After a sloppy 2 year period without
Michael Dell, How could Dell
revitalize his struggling company
that had long, defined success in its
industry?
Structure of Presentation
• What are the components of the personal
computer industry
– Business Models
– Customers
– Manufacturing, R & D, Marketing
• What was Dells approach-through mid 2000’s
–
–
–
–
Customers
SWOT Analysis
Dell’s Value Chain
Products and Services
Structure of Presentation
• Competitors-IBM/Lenovo, Compaq/HP,
Gateway
– How does the PC Market look?
• Was it the best thing for Michael Dell to return
to the company?
• Why Does Dell want to get away from their
trademark Direct Sales program?
• Where does Dell Go from here?
– Recommendation
What are the components of the
personal computer industry?
Business Models
• Dell and Gateway-Direct
• IBM and Compaq- Indirect through Retailers
Dell
Customer Order
Specifications
Builds computer to
customer specifications
Ships Computer, Sony
Ships monitor and other
hardware
Customer Receives all
pieces on one date
Competitors
Build mass amounts of
generic computers
Ship to retailers
Customer takes home
computer and sets up
themselves
Dell’s Approach
• Dealt directly with end user
• Served Primarily Corporate Customers with
High end computers at low costs
• Assembly started after order was placed
Relationship Buyers
• Large Organizations
• Repeat Orders
• Outside and Inside Sales
Reps for each account
• Customized Web based
stores
Transaction Buyers
• Small-to-Medium
Businesses
• Home computer users
• Online or called in specified
order
• Encourage more advanced
PC’s to buyers
• Avoided inexperienced
buyers
Two types of Buyers Dell wanted to work with up to 2000, they need
to expand their horizons to maintain growth
Dell
HP/ Lenovo/ IBM/
Compaq/ Gateway
Hardware
Intel and competitive
global market
Intel and competitive
global market
Software
Microsoft Windows
Microsoft Windows
Final Product
Varied due to customer
specifications
Non Customized
Even though they sold the same product, Users felt they had control
over how “good” of a computer they were getting for their money
2008
Dell
IBM/Lenovo HP/Compaq Acer
Apple
US Market
Share
29.4%
4.1%
24.7%
9.3%
7.9%
World
Market
Share
14.7%
7.6%
18.9%
10.9%
3.5%
Strengths
US Market
Direct Sales
Model
Weakness
World
Market
Supply
Chain
Price
Strong US
Market
Indirect
share
Retail Model consistently
on rise
Sleek design
of
computers,
own UI
Expensive,
not direct
sales route
No Direct
Sales route,
some
customers
won’t work
with them
Consistent
decrease in
market
share
Direct,
introduced
to retailers
Indirect
Retail
Indirect
Retail
Retail-700
DirectVaried
Moderate
High
Not any
good brand
recognition
Direct Retail
Low
High
Customers
Customer
2008 Dollar Share in Market
Large Business and Government
20.2
Small and Midsize Business
22.9
Home Consumers
45.9
Education
11.0
Total market size(billions of dollars)
50.9
Education needs to be focused on, every other market has been
capitalized on. The focus needs to be on education and customer
retention for the business’ you have currently.
Consumer Ratings (100 point scale)
Brand
2009
Apple
84
HP/Compaq
74
Dell
75
Gateway
74
All others
74
Dell needs to improve its brand image and surpass their highest rating on 80
in 2000
Marketing and Sales
• HP- 1billion,2008
• Apple-500 million,2008
What was Dell’s Approach through the
mid-2000’s?
SWOT Analysis
Strengths
Weakness
• Direct Model
• US Market Share
• “Reseller Certification”
• No solid distribution
route or reseller
• Poor Consumer Rating
• Slow Innovation
Opportunities
Threats
• Overseas Market Share
• Distribution in Retailers
• Expand Market Segment
• Apple
• Market Share Overseas
Dell Has room to grow in the retail segment
Dell Value chain
Customer
Specifications
Dell
Build
OS
Dell
Microsoft
Windows
Burn-In
Dell
Testing
Monitor
/Other
componen
ts
Sony,
Global
Market
Shipping
FedEx
Dell controls all parts of the Chain, saving time during shipping and
keeps inventory low having monitors shipped directly to customer.
Mkt &
Sales
Dell
Production and Logistics
•
•
•
•
Tailored to each customers needs
Holds no finished goods inventory
Only took hours rather than days
Carried 4 days inventory vs. 20-30 days of
competitors
• Shipment went from Dell to pickup monitor to
customer, no need to have extra inventory
Dell’s Direct Model was superior to all other competitors
Competitor’s
IBM/Lenovo, Compaq/HP, Gateway
IBM and Lenovo
• Relied on Channel partners- Distributers and
Resellers
• Tried shipping heavily configured PC’s
• AAP-Authorized Assembly Program
– Lightly configured PC’s
– Other companies finished the computer
• Poor logistics for building PC’s caused higher
prices
– Tear downs and rebuilds cost time and money
• Ventured into direct sales
Compaq and HP
• 1994-Worlds Largest maker of PC’s through
full line of PC’s
Individual Consumers
Business Customers
Standard PC’s sold through
retailers
Failed Magazine
Failed Phone orders
Own Forecasting
Delivery of 65-day old PC’s
Optimized Distribution Model
• PC’s were built only after an order was
received
• Deliveries continued to go through
distributers and resellers-SLOW
• Direct Plus Program-designed to sell directly
to small and mid size businesses.
• Tried to keep everyone happy
By 1999 Compaq had shot itself in the foot and reported
significant losses trying to please everyone
• High Quality and High Performance
• 75% PC’s sold through distributers and
resellers
• Aimed at the high end user
• HP Sticks with resellers and distributers
• Average computer sold was 35 days old
Gateway/Acer
• Very similar to Dell
• Focused on home users and small businesses
rather than large corporations
• Acer became 100% Indirect and “Un-Dell”
• Very inexpensive PC’s sold through retailers to
consumers.
• 2nd Largest Producer of PC units
Apple
•
•
•
•
•
Sleek Design
High Cost
Ease of Use
Opened on retail stores in 2008
Increased market share by ~5% in one year
after release of iPod and iPhone
High
How does the PC market look?
Apple
Lenovo/
HP
Dell
Low
Cost
Acer
Low
High
Differentiation
Was it the best idea for Michael Dell to
return to the company?
• Rollins sticks to Dell’s Historical Strategy and
kept missing expected earnings.
• Pricing Mistakes, Bad Sony Batteries, Poor
customer service ratings, poor accounting
practices, no volume increases.
As soon as Michael Stepped down, problems surfaced that had been going on
before he left the company
Michael Dell’s Return
• Brings in outside talent
–
–
–
–
•
•
•
•
•
Ronald Garriques from Motorola
Mike Cannon, from Solectron
Brian Gladden , from GE
Ed Boyd, from Nike
Direct Model was a revolution, not a religion.
Opened channels to retailers
Launched a new line of laptops
Purchased Perot Systems
Decreased Sales, Decreased Returns
Why Does Dell want to get away from
their trademark Direct Sales program?
Market Share for Each Distribution
US
Europe
Asia
Japan
Rest of
World
Retail
35
37
48
35
29
Distributor
22
39
36
32
46
Inbound
10
5
3
7
7
Outbound
20
10
11
19
15
Internet
11
2
1
8
2
Direct
Dell needs to shift to Retailers in the US and Globally. People want to see
and touch what they are buying
Dell’s New Value chain
Fixed
Configuration
Contractors
Build
Contractors
OS
Microsoft
Windows
Monitor
/Other
components
Shipping
Global
Market
Dell gave up all parts of the Chain, saving over $3 billion dollars on
costs.
Mkt &
Sales
Retailers
Where does Dell go from here?
Optimally
• Dell would continue growth with new/ hip generation
while innovating products around their new team
• Dell would expand into the global market via retail
sales
• Dell would expand into the global market via better
customer service and scrapping their direct end user
sales model
• While also breaking into the retailing world and
creating Dell stations rather than Dell vs. HP vs. Acer
• Possibly look to buy Acer to take more of the market
Recommendation
Issue
Action
Boring Brand
Become more innovative, Appeal to more
groups, offer more models in stores
Channel
Increase Distribution, sell more models in
stores, take out Acer as a growing, cheap
brand, Cut Direct Sales approach
World Market Share
Increase sales and distribution in growing
markets such as Europe, and Asia
Focus
Should be to all age groups, multiple
models in stores, educate vs. expect
Value Chain
Create checks and balances to create
great products
Price
Do not compete on Price, compete on
number of models
Customer Service
Have in multiple areas of the world