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Dell: Can Rivals Beat Its Strategy?

Research Paper (undergraduate) 2010 29 Pages

Business economics - Operations Research

Excerpt

Table of Contents

Executive Summary

Table of Contents

List of Abbreviations

List of Figures

List of Tables

1. Introduction
1.1 Problem Definition
1.2 Objectives
1.3 Methodology

2. Main Part
2.1 Evaluation of Michael Dell’s crafting and executing abilities
2.1.1 Founding of the Company
2.1.2 Growth of the company
2.1.3 Michael Dell’s performance as CEO
2.1.4 Michael Dell’s performance as Chairman of the board
2.2 Dell’s business model and strategy
2.2.1 Elements of Dell’s strategy
2.2.2 Dell’s competitive strategy
2.2.3 Evaluation of Dell’s expansion into other IT segments
2.3 Analysis of Dell and Competition
2.3.1 SWOT Analysis of Dell
2.3.2 Attractiveness Assessment for Dell Portfolio
2.3.3 Competitive Strength Assessment
2.4 Financial analysis of Dell Inc
2.5 Recommendations for Dell Inc

3. Results and Conclusion

Appendices

Bibliography

Declaration

Executive Summary

Today Dell is a huge global player in the information technology (IT) industry and offers a wide product range from personal computers (PC), notebooks, monitors, printers, scanner, plasma and LCD TVs, projectors, storage and server systems. Dell provides their products and services for individual customers and businesses. Over the last years Dell had enormous grow rates and could compete their competitors. But the international competition becomes stronger today and Dell has to stand against different competitors in all business segments. Can Dell therefore continue its success story and beat its competition? This assignment tries to present an answer.

In this assignment the internal and external factors which are effecting Dell’s business are analyzed. Further the leadership qualities of Michael Dell and Dell’s strategy will be evaluated. In addition Dell’s strengths, weaknesses, opportunities, threats, the competitive environment and the financial performance will be analysed to come up with the development of a suitable strategy to help the company to improve its strengths and to beat out the competition.

Dell’s position in the competitive environment was evaluated and it was shown that Dell has all possibilities to beat out its competition. Dell exhibited an outstanding financial performance over the period of 1998-2006. For the future Dell should apply following strategies: continuously improvement of existing core elements to keep the competitive advantage; try other distribution channels to reach broader customer base; the development and product innovation in PC, server and storage area needs to be pushed to be competitive; Dell should intensify the strategic alliances further and should try to boost acquisition of small companies or rivals to strengthen competitive capability; expansion of the service group should be pursued and Dell should look for possibilities to optimize the two manufacturing plants in China to gain market share and revenue increase.

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

1. Introduction

“No other technology company listens to customers, collaborates with partners, adds its own significant layer of innovation and delivers relevant technology more efficiently and effectively than Dell”.

With this view word Michael Dell explained briefly how Dell Incorporation managed to become the worldwide number one in the computer industry (Anon (2005), p. 3).

In 1984 Michael Dell invested $1.000 and founded Dell Computer. Back at this time he was a 19 year old undergraduate student at the University of Texas. This little company, now headquartered in Round Rock, Texas, has turned into a huge corporation with more than 55.200 employees and an annual turnover of around $50 billion (Anon (2005), p. 20-21).

1.1 Problem Definition

Today Dell is a huge global player in the information technology industry and offers a wide product range from personal computers, notebooks, monitors, printers, scanner, plasma and LCD TVs, projectors, storage and server systems.

Dell provides their products and services for individual customers and businesses. Over the last years Dell had enormous grow rates and could compete their competitors. But the international competition becomes stronger today and Dell has to stand against different competitors in all business segments. Can Dell therefore continue its success story and beat its competition? This assignment tries to present an answer.

1.2 Objectives

It is the object of this assignment to examine the crafting and executing strategy of Dell Incorporated. This includes an analysis of the internal and external factors which effecting Dell’s business. Further the leadership qualities of Michael Dell and Dell’s strategy will be evaluated. In addition Dell’s strengths, weaknesses, opportunities, threats, the competitive environment and the financial performance will be analysed to come up with the development of a suitable strategy to help the company to improve its strengths and to beat out the competition.

1.3 Methodology

In the assignment a multi step approach will be used to present the objectives of chapter 1.2. Basis for this study is the period until 2006. Therefore developments after 2006 will not be analysed or considered in this study. First Michel Dell’s leadership qualities and his crafting and executing strategy will be evaluated.

In a second step Dell’s strategy, its elements and how well they fit together will be discussed.

In the third step the strengths, weaknesses, opportunities and threats (SWOT) analyses will be performed. With the use of the weighted market attractiveness Dell’s situation will be evaluated, in addition with the help of the weighted competitive strength assessment competitors will be ranked and Dell’s competitive advantage will be discussed.

In a fourth step Dell’s financial performance from 1998-2006 will be assessed and discussed.

Finally in the last step it will be discussed how Dell can improve its strengths and what is a suitable approach to beat out the competition.

2. Main Part

2.1 Evaluation of Michael Dell’s crafting and executing abilities

To evaluate Michel Dell’s performance as Chief Executive Officer (CEO) and as a chairman of Dell Inc. his implementation skills for the five tasks of the managerial process of crafting and executing a company’ strategy, which is shown in figure 1, need to be analysed. For this analyse the development of the company which is closely associated to the development of Michael Dell as a leader is studied (base for the study: Thomson, Arthur A. et al. (2006), p. C-91-C-95).

illustration not visible in this excerpt

Fig. 1: The Strategy-Making and Strategy-Executing Process

Source: Thomson, Arthur A. et al. (2008), p. 20, fig. 2.1

2.1.1 Founding of the Company

The young Michael Dell had an instinct for successful business creation and he proved this when he started in 1984 with a simple idea to sell PC components out of his collage dormitory, which he bought from IBM dealers, who had often excess supplies on hand, because they were required to order monthly quotas from International Business Machines (IBM). He sold these components for 10- 15 percent below the regular retail price. By April of 1984 his sales were running about $80.000 per month. Dell decided to drop out of college and formed PCs Ltd., to sell both PC components and PCs. He bought the PCs from retailers’ surplus stocks at cost, powered them up with graphic cards, hard disks and memory before reselling them. His simple strategy was to sell the PCs direct to end users to eliminate the retail markup. With this strategy Dell was able to sell IBM clones (same function and components as IBM PCs) about 40 percent below IBM’s best selling price. This low price strategy worked out very well and generated enormous revenue growth. In 1985 the company was already assembling its own PC designs. By the end of 1986 the company had 40 employees and reached $33 million revenue.

The young Michael Dell was back at this time a enthusiastic hard working individual full of ideas. During that time he had to refine the strategy several times even after it was implemented, but because of missing business, financial knowledge and leadership qualities (shy person and terrible public speaker) he was unable to develop his business further.

2.1.2 Growth of the company

The young company was therefore struggling with growing pains. Michael Dell was aware of this problem and brought in Lee Walker, a 51 year old venture capitalist, to provide the needed managerial and financial experience to develop the company. In 1987 the company was renamed into Dell Computer and first international offices were opened. A year later Dell Computer became a public company which was raising $34.2 million in its first offering of common stocks. Walker became Michael Dell’s mentor and under Walker’s supervision Dell became familiar with all aspects of the business, overcame his shyness, learned to control his ego and turned into a charismatic leader and developed an instinct for motivating people. In 1990 Walker had to leave the company because of health reasons. Michael Dell brought in Morten Meyerson, former CEO and president of Electronic Data Systems, for guidance and advice to turn Dell Inc. from a fast growing medium enterprise to a billion-dollar enterprise. The hiring of Walker and Meyerson shows that the young Michael Dell understood very well the important role of corporate governance. From the two experienced managers Dell learned a lot and under their guidance he turned into a charismatic leader who understood very well the process of crafting and executing a company’s strategy.

2.1.3 Michael Dell’s performance as CEO

Michael Dell developed a new style of management based on both technical knowledge and marketing know-how. Until the end of 1990’s Dell Inc. turned under Michael Dell’s lead into a billion-dollar enterprise and he became one of the most respected CEO in the PC industry. He was considered as a very accessible CEO with very good leadership qualities. He delegated authority to subordinates and Michael Dell believed that best results came from turning loose to encourage corporate intrapreneurs. By Business associates Michael Dell was considered as an extremely risk taker, a character attribute needed for business development. That Michael Dell spent 30% of his time to travel to business operations and to costumers underlines his excellent leading abilities. Michael Dell’s performance as CEO is therefore outstanding. His success shows that he has excellent crafting and executing capabilities.

2.1.4 Michael Dell’s performance as Chairman of the board

In the middle of 2004 he transferred his title of CEO to Kevin Rollins, the company’s president and chief operating officer. Dell himself remained as chairman of the board. In the past Rollins and Dell had run the company under a double shared leadership organization.

In every company the board of directors should be strong and independent to oversee the company’s performance, guide and judge the CEO and other top executives to protect the shareholders interest and take part in the key decisions and actions (Thomson, Arthur A. et al. (2008), p. 45).

With Kevin Rollins as CEO the company was getting into some trouble (disclosing problems, beginning in late 2005, including slowing revenue growth and accounting problems that have spurred investigations by the Securities and Exchange Commission and the Justice Department). Because of the problems Michael Dell and the rest of the Dell’s board decided to replace him by Michael Dell as CEO. Personal this was a hard decision for Michael Dell, because he had a close relationship to Kevin Rollins. But Michael Dell had the trust of the board, that his vision and leadership is needed to building Dell’s leadership in the technology industry for the long term (Anon (2007)).

The past periods have proven that this was the right decision. It can be therefore stated, that also his roll as chairman of the board was successful.

2.2 Dell’s business model and strategy

In the following part the elements of Dell’s strategy are briefly explained. In addition Dell’s strategy will be analysed and discussed.

2.2.1 Elements of Dell’s strategy

Dell’s company executives believed that the following five tenets were the key to delivering superior customer value (based on Thomson, Arthur A. et al. (2006), C-95):

- direct relationship as the most efficient path to the costumer,
- most effective way to meet customer needs is to allow them to buy custombuilt products and custom-tailored services,
- best value to customers is delivered by non-proprietary, standardized technologies,
- search for low-cost structure to pass on cost savings to customers in form of lower prices,
- added value can be deliverd to the customer by: researching all the technological options, trying to determine which ones are “optimal”, and being accountable to customers for helping them to obtain the highes return on investment in information technology products and services.

In unity with these tenets, Dell’s strategy had seven core elements (the following listing of the seven core elements was summarized and copied without citation from Thomson, Arthur A. et al. (2006), C-95 to C107):

1. Cost-Efficient Build-To-Order Manufacturing

Dell is manufacturing its computers, workstations, and servers to order; none of these products were produced for inventory. The customers can order custom- equipped servers and workstations according to the needs of their applications. Dell was regarded as a world-class manufacturing innovator and a pioneer in how to mass-produce a customized product. Dell's build-to-order strategy meant that the company had no in-house stock of finished goods inventories and that, unlike competitors using the traditional value chain model; it did not have to wait for resellers to clear out their own inventories before it could push new models into the marketplace-resellers typically operated with 30 to 60 days inventory of prebuilt models. Similarly important was the fact that customers who bought from Dell got the satisfaction of having their computers customized to their particular liking and pocketbook. Dell had an outstanding quality control. All assembly plants had the capability to run testing and quality control process on components, parts, and subassemblies obtained from suppliers, as well as on the finished products.

2. Partnerships with Suppliers

Michael Dell believed that it made much better sense for the company to partner with reputable suppliers of PC parts and components than to integrate backward and get into parts and components manufacturing on its own. Dell management evaluated the various makers of each component; picked the best one or two as suppliers; and then stuck with them as long as they maintained their leadership in technology, performance, quality and cost.

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Details

Pages
29
Year
2010
ISBN (eBook)
9783640732685
ISBN (Book)
9783656434825
File size
576 KB
Language
English
Catalog Number
v157210
Institution / College
University of applied sciences, Munich
Grade
1,3
Tags
Dell Rivals Beat Strategy

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Title: Dell: Can Rivals Beat Its Strategy?