computer manufacturers in the PC industry.
Section III: Information Systems at Dell
With a general overview of Dell fresh in mind, it is time to dive in and look at the internal
workings of the systems that allow it to be so successful. The main driving factor in this
section is the use of information technology which is used to develop Information
Systems to maintain a competitive advantage. The strategy behind, executive
relationships created, roles, and significance of information systems will be examined
thoroughly.
A. Strategic Option Generator
The Strategic Option Generator is a model developed by Charles Wiseman to identify
strategic opportunities involving the use of information systems. It will be used to
understand and explain the approaches taken by Dell that make it possible to achieve and
sustain competitive advantages through information systems.
Analysis of Dell Using the
Strategic Option Generator
Figure-10
Target
Supplier
Customer
Competitor
Thrust
Differentiation
Cost
Innovation
Growth
Mode
Offensive
Defensive
Direction
Use
Provide
Execution
Strategic Advantage
Alliance
The model is used to understand the focus and logic of a major business strategy through
the use of layers. It is setup into five layers: target, thrust, mode, direction, and execution.
The first four layers are choices made by Dell and the last is the analysis of its success in
execution.
Target
The first layer, target, has three possible strategic targets that Dell chose from. Dell’s
primary target is customer. From the beginning Dell’s focus has been on supplying its
customers with the best possible product through value-added processes. Dell has strived
to create services which empower its customers by allowing them through its direct
business model to easily order and customize computers via the Internet. One could argue
its target is competition because it has to fight for market share with the HPs and IBMs in
the industry. In actuality, the trends show that Dell has always kept the customer its main
priority forcing the competition to target Dell directly in competition.
Thrust
The second layer, thrust, which is based on Michael Porter’s competitive strategy
concepts previously addressed, that deal with business strategies. Dell has chosen the
differentiation strategy over cost because the market does not lend itself to least-cost
leadership where only one company can be the winner. Its sources of differentiation lie in
product features and function dictated by its direct business model including things like
customizable application integration. Also it differentiates in price/performance in
comparison to the competition, the highest rated customer support, overall quality of its
products, and the management of information content and support. In addition to
differentiation Dell has chosen all of the supporting competitive strategies: growth,
innovation, and alliances.
The third layer, mode, asks the question “Did the company lead or did they follow
someone else in both business strategy and information systems use?” Dell has chosen an
offensive strategy from the get-go. By implementing its revolutionary direct business
model over the Internet, it has forced competitors to be on the defensive, always playing
catch up. Dell has faced significant risks both technically and in business, but currently
Dell’s only risk is in its business decisions because it stabilized its technological
innovation throughout the years.
Direction
The last layer, direction, deals with identifying the users of its information systems. The
option use corresponds to the situation where the users are within the boundaries Dell.
Dell obviously has many users within Dell such as its manufacturing facilities, inventory
control, and management. The other option provide corresponds to the situation where
the use of the system extends beyond the boundaries Dell. Likewise Dell chooses this
option as well because it has external users such as customers doing business through its
website and over the phone, and suppliers that have access to the systems to be ably to
supply products directly to Dell.
Execution
Lastly execution must be discussed. The key elements in each layer directly support the
evaluation of Dell’s current market success. It has gained a competitive advantage by
taking an offensive approach and combining strategies that give/gave it a unique tactic in
the industry.
B. Roles, Roles, and Relationships
At the heart of Dell’s success is the relationship that bonds together information systems
and senior management. It is very important to first analyze the role of information
systems with a focus on competitive strategy, and then observe how senior management
plays a major part in positioning and prioritizing the competitive role of information
systems, in order to understand the underlying relationship.
The Role of Information Systems
The core business processes of Dell revolve around information systems. To ask if Dell
would be where they are today without information systems would be way off track and
not make much sense because the company was built on top of information technology
and leverages efficiencies from it in every aspect of the business.
With the complete integration of information systems throughout Dell, there is still a lot
to be said about its uses in gaining competitive advantages. The specific roles of
information systems in Dell are to enhance the connection with business process partners,
provide access to information throughout the business, enhance communication, and
provide decision assist which are tools that generate analytical reports, presentations, data
warehouse models, etc.
In order for Dell’s business process partners to be effective in providing their business
functions, Dell must support an external system for integrating them into the internal
infrastructure. This connection allows the business process partners to act as if they were
just another part of Dell.
One of the most important roles of information systems is the ability to provide access to
information within Dell. All departments and business groups need access to information
relative to their job functions, so these systems are created to allow access to real-time
and archived data.
Another role which generates huge efficiencies is the ability for information systems to
enhance communication. This is not limited internally to Dell, but its information systems
allow communications to take place between all of the stakeholders including customers,
suppliers, managers, manufacturers, support specialist, researchers, etc. By increasing the
lines of communication less overlap and redundancies occur, which allow Dell to
decrease costs and increase productivity.
Lastly the role of business intelligence correlates directly to the access of information
presented by Dell’s information systems. These systems take data and turn it into
information that is precisely aimed for use by management type personnel. By generating
pre-built reports and presentations a significant amount of time and money is saved while
gaining the advantage of a plethora of strategic information.
The Role of Senior Management
The role of senior management in Dell is to constantly monitor the business goals and
provide vision to assure the long term viability of the business. There are three categories
of management which have individual roles. The categories are senior executives, the
global executive management committee, and the IS executive.
The role of Dell’s senior executives, Michael Dell and Kevin Rollins, are to recognize the
value of information to the organization such as the time it takes for an order of 2000
computers to be built and shipped, sponsor and participate in determining the role of
information systems, communicate to the rest of management the importance of
information systems, to provide the necessary financial support of a project, focus on the
results and benefits of information systems, and most of all use their leadership positions
to inspire motivation. Dell and Rollins have been the key players in the most recent
success of Dell’s internationalization and broadening of its product line. They understand
the full capabilities of the information systems in place and effectively utilize them to the
full extent.
The next level down from Dell and Rollins is the global executive management
committee. They have the same goals in mind as the senior executives but because of
their position apply a more direct management of their role. They must understand the
role of information systems within the organization, identify and specify requirements for
new information systems, justify and fund new systems, and sponsor their systems on an
on-going basis. This group of senior management takes the guidelines, vision, and
objectives presented from the senior executives and integrate them into the business on a
day to day basis.
The last level of management within Dell is the IS executive, namely Randy Mott. Along
with being a part of the global executive management committee he must provide an
understanding of the realm that is possible, feasible, affordable, and achievable with
information systems. Because information technology is the backbone of Dell he has an
easier time situating information systems as a service and support organization within the
business. His primary role is to maintain and increase Dell’s efficiencies through use of
information systems which are key in supporting Dell’s direct business model.
Relationships
The relationship that exits in Dell between business management and IS management is
very integral to its business. Dell has followed familiar IS guidelines for quite a while
now without straying too far from its customer direct vision which allows the IS
management to sit in close to the business management and be seen as a relatively selfmanaging and as just another business unit within Dell. The business strategy within Dell
has been less dependent on the need to manage the information systems directly because
of it integration into the business focus. This lack of separation allows Dell to maintain a
significant competitive advantage in the still developing PC industry.
Companies like HP and IBM did not have information systems as part of their core
business plan which reveals itself has two distinct areas of management within the
companies. Dell’s management hierarchy stems from Dell and Rollins setting the
direction, culture, and motivation for the business which flows down to the global
executive committee to execute, and for Randy Mott to oversea and guide. Dell does not
use task forces or steering committees to guide the use of information systems, they have
Randy Mott. The overall relationship between the senior management and information
systems management is one of tight integration where it is almost a job function for the
all management to understand the roles of information systems because of their
importance to the business strategy.
C. Redefine/Define
Redefine and define are two concepts which lead to the better understanding of the
approach to use information systems to gain a competitive advantage. The actions related
to these concepts are to change or clarify the competitive position of the organization.
There are three options available in order to redefine and or define value to customers
which are to focus on the business as a whole, products and services, and business
processes.
Dell has used a combination of all three options to redefine or define value to its
customers. Dell had redefined its entire business back in 1996 when it brought its direct
business model into full effect by relocating almost all of its resources to the internet. It
also redefined its profitability with higher profit margins through its products and
services. Not only does Dell do a lot of redefining in its business strategies, but it defines
them as well such as defining its business processes associated with its suppliers.
The biggest and most influential change that took place in Dell was the transition to using
the internet to apply its direct business model. Before using the internet, Dell sold directly
to customers over telephones and archaic devices such as fax or mail. To bring a new
level of value to its customers it offered real-time purchasing and customization of it
products through its web site. This provided convenience to the customer and also led
them away from any sort of sales pitch they might think was happening over the phone.
When ordering a computer over the phone you may not know what all the products are
that are available to incorporate into your systems. When someone handling your call
asks if you would like to upgrade to a faster processor or sound card, etc, it may seem
like a sales ploy to get you to spend more money, but when you have free access to
selecting and pricing components your self online you now have a sense that you are
making the decisions without being persuaded and can get exactly what you want when
you want it. Regardless of how the internet felt versus phone ordering, placing orders
online saved both the customer and Dell, time and money.
Dell was able to cut out a significant cost associated with answering phones and placed
that directly into information systems which would handle the ordering processes. This
cut dell’s costs were directly reflected on the price of the computers customers where
purchasing. Obviously, the time was saved because it is easier to select products off of a
website and enter your own information versus telling someone over the phone what you
want and how to spell your name and address correctly. The time savings was once again
seen on both ends and Dell took this opportunity to reinvest in itself the time saved,
which led to focusing in on new strategies to drive a more successful business through
more organized access to information from suppliers to manufacturers to sales people.
Value to Customer Analysis:
Figure-11
Dell Inc.
Value-Add Process
Computer Systems
◦ Customer Direct
Business Model
◦ Quick manufacturer
turn around time
◦ Alleviates the middle
man (Reduction in cost)
◦ Virtual integration with
partners provides efficiencies
◦ Effective business processes
◦ Supply chain management
and inventory control
◦ Worldwide customer
support
Delivery Process
Product/Service
Value to Customer
◦ High quality computer
systems, components, and
applications
◦ Order when needed
◦ Extremely competitive
pricing schemes
◦ Fast/cheap delivery
◦ Warranties
◦ Fantastic customer support
via the web, telephone,
or on-site
What the Customer Buys
The redefinition of the business to an internet based information systems core, allowed
Dell to implement new information systems to take advantage of the data now accessible
throughout the organization. Dell ran into the problem of seeing huge sales and revenue
numbers but not seeing corresponding profit figures.
Let’s step back for a second and see where exactly Dell was when this happened. Dell
was now growing at a phenomenal rate which created virtual management issues.
Michael Dell’s directions and motivation were instilled into every employee, which led to
a sense of individualism throughout the company. On a per employee basis, sales had
higher numbers and everyone was enjoying the fact that they were selling hundreds of
thousands worth of products and services. But no one was managing the way things were
being sold. Two employees might be selling one hundred thousand dollars per year but
one would be selling with a profit margin of say 25% and the other with only 5%. The
figures were in and Dell had huge sales but no cash.
Dell had to redefine the way it sold products and services. Employees that had a customer
on the phone would sell them whatever they needed without looking at how much the
item cost to Dell and what kind of profit margin could be had. In turn Dell then realized
its shortcomings and implemented a system that would put the product or service
information at every employees finger tips so that when they were making a sale they
could offer first off similar items in a convenient package and secondly items with higher
profit margins versus items that Dell didn’t make much profit off of. This new system
took place as a redesign [redefine] of the previous system to the internal sales
departments. By displaying real time costs and profit margin figures to the sales people
during a sale they could dynamically change the way products and services were sold. If
a similar action was to take place before this new system was implemented, an employee
would have to look up the figures themselves and assume they didn’t change from week
to week. But now that Dell had its information tied together directly from its suppliers
through manufacturing and development this information was available and could be
used to generate higher profits to better correspond to the high revenues.
This sort of redefinition is and was happening throughout the organization. The senior
management would look at a particular set of number, in this case profit margins being
had, and focus on them until success occurred. This allowed efficient and effective use of
information systems to better direct the business strategies. After one portion of the
business was looked at and changed the senior management would focus on another part.
The next major change which provided value to its customers was once again not seen by
its customers but played a significant role in Dell’s backend. Its new strategy was to not
rely on its suppliers but rather have it suppliers rely on Dell. This took place in a form of
consolidation by defining what exactly was good for the organization’s business
processes. Dell realized that having many suppliers was extremely inefficient and need to
keep track of how each supplier was doing and whether or not it was beneficial to use
them versus giving more business to another more efficient supplier.
It is said that a 99.9% efficient supplier is ten thousand times worse than a 99.9999999%
supplier. As Dell was scaling enormously these inefficiencies could easily be seen in the
numbers. So not through redefinition but by specifically defining what Dell was looking
for, it had complete control over its suppliers.
Dell created a report card type system for its suppliers. This system is used to rate the
efficiency of the supplier to determine if it should continue to do business with them or to
just reallocate its product and service demands from another supplier. Since Dell requires
such extreme quantities it has complete power over the suppliers because it provides an
arena that is just about infinitely large in terms of growth and Dell has a constant demand
for supply. Any supplier in the market would love to do business with Dell because of the
internal efficiencies created within Dell and provided externally to its partners. This
forces suppliers to work harder than their competitor suppliers in order to make the grade
so to speak.
This system of reporting is done automatically by using the inventory systems already in
place. It will take all the data such as costs, delivery time, defective replacements, overall
quality, quantity, and put them into a formula to calculate a report which analyzes the
efficiency of the supplier. Management within the company which normally is not senior
management makes the decisions based on the reports on the strategy of the supply chain.
It would be safe to assume that if a product made by Intel became adherently inefficient
to supply and another technology made by say AMD was more efficient, the decision
making would not be made by anyone but senior management because Intel is such a
huge partner of Dell’s.
Just this very small portion of Dell’s supply chain management is crucial to its success.
Dell defined the level of service necessary in order to be a supplier which strategically
upholds that portion of its business processes. By continually redefining and defining its
business processes and products and services, through both internal and external
information systems, Dell gains a more dominant position in the competitive
marketplace.
D. Significance of Telecommunication
Dell’s business core is built around information systems. In order of the information
systems to do what they are supposed to do, they must be connected by networks, either
telephony or computer. The formal structure of Dell’s telecommunication networks are
no different then that of any other company with requirements for large amounts of
communications. The main difference is not in the specific technology, but the emphasis
placed on certain areas of the networks. In Dell’s case there are three major areas that
require a lot of attention.
The first major network is the computer network that supports all of the information
systems internal to Dell. This is all the physical hardware implanted in its facility to
transfer, store, route, and manage data. This base level is seen as an almost basic level
because to do anything the communication “wires” must be in place. For example each
system within the manufacturing facility needs to be able to hook directly into a physical
network in order to use the systems to communicate.
The next network used by Dell is a few levels up from the physical network, which are
the internet/intranet/extranet networks that are in place. Dell must setup several networks
at the server level in order to connect and support its various functions. Its customers
need to be able to use a web browser and point it at Dell which then ties them into a front
end provided by Dell to view products and services, and place orders. Servers need to be
setup and tied to the Internet through ISPs in order to get the customer communication
channel over the web to take place. DNS servers are required to located Dell’s domains,
file servers are needed to house the databases which contain product, inventory,
availability information, etc, and web servers are need to present information requested
by the user. This situation occurs for both the intranets and extranets that the internal
business groups and information systems use, and external functions and partners use.
The majority of Dell as a business is dealt with over some sort of IP based internet.
The third network that Dell must provide and support is its telephony networks. These
networks are used for allowing technical support and order calls to reach Dell. The
problem that a company like Dell faces in terms of a voice network is that it deals with
millions of phone calls to various divisions, personnel, and location, both national and
global. This requires a huge infrastructure to be in place to handle the volume of calls and
to manage the routing of the calls to proper locations that are continuously being
changed. The two major sources of incoming calls to Dell are its technical support which
is based in the US and in India (or was in India), and call for placing orders or finding out
information based about products and services.
The three network concept may lead to the illusion of separation in terms of importance.
But these networks would not be useful if on their own. Dells utilizes its networks to their
full efficient capacity by allowing any resource to be connected to Dell, may it be a
computer, an information system, partner, entire company, business unit, customer,
supplier, etc.
E. Success Factor Profile
Five success factors were chosen for Dell because of the almost definition like substance
that they provide of Dell. The factors represent Dell from the beginning to its current
position and focuses on the successes that have made Dell unique in the industry. Each
factor could be used to describe Dell for the past 10 years. The five factors are business
vision, IS integral to the business, IS justification management process, executive IS
experience, and linkage to supplier.
Business Vision
Direct business model, direct business model, direct business model. In the PC industry
this vision was revolutionary. By defining the need to sell directly to customers Michael
Dell provided a long term goal that withstood the test of time because the model was both
understood and accepted by the organization. Not only was it a vision that the company
itself liked, but customers could not be anymore happy for the cost, time and quality
savings that are inherited from the direct business model.
IS Integral to the Business
In order to sustain the direct business model the core business processes would have to be
set atop information systems in order to be efficient, effective, and a gain competitive
advantage. Every aspect of Dell’s operations uses one type of information system or
another, from human resources to the customer tracking an order. Not only does Dell rely
on its information systems 100%, but it would not be a company without them. It would
be borderline impossible to manually manage the amounts of information handled by its
current systems. Information systems are the backbone of its business strategy and future.
IS Justification Process
So what happens when an additional information system needs to be put in place? The
instinctive move in Dell is to implement it. Take the system that allowed sales associates
the ability to see costs and profit margins of products and services while placing an order
for a customer. That was pretty much a no brainer. The financial justification of putting a
system like that in place had effectiveness written all over it. By influencing the sale of
products or services with higher profit margins Dell would see overall higher profits no
matter what. This would only be a one time fixed cost that would be effective in raising
profits every year, forever.
The main factors for justifying information systems within Dell are do they primarily sell
more through efficient strategies based on IS, lower expenses by replacing processes with
IS, and do they add value to Dell at a minimal cost.
Executive IS Experience
The reason why it is much easier for Dell to justify information systems is because the
top executives are extremely knowledgeable IS people and know what is feasible,
affordable, and achievable, and what’s not. Michael Dell, the founder and still CEO, had
vast computer knowledge when starting the business in 1984, and continue to expand his
expertise while the concept of information systems was growing in importance
throughout all industries. Dell was formed at the perfect time. It caught the technological
wave of the nineties and picked up a handful of information systems powerhouses along
the way. Executives like Jerry Gregoire and his successor Randy Mott not only
make/made Dell’s information systems happen, but they are also a key component in the
business structure.
Linkage to Supplier
After climbing the structure all the way to the top the only place left to look is externally.
The only external component besides customers is the suppliers. Most products and
services used by Dell are supplied by external partners. But is there not a better way to
link external partners than to make it seem like they are directly part of the internal
workings. Dell connects the suppliers right into its information systems and it assumes
they will act like an internal business unit providing a function. The only thing Dell has
to do is manage the efficiency and productiveness of the suppliers which is the same as
managing any other internal group within the organization. They all operate off the same
data and networks but are located in different areas and have a different name. Through
the use of information systems Dell sees its suppliers as part of its company.
Section IV: A Final Analysis
The Success of DELL
A. Success of Business Strategy and Information Technology Use to Date
Historically speaking, Dell has been on the right track since the beginning. The
integration of information systems into the business’s core along with the ingenuity of the
senior management has allowed Dell to stay at least one step ahead of the competition at
all times. The other factor that had paramount importance was strategic business planning
which led to the customer direct business model.
The role of information systems played a significant factor in the relative success of Dell.
It was achieved through the incorporation of information systems at every level within
the organization which created more efficient and effective business processes. The
success of Dell should be almost completely attributed to the use of information systems.
The only reason why information systems are not 100% completely the reason for Dell’s
success is because credit must be given to the senior management including Michael
Dell’s overwhelming support and initiative, the former and current IS executive, along
with the Rollins the COO/co-CEO, and the rest of the global executive committee.
Without the senior management guiding the structure and implementation of the
information systems and their direct tie to the business, the information systems would
not have been as efficient and effective in the marketplace as they were.
Another major factor in the performance of Dell was the business planning which
developed the customer direct business model along with other significant cost savings
based strategies. Business planning geared toward gaining a competitive advantage is
essential to Dell’s power in the industry.
Could Dell be successful without information systems? By maintaining an optimistic
view they certainly could, but they would be at a completely different level in the market
in terms of growth, products and services, and financially. Dell is not like most
companies that rely on information systems in order to satisfy a few business needs with
lower priority to the success of the business. By taking away information systems from
Dell would be like sweeping the legs out from under them during full stride.
For the time being Dell’s systems are very stable and very efficient which will allow for
it to sustain a competitive advantage for as long as senior management keeps pushing for
new business strategies and maintaining its long term goals and visions. In essence its
current systems will allow Dell to expand its business in any direction by simply focusing
on a portion of the system and growing it out or developing new systems in conjunction
with the current framework. So yes, Dell will be able to sustain a competitive advantage
from these same systems.
As the physical foundation for information systems technology has allowed Dell to
implement any idea, change business functions, and redefine itself. Technology sets the
playing field for infinite possibilities. The senior management is not limited by
technology as it may have been 10 years ago, but now they need to know how to take a
business plan and create a solution using information systems that is both efficient and
effective. There are no more technological barriers being faced which put a company like
Dell with its complete understanding of information technology and systems into
competitive position for the future. This lack of a technological barrier gives all
companies equal opportunities but not everyone is poised to take advantage of this
opportunity like Dell is.
From a high level, broad prospective, Dell has accomplished the feat of controlling an
entire industry. Dell is the price, quality, and quantity leader which gives it the ultimate
competitive power in the PC industry. Not only does it have the room for limitless
technological growth, but it has successfully positioned itself for global expansion into all
markets both home and corporate.
Overall the major reasons for Dell’s success are the tight integration of information
systems into the business, selling direct to its customers, extending its information
systems to it partners, namely its suppliers, and managing it supply chain and
manufacturing dynamically with its information systems. All these reasons emphasize
why information systems are so important to Dell’s overall success.
B. Is the Company Effectively Postured for the Future?
Yes, the company is effectively postured for the future because it is sitting on such an
expandable structure which will allow it to change in any direction, maintaining its
competitive advantage over the rest of the companies in the industry. Its customer direct
business model will continue to be a dominating strategy in the PC market and as long as
Dell works to keep the strategy as efficient and effective as possible Dell cannot be beat
out. The major competition in the industry is following the direct business strategy, and
only time will tell whether or no Dell can withstand the pressure.
In conclusion, Dell has proven that it has a capable senior management that is extremely
successful in organizing the way Dell does business through the virtual integration of it
partners. The outlook for the next few years looks prosperous both financially and in
growth.
Bibliography
1) Dell Inc.
http://www1.us.dell.com/content/topics/global.aspx/corp/en/home?c=us&l=en&s=corp
2) US PC shipments best since 2000 - Mark Pratt - Jan. 14, 2004
http://finance.news.com.au/common/printpage/0,6093,8405479,00.html
3) Imaging What’s Possible - Chris Murphy - Information Week - Sept. 8, 2003
http://www.informationweek.com/story/showArticle.jhtml?articleID=14500036
4) Gartner Inc.
http://www3.gartner.com/RecognizedUser
5) Interview: Where do we go from here - Michael J. Miller - PC Mag - Aug. 3, 2004
http://www.pcmag.com/article2/0,1759,1501476,00.asp
6) Dell Business Strategy Secrets - Russ Finney - July 8, 2002
http://www.itmweb.com/f070802.htm
7) New Mantra for PC makers - Ina Fried - July 18, 2003
http://news.com.com/2100-1040-1027370.html
8) Travelin’ Man: Randy Mott - Ben Worthen - CIO.com March 1, 2002
http://www.cio.com/archive/030102/profile_mott.html
9) PC Shipments Surge in Third Quarter - John G. Spooner - Oct. 15, 2003
http://news.com.com/2100-1003_3-5092123.html
10) U.S. PC Market Stages Comeback - Joseph F. Kovar - Jan. 15, 2004
http://www.techweb.com/wire/story/TWB20040115S0018
“Best of Breed Articles”
1) Travelin’ Man: Randy Mott
This article was particularly interesting because it helped fortify the idea behind
“everyone is a CIO at Dell”. Most of the top executives are not just pure business men,
but information systems enthusiasts. The article also goes on to explain in a brief
overview Randy Mott’s role in the company as CIO and what it takes (in terms of time
commitment) to get the job done.
2) Where do we go from here - An interview with Michael Dell
The concept behind this interview was to draw out the products and services Dell
presents to its customers now, and the trends it might follow in the future. It is in a casual
context which allows the reader to get a better understanding of what type of person
Michael Dell is through the way he talks. This directly corresponds to the culture that is
brought to the company through him.
3) Imagine What’s Possible
This article rounded off the other two, by diving into the details of the processes that take
place within Dell, with an emphasis on the information systems that run them. It was
interesting to read the opinion that was reflected by the organization on information
technology. Mainly the overview of technology and integrated systems is what made this
article an informative read.
Interview: Where do we go from here - Michael J. Miller - PC Mag - Aug. 3, 2004
Recently, PC Magazine Editor in Chief Michael J. Miller sat down with Michael Dell, founder and CEO of Dell, to talk about Dell's expanding
product line, the company's late entrance into the Media Center space, and where the PC giant and the industry go from here.
MM: Let's switch gears to the more corporate side, since we're at Comdex.
...
 Portion of interview cut to save space 
…
MD: Much bigger part of our business.
MM: You've talked a bit about how in some respects there's been more of a commoditization of the smaller servers than the big 16-way or even
64-way servers. You've got Intel servers, and one- and two-way servers are most of your business at this point. How much of that is the market,
where are you still seeing people who want these higher-end systems, and how much of a business is that going to be?
MD: Well, a couple things are happening. One is that as performance continues to increase, the need for 8-way, 16-way continues to decline.
So if you look at the latest data for the third quarter, the market for eight-way servers was down 2 percent while the market for two-way and
one-way was up 20 percent. The market for eight-way and above, including 16 and all the others, was down 17percent year-over-year. Our
server business is up 30 percent year-over-year. If you take a particular application like SQL server, 15 percent of all SQL Server installations
are on machines with more than four processors, so that means there are like 42 of them or something. No, I'm serious. You sort of look at all
the SQL Server installations. Basically, the vast majority of them are in four ways and two ways. What kind of performance can you get from a
four way today? It's incredible.
If you think about SQL Server, you think about the database; these things are not really transaction-loaded. They're I/O-loaded and networkingloaded. So I think the point is that, first of all, the market continues to decline for eight and above. It's already a very small percentage, so we're
very happy to let the other guys have 100 percent of the 15 percent. And I think processor performance continues to scale. Also, you have this
dual-core and quad-core stuff coming, so imagine—a 4-processor today all of a sudden becomes an 8-processor, all of a sudden becomes 16
processors. You just kind of look out a couple of years and you go, "Wow, oodles of performance here."
You throw on 64-bit instruction sets, you throw on 64-bit I/O, and then you throw on scale-out, with SAP, Oracle, Microsoft, Linux all
embracing scale-out. I think the problem is that the overhead associated with designing and architecting 8, 16, 32 is just so high, design cycles
are so long, by the time you get the darn thing out, [it's too late]. First of all, you don't get linear scaling. By the time you get the 8-way out,
there's already a 4-way that's very, very close in performance. So for the market…to climb, we're focused squarely on scale-out: four ways, two
ways, one way. That's where the market's growing.
MM: You mentioned 64-bit. Obviously there's Itanium out in the marketplace, which is a fairly small part of the business at the moment.
AMD's got an offering there. How fast do you think that's going to scale? Do you have any interest in doing something around the AMD
processor?
MD: Well I think this idea of taking the 32-bit instruction set and extending it is good. I don't think AMD is the only company that's thought of
that. In fact, I think Intel's kind of on record as talking about that. I don't think they've made a full, official announcement, but they have sort of
indicated they have [it], so I think when you sort of step back and you say, what would you do with one if you had it today—I fully expect that
there will be a variety of choices there, and we're going to fully participate.
MM: You think 64-bit will be a bigger part of your business next year?
MD: Well, yeah, but how big I don't know. Itanium is, as you said, pretty small now. If you have an Itanium what are you doing with it? Well
you're probably doing high-performance clustering with Linux. It's kind of your only option at this stage. Scientific computing, those kind of
things. Probably the biggest driver in terms of volume will be when Microsoft releases mainstream OSes that users will say, "Yeah, this is the
real stuff."
MM: Speaking about upgrading systems, you do sell a fair amount of Linux on the server.
MD: Number one in Linux in the U.S.
MM: And it's nearly all server business at this point?
MD: We have some Linux on workstations, and you know it's in kind of the university, scientific-type markets. But the vast majority is server,
yeah.
MM: What do you see in trends? Do you think Linux will continue to grow in share?
MD: Yeah, it looks like it's going to. It appears to us that most Linux users are converting from Unix as opposed to converting from Microsoft.
It could be like 90 percent of them are Sun to Linux, or other Unix to Linux. That's an easier migration. Certainly there are some people out
there saying, "Well I don't like Microsoft," or whatever, but most of the Linux we see is Unix conversion. I think it's going to continue to grow,
but Windows is still very strong.
MM: Obviously you sell lots of servers that run Windows.
MD: The interesting thing is when we design and architect a server, we don't design it for Windows or Linux, we design it for both. We don't
really care, as long as we're selling the one the customer wants. If a server goes down the production line, it doesn't really know what OS it has
on it until the customer says, I want this OS. It could be Novell, SUSE, or whatever.
MM: For next year, what do you think the customers are going to buy? Which categories of products are you most excited about?
MD: Well, I think you're going to continue to see in the enterprise that the Windows and Linux migrations will continue, the server
consolidations, SANs, storage consolidations are going to continue. I think we're starting to see some waves of refresh coming with big
corporations: "Hey, I've got all these machines, four and five years old, the economy's been bad, I haven't replaced anything." And users
complaining they've got 3 Ghz at home, 1 Ghz in the office: "I'm mad as hell; not going to take it anymore." Users are starting to get upset
because they keep seeing all this new stuff and they have Windows 98 or something at the office.
…
 Portion of interview cut to save space 
…
Travelin’ Man: Randy Mott - Ben Worthen - CIO.com March 1, 2002
IT'S 6:02 A.M. when Randy Mott reaches his office. He spends an hour checking e-mail and rewriting the
agenda for an afternoon meeting before calling Dell Computer's head of IT in Japan. At 8, he has a meeting
with HR to coordinate a personnel shift and at 9 a call with a reporter. It's a typical morning—except for the
late start.
As CIO for Austin, Texas-based Dell, Mott supports a Fortune 50 company, manages 2,500 IT workers
around the world, and keeps 20 strategic and more than 100 other major projects on track. Prior to joining
Dell in March 2000, Mott spent 22 years at Wal-Mart, the last six as CIO. While the retail giant and
computer maker seem to have little in common, Mott took the Dell job because of the similarities, he says.
Both companies are famous for their efficient supply chains. Dell orders parts every two hours and never
keeps more than four day's inventory on hand. Dell's rapid rate of change and global reach fit with the IT
mantra Mott developed at Wal-Mart: speed of delivery. Since the business needs and project requirements
are constantly changing, he says, "the quicker you get in and get out of a project, the more likely you are to
succeed."
Mott's challenge is not so much to create systems that support Dell's products, but to make sure that his
department creates the right systems. To ensure the systems meet the company's requirements, he needs to
understand how customers and the sales force use them and communicate that to his department.
Consequently, he meets with more than 100 customers and takes two trips to Europe and Asia every year.
Back in Austin, Mott meets regularly with the rest of the executive team and his eight direct reports—
several of whom have been CIOs at other companies—to craft and disseminate his messages. He also holds
regular "all hands" meetings with the entire IT department to discuss Dell's product line and how it fits into
the company's overall strategic direction. The point of all the meetings, says Mott, is to make sure that the
entire company has a consistent message.
Dell's size and global reach complicate Mott's efforts to keep his department focused, but he views it as a
challenge. "There are complexities, but my job is to make it so that the complexities are not an excuse," he
says.
—Ben Worthen
Figure-3 Number of Annual Shipments
Worldwide
180.00
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
U.S.
Imaging What’s Possible - Chris Murphy - Information Week - Sept. 8, 2003
Business technology can help people accomplish amazing things.
But so can a six-pack of Lone Star. There are so many lessons to learn from a visit to one of Dell's just-in-time factories, and this is
one of them. Output at the Morton L. Topfer Manufacturing Center outside Austin, Texas, is more than 2,000 unique, customized Omniplex
desktop PCs every two hours. Dell uses a portal to keep suppliers updated on real-time demand, and once parts are ordered, Dell expects
suppliers to deliver in 90 minutes, which they do from nearby third-party logistics centers. The factory itself stores only about seven hours
worth of inventory.
No one's surprised a company like Dell loves its business technology and leans on it to run an operation like the Topfer Center. The
lesson of the six-pack, though, is how Dell is just as proud--and protective--of the business processes it uses to take advantage of technology
2001 and how tightly
2002
2003
aligned the two are.
Any salesperson who has tried to get a rush order through manufacturing will recognize the opportunity at Topfer Center: With the
entire production run planned every two hours, you're never more than a few hours away from being able to get a high-profit (and highcommission) order built. But how do you decide which orders get expedited?
Dell used to do it with beer. OK, beer wasn't the primary currency used to get something built, but the process was heavily
influenced in that semiformal fashion where relationships and favors--hey, help me out, I'll buy you a beer sometime--could get an important
order moved up.
Today, salespeople have a Web portal to Topfer Center, and real-time data tells them when an order can be built. If they want it
moved up, they can assign a priority ranking from one to seven, but they have only a limited number of those rankings. Says Chris Cowger,
director of transactional marketing and until recently director of operations at Topfer Center: "We took the beer-buying out of the process."
It's the kind of marriage of process and technology that Dell not only loves, but protects. The company has more than 1,000 patents,
and more than 30% of them cover process innovations, not technology. For example, Dell has patented a method (U.S. Patent No. 6,567,714)
for manufacturing a computer system with the assistance of a wireless information network. "It's business integrated with IT," says Dell CIO
Randy Mott.
Mott, who left Wal-Mart Stores Inc. three years ago to join Dell, is leading a change effort within the company's IT organization,
and this vision of an inseparable integration of business and technology is at the core. The goal is to make Dell's IT more efficient, more global,
and more closely tuned to business performance. (See story below on Dell IT's global goals.)
Dell's IT philosophy can be seen in the software used to run Topfer Center. It's a mix of off-the-shelf and custom-built programs, all of them
closely integrated so that everyone--from plant managers to salespeople--can get the information they need, such as how long it will take to get
an order built and shipped.
The factory schedule is run using i2 Technologies Inc.'s Factory Planner software. That tool takes about an hour to calculate a
schedule and factors in surplus parts in the factory and parts availability in vendor inventory; it balances that with capacity planning for each
unit that a factory worker will build by hand. But this isn't an off-the-shelf operation. Dell staff built the portal application that lets Dell share
real-time demand with suppliers and order just-in-time parts. "The customization is around the edge," says Steve Finnerty, the former CIO of
Kraft North America who joined Dell this year as VP leading manufacturing-side IT efforts.
Mott sees custom, in-house software development as a business advantage. Dell always considers off-the-shelf tools, but choices
are limited by the fact that not many businesses do such high-volume build-to-order manufacturing, especially of custom-built units, so
software vendors don't cater to that market. Plus, Mott doesn't believe Dell gets a competitive advantage from a software suite that sacrifices
best-of-breed performance for tighter integration. "We're ambitious enough to want both," he says.
Dell's manufacturing operation isn't the only one taking advantage of the company's development expertise. The company's sales
efforts rely on a custom-built application called Symphony. As many as 3,000 salespeople use the Symphony portal to help customers build
systems when they call in to buy. The system uses EDI links to suppliers to monitor inventory and estimate how a specific component might
change the build time; that time information is updated in the Symphony system multiple times a day. That integration not only gives
salespeople an estimate for how long it will take to build each machine but also how profitable each will be. With every change to a
configuration--say, upgrading a laptop carrying case from standard issue to the $219.95 Kenneth Cole leather edition--the system shows how
the profit margin changes.
The business case for building such a system was obvious: increased revenue and profit, lower call times, and reduced training
time. "We view this as a strategic differentiator for us," says Susan Sheskey, VP of IT.
Strategic decisions at Dell tend not to get very far if they don't have data to back them up. That makes the company's data-warehouse system,
called Dell Data Direct, or D3, a critical tool for IT to deliver to Dell managers. It's a 28-terabyte Teradata system, using Oracle databases,
EMC Symmetrix storage, Dell servers, and custom-built middleware that provides Dell managers with their interface.
Most managers have 10 or 15 reports they've customized that they check regularly. These are essentially spreadsheets that feed
information such as the sales and margins of certain customers or production performance. But D3 also provides a wizard for managers to
create ad hoc queries and lets them share those reports, through only a few clicks, with colleagues who have similar security authorization. In a
data-driven environment like Dell's, showing the numbers is often the best way to make a point. "That's a way we can really spread best
practices," says Ken Gray, senior manager of global data management.
Along with contributing to the bottom line, Dell's IT organization is expected to showcase new technologies and strategies. The IT
department acts not only as a "Dell-on-Dell" reference account by using the company's hardware but also as an informal consultant to Dell's
customers. Mott and other IT executives met with the IT groups of 217 customers in the first half of this year, sometimes talking broad strategy
but more often discussing how to tackle specific business initiatives.
Mott says his boss (that would be Michael Dell) is an avid early adopter of technology and expects him and his organization to be
the same. That fits Mott's philosophy: Don't be afraid to experiment with technologies before all the technical problems are worked out, or
you'll never find out all the possible applications and advantages. "It's tough to imagine fast enough," Mott says. "You have to experience it to
imagine what's possible."
Mott puts technologies such as radio-frequency ID tags, wireless networking, and computer security in the critical-yet-stillemerging category. Already, RFID chips track individual PCs as they move on conveyor belts through the Topfer Center factory, reading chips
on the plastic tubs full of parts needed to make a single unit. "History teaches you these [technical problems] are going to be resolved," he says.
"You can work on the limits side or on the limitless side."
For Dell's IT staff, the challenge is executing on that visionary ambition within intensely practical performance goals. Their fiveyear objectives include reducing IT spending to less than 1% of revenue and cutting the application development cycle to nine months or less.
And to do that while delivering 100% of projects on time with a measurable bottom-line improvement.
If Mott's IT team can figure out how to do all that, someone better buy them all a beer.