1 Industry capabilities and characteristics
1.2 Competition Environment
2 Organization capabilities and characteristics
2.1 Customer segments
2.2 SWOT analysis
2.3 TOWS analysis
3 Key problems & strategic alternatives & Arguments
3.1 Key problems:
3.2 Strategic alternatives
4 Discussion and Arguments of the strategic options
5 Strategic choice & recommend actions
5.1 Implementation of strategy
5.2 Structure & Culture
5.4 Importance of acquisitions
5.5 Resource allocation
5.6 Reply to Murphy
7.1 Scenario planning
7.2 Ranking options
7.3 CEO Access / Execution responsibility chart
7.4 Dell market position
7.5 Organizational chart
7.6 Dell´s product portfolio
This research project is based on a study made on Dell Computer Corporation. The task given is to assume the role of advisors to the CEO, Michael Dell. The first step to take is to analyze the market situation for the company and also investigate the competition. To facilitate this The PESTEL tool is used to describe the industry and characteristics and capabilities. Afterwards in order to understand the organizational characteristics and capabilities SWOT and TOWS analysis are implemented. Based on the above tools the key problem area which Dell Inc is facing is recognized. Mostly based on TOWS analysis the possible strategic alternatives are connected to the problem areas. Furthermore with using company’s vision, mission and tools such as Scenario planning and Ranking options the highest priority strategy is chosen. A plan for how the CEO should act upon these findings is put together by discussing the ways of implementing it with respect to the organizational capabilities and available resources. Here important areas are highlighted that need to be changed such as leadership, organization, business model, decision making and also product portfolio in order for the new strategy to be implemented correctly and work efficiently. Even recommendations surrounding any future events that could change which strategy should be implemented in order to direct the company in the right direction.
Dell Inc. was founded in 1984 by Michael Dell. At that time the company was called PC´s Limited. Michael was then still a student of the University of Texas. He assembled and sold the computers from his dormitory room. The aim was to use stock components and make the computers IBM compatible. Each computer was individually assembled by Michael, this made it possible for the customers to customize their orders. Michael believed that by selling computers-systems directly to the customers he would better understand the needs and provide the most suitable system from the users. It was already here the Direct-selling method was born. (History of Dell, 2009)
The company expanded exponentially during the first years and had a turnover of $73millons in 1986. At that time Michael had dropped out from the school to just focus on his new flourishing business. In 1988 the company went public and at the same time PC´s Limited changed its name to Dell Computer Corporation, they also started their first service program. Michael felt that there was a lack of service companies in the computer business and saw this as an opportunity to expand the company’s business. This was a wise move because customer satisfaction increased when Dell was able to offer a whole computer-system package, even including services in some areas. (History of Dell, 2009)
In 1990 Dell tried to introduce their computers to whole sellers and superstores, unfortunately with little success. At present Dell is focusing their business to the direct-selling method and
launched their upgraded website in 1996, here customers could customize and buy their computer-system by their own. In the beginning of the 21 century Dell had become an international world wide spread company, with headquarters in most continents. Their businesses are involved in several areas that surround office and home electronics. Michael Dell resigns as the CEO in 2004 but is now back on that position due to that Kevin B. Rollins could not turnaround the company when the sales started to go down in 2005. Michael Dell announced big changes in operations when he came back and the company seemed to have a better future ahead. New personnel from the outside were brought in, bonus program was terminated and the organizational structure and procedures were changed. Unfortunately these changes were not enough and the net income went down 33% in 2007.The cost cutting programs continued in 2008 and 9000 employees were fired, 10% of the total workforce at Dell Inc. One of the biggest customer service programs also had to close down in Kanata, Ontario Canada. Even high cost production plants in Ireland and the US and to move to low cost countries. (History of Dell, 2009)
Now in 2009 the quarterly financial reports do not look that bright. This relates to the financial crisis situation of the world, but Dell is still optimistic of the outcome for this year. For all of its fiscal year 2009, Dell posted earnings per share of $1.25 on sales of $61.1 billion. We can see that the profit margins are rapidly decreasing and the need to change the company is vital, see Dell Revenue chart for 2005-2009 (wikinvest.com). The financial chief officer Brian Gladden, announces in a written statement, "The cost actions we took this past year made us more competitive and delivered value to customers in a challenging economic environment", so now we have the opportunity to cut costs even harder and the goal for 2009 is set to $4 billion (Clifford 2009). Despite these cost saving programs Dell Inc invests in areas where they see a bright future and an opportunity to invest. The numbers of places where you can buy PC´s are now 30,000 retailers worldwide and this is contributing to consumer business growth. Dell also increases their R&D investment in Red Rock, Texas, where a new Notebook and several Notebook models are developed. Still, Dell´s R&D investments are just a fraction of what the competitors invest that are the same size as Dell, e.g. Hewlett-Packard see chart of R&D Investments (wikinvest.com). For Dell to diversify its business, Dell has acquired 14 companies so far in 2009. By doing this they expand their product portfolio and also takes away some of the completion that inflects in Dell´s business market. (Annual report & about Dell, 2009)
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At the top of the organization is Michael Dell the CEO of Dell Computer Cooperation. He is one of the nine members that the board of directors consists of who runs the company. The other eight members are people with great knowledge and insight of the company. There are five committees that support the board of directors and oversight specific areas of importance in the company. Dell strives for having a widespread and flat hierarchy in the company to facilitate the decision making process. They want that lower level managers and employees be encouraged to take more responsibility, and they believe the result would be both increased knowledge and innovation thinking inside the company.
Dell has a wide range of products to offer to its customers. It is all from hardware electronics, software and services in some areas. This is due to the company strategy that strives for delivering a system-solution for the customer. For Dell to expand its product portfolio in a fast and efficient way, several acquisitions have taken place the previous years. Areas such as software, storage, information technology, networking and IT service have been the main focuses when expanding the company’s portfolio. A few of these acquisitions together with new product-ranges from the R&D department has not been that profitable and Dell needs to divestiture these in order to turn around the company.
From 1984 Dell has sold most of its products through telephone or internet. The Direct-selling method was something that Michael Dell built the company on. Dell saw a big profit in this model because one advantage was that you would get money for your products before you had to pay for the material. This also made it possible to customize the system and still have fast delivery times. To get this work properly Dell practiced just-in-time management. The direct-selling method also provided a close contact with its customers to get fast feedback regarding product and services. Competitors of Dell have tried to implement the same selling method but with little success due to bad timing and the need for fast response in production and most importantly lack of supply chain partnerships and experiences. During the past years Dell has also introduced the in-direct selling method to reach out to more customers. Some markets have specific needs that make it impossible to implement a working and profitable direct-selling method e.g. Asian market were the use of credit cards are not common and the lack of a good working logistic system.
1 Industry capabilities and characteristics
The current environment of computer hardware industry is influenced by several macro forces which their power and importance could be better understood by performing a PESTEL analysis. (Johnson et al, 2008)
Political: The political situation inside U.S has been changing always unexpectedly in recent years which have had influences on Dell as a large player in this region. Changes in legislation always affected Dell to be more cost efficient in order to response the Wall Street expectations. The conservatism existing in the consumer spending has been increasing and this declined the performance level of Dell. Another important governmental issue in recent years has been the pressure from global environmental groups which took the company’s focus to some extent and despite the competitive achievements that this focus brought for the company it reduced Dell’s attention to other areas such as R&D or wave of service propensity of big companies. In other countries there are different legislations for import of electronic goods which are sometimes supportive and sometimes difficult to cope with.
Economic: As discussed above, high tariffs of IT products are important barriers for Dell to enter outside U.S markets easily. The currency converting losses in non-U.S countries bring other financial problems which enforces Dell to be more cost-wise and limit some operations in order to compensate these expenses. In this case sometimes Dell tries to more diversify its product to find different profit sources which is not always useful and could be the beginning of more problems. On the other hand the U.S computer market specifically for PCs is saturated and Dell has been forced to both cut costs and search for other developing markets. In case customer segmentation Dell has had a good concentration and enjoyed a good market share respectively as long as it is focused segments cover most of the IT industry customers.
Social: Growth of young population, educational needs, technology-dependent life and even entertainment in the past 10 years, has leaded to a good market development for IT providers. Most specifically because of the time restrictions and ease of access, online purchasing has become widespread which has brought a big competitive advantage for Dell. On the other hand people would prefer to have just one supplier for our different but related needs for example purchasing all IT goods from one company and even getting the necessary consultation and full service from the same provider.
Technological: Nowadays the growth of technology especially in computer industry is so drastic which clarifies the need of being proactive in innovation and development. Although Dell has always been so close to the days technology and this was a significant benefit for the company (like the high increase of sales because of using VISTA operating system in its first period of emersion (Dell recommends windows vista, 2009)), it has not had many remarkable patents for itself and always used its partners’ innovative products. This issue could be somehow dangerous for Dell, mostly in a high-competitive situation where not all the relationships could be reliable. Moreover based on a research done by IBM consulting group the future of IT industry will mostly lead to companies which are in general worlds solution
provider, consulting companies or more service oriented companies and Dell needs to strengthen its focus on this area. (Kapur, 2002)
Environmental: The growth of attention to environmental issues which has become a critical area in human’s life has forced many countries and companies to try to cut down their emissions. As explained in political issues the pressure from environmental groups and even governments forced Dell to more focus on environment and green processes. The green production sites were made and many continuous environmental activities started which took time and energy. The outcome was supremacy in reputation and positive face among competitors. (Dell goes green, 2009)
Legal: The direct sales model of Dell needs some infrastructure to be implementable. For example an IT based trading system, credit cards, security inspections, etc. in some countries these areas has not been yet created which influences directly the company’s market. For solving these problems Dell can whether help such countries in providing IT services to create the required infrastructure or find a reliable distribution center to move into indirect sales.
1.2 Competition Environment
For the last two decades the market for computer industry has dramatically been increasing and the companies providing software, hardware and service has been challenging individually with their competitor to gain more market share. In the hardware industry Dell is the second largest player, there are some competitors with almost the same size as Dell which could always be a threat. The biggest competitor is HP which always has the newest innovative products which Dell usually is late in introducing, like fingerprint recognition, swivel monitors and tablets. Other important competitors in PC and Laptop computers are ASUS, Lenovo, Apple, IBM, SONY, ACER and Toshiba. Also in server computers the biggest competitors are SUN Microsystems and IBM. Same as other industries mergers and acquisitions have characterized the industry over the last few years such as Lenovo group’s buying the PC part of IBM and HP acquisition of Compaq. The core competency of Dell compared to other companies has always been its direct business model which has brought the company competitive advantages such as cost efficiency as well as high customization capability. In order to understand the situation of each company, the key success factors for the industry should be identified. These success factors in computer industry are as follows:
- Competitive prices
- Superior relationships with suppliers
- Product customization for business and consumer customers
- Quality customer service
- Excellent cost structure