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Strategic Analysis of Dell Inc.

Date: To: From: RE:

14th Oct, 2013 Mr. Michael Dell CEO, DELL Inc. A Coursera Student Strategy Analysis of DELL Inc.

Introduction
The purpose of this report is to analyze the strategic position of Dell Inc. Headquarter in Round Rock, Texas; Dell computer was founded in 1984 by Michael Dell who was then an undergraduate student at the University of Texas. From very inception the company company is providing superior value to its target market by providing latest technology at competitive prices around the world. Dell is cited as the largest player of the personal computer market. The company follows unique selling policy that is known as Dell Modelselling computers and other equipments directly to customer and build-to-order build order strategy thereby eliminating the intermediary margins and inventory costs. The company follows unique selling policy that is known as Dell Modelselling computers and other equipments directly to customer and build-to-order build strategy thereby eliminating the intermediary margins and inventory costs.

Vision & Mission


Vision StatementDell Dell is committed to being a good neighbor in the communities we call home. We must continue to grow responsibly protecting our natural resources and practicing sustainability in all its forms and improve the communities where we live and work through our financial and volunteer efforts." Mission Statement- Dells mission is to be the the most successful Computer Company in the world at delivering the best customer experience in markets we serve. In doing so, Dell will meet customer expectations of:
Highest Quality Leading Technology Competitive Pricing Individual & Company Accountability Best-in-class class Service & Support Flexible customization capability Financial Stability Superior r Corporate Citizenship 1|Page

Strategic Analysis of Dell Inc.

External Analysis
In terms of external analysis, it is critical to assess whether the contextual economic, social, technological, ecological, media, political aspects are conducive to a specific direction. For instance, is the local government receptive to the concept of private sector participation? How are the relationships between the local government with the communities and the private sector? These are important aspects of the macro environment which will have a general impact on industries and companies.

Exhibit 1 : Industry Analysis INDUSTRY ANALYSIS


Demographic Trends Demand location has changes drastically in last decade. Demand from Asia has increased due to rise of two Asian giants India & China. African countries are also creating demand of PC industry. Technological Development Due to advent of the information technology the world has condensed to global village. Technology has enabled the various manufacturers to enjoy low cost advantage and better quality. Demands for the industry offerings are increasing with the passage of time due to extensive use of Internet and World Wide Web. Macroeconomic Impacts The interest rates are not stable due to huge fluctuation that arises from the instability in the financial situations. Inflation all over the world has surged to all time high. Due to huge expenditure on war terror fought in Iraq, Afghanistan and other parts of the world the GDP of various countries have shown a very low growth that have resulted in almost stagnant per capita income. Socio-Cultural Influences A global culture is arising meaning the presence of universal segment having the same values, likes and dislikes and other norms across the world. This offers exciting opportunities to various organizations including computer manufacturer in the form of standardized product development offers across the world with no adaptation. Political Legal Pressure The political instability started after the 9/11 has affected the market conditions all over the world. Most of the computer manufacturers belong to US and the country government is taking huge efforts to facilitate the business.

Global Trade Issues Government of US has strengthened its ties with China in order to exploit the comparative advantage of the country in the form of low labour and technological cost. Global manufacturing is aiding firms to become more & more cost efficient.

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Strategic Analysis of Dell Inc. Key Driving Forces


Explosion of digital and information content is a key driver as it improved data availability. The overall rate of global spending increased and the data availability also doubled. The advent of search engine activity, social networking sites, e-mail, mobile phones, android applications etc. also acted as a key driver. This digital expansion improved the industrys economic presence and overall demand in the industry. The demand for information technology in emerging markets like India, Brazil, Russia, China and India increased. The population is high in these areas and thus the demand for IT products and services also increased. This was a key driver in the industry. Certain drivers had negative implications on the industry. The digital volume content lacked authentication and there are many security issues in the industry. Also the consumers expectations are not stable. These keep changing. The overall ability of the consumers to deal with complexity and sophistication is low. The consumers want quick access to their demands. All these factors are the downside driving factors of the industry. Replacement factor is a key driver in the industry. The existing PCs are getting replaced with the advancement in features, design and compatibility of the PC. The entry of smart phones into the industry is a key driver. The cross category competition became more intense with the developments in the smart phone industry. These devices also gave access to the internet. The smart phones are sleek and they offer compatible usage. The costs of these smart phones are also low compared to the PC and laptops. Thus consumers may switch to smart phones from PC. The mobile phones are offering the features of the internet at a subsidized rate. These driving forces have negative implications on the industry. Processor speed and RAM were the driving forces in the industry that generated profit. They are no longer the driving force as cloud computing is introduced. They are slowly replacing processors and RAM. The differentiation is not much in the PC industry as most of the players are keeping up with technological advancement. The concept of convergence has been acting as a key driver in the industry through the history. Earlier, transistors were used in computer hardware and they got replaced with micro processors. Now these processors are slowly getting replaced with cloud computing. Similarly smart phones and mobile computing offer the same services as offered by the PCs and laptops. Apart from these the factors affecting the experience curve and scale effects, profitability ratios like ROA etc. are also driving forces for the industry. The learning curve affects the new entrants and determines the attractiveness of the industry and economies of scale determine the cost of production. If these are easier to achieve, the industry becomes more attractive. In the PC industry, the learning effect is high and thus it is not easy for the new entrants to achieve economies of scale.

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Strategic Analysis of Dell Inc. Key Success Factors


Dominant brand name: many companies in the industry have strong brand name. Their dominant presence in the market is because of the image they created for their products through their strategic moves. This enabled them to earn more market share in the industry. E.G. Apple, Dell, De Sony. These companies have strong brand identity in the market. Keeping up with the demand: The industry is up-to-date date with the technological innovations taking place around the market. Also, it sells products that are preferred by the consumers. Constant Cons replacement of products is taking place in the industry. New versions of laptops, PC etc have increased the compatibility, storage, look and usage of the product. Economies of scale: even though the industry experience high learning curve effects, once on the learning is achieved, the companies are benefited from economies of scale. Although this is a disadvantage to the new entrants, in the long run this makes justification to their investment. Pricing policy: the pricing policy in the industry is very clear and appropriate. The pricing in the industry is related to the economies of scale. As the production cost has come down because of the economies of scale, the industry is capable to maintain their current pricing pr levels. The pricing is also acceptable by the consumers. The supplier relations, distribution systems and strategic approaches like backward or forward integration have also acted as success factors in the industry. In particular, Dell had its own in i house manufacturing of its components which helped them to build expertise in their technology they use. The R&D capabilities in the industry improved and enabled them to keep their products on the cutting edge because of the efficiency achieved in vertical vert integration. Outsourcing the manufacturing of certain components and having a concentrated assembly line also proved to be effective in the industry.

The reduction in the supply chain by integrating and collaborating with outside vendors and suppliers supplie have acted as a success factor in reducing product and production cost.

Exhibit hibit 2 : Market share of PC

Global PC Market Share by Units, 2012


Dell 11% Others 41% HP 16% Lenovo 15%

Asus 7%

Acer 10%

**The annual worldwide market share of personal computer (PC) vendors includes desktop computers, laptop computers and net books, but not tablet computer. (Source: Wikipedia)

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Strategic Analysis of Dell Inc. Exhibit 3 : Porters 5 Forces Analysis

Threat of Entry (Moderate)


High start-up cost leads to barriers to entry Specialized process knowledge required Economies of scale leads to cost advantage Unique business model

Bargaining power of Suppliers (High)


Low number of suppliers Supplier monopolies Limited specialized suppliers Inability to substitute High cost of supply chain churn

Rivalry(High)
Large number of competitors Significant quality differences Little power in marketplace Product differentiation Pricing determination

Bargaining power of Buyers(High)


Customer has the power Size of order single to large Competitive pricing dictates Ability to change between competitors

Threat of Substitutes (low)


Price leader Leading edge technology Consumer choice Low switching costs Little customer loyalty

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Strategic Analysis of Dell Inc. The Industry Life Cycle


The computer industry as a whole has entered the maturity stage of product life cycle (Norman, 2010). Some of the weak competitors have disband their production while others (HP and Compaq) have consolidated their business due to decreasing margins with the passage of time and economic crunch that have started after the insolvency of Lehman Brothers. Most of the competitors are trying their level best to differentiate their offerings from the competitors in order to reduced value for their consumers, while other are trying to produce aesthetic design, ease of use, superior product performance. As depicted in Figure 1 the customer now Requires solution and convenience as compared to technology and performance. In order to stay competitive in the market all the players should continuously innovate their offerings according to the latest trends of the market.

Cu Customer Preferences: adopted from

Exhibit 4 : Dells Life Cycle

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Strategic Analysis of Dell Inc. Competitor Analysis


The competitive strategies developed by Dell help the company to realize its mission by price leadership, price signalling and non-price price competition in the market by constant development and modification of new products. Dell use cut-throat throat competition strategy strategy by matching even offering lesser price in some cases as compared to HP. HP has now realize that cutting cutt the prices of products will not translates into increase in the market share for the merged organization and will led to decrease in the margin for f the company because Dell will follow the same strategy within no time. Price leadership also helps Dell to attract huge margin for the company offerings. Dells strategy to produce constantly innovative products has helped the company by beating the competitors on non-price price factors. Dell is working on this end by developing new and improved personal computers, laptops and other technological products (Dell, 2009). . These new product developments help the company to boost its market share and differentiate the company as distinctive company that offers value to customers in the form of improved product performance, innovative technology and competitive pricing.

Exhibit 5 : SWOT Analysis Strengths


1. Brand name valued at $ 7.5 billion 2. Product customization 3. Environmental record 4. Competency in Mergers & Acquistions 5. Direct selling buisness model 6. On site service 7. Cost efficiency

Weaknesses
1. Comodity (computer hardware) product. 2. Low investments in R&D 3. Weak paptents portfolio 4. Too few retail locations 5. Low differentiation 6. High dependency on component suppliers

SWOT
ANALYSIS OF DELL INC.

Opportunities
1. Expand Services & enterprize solution buisness 2. Obtain more paptents through acquisitions 3. Strengthen their presence in emerging markets 4. Tablet market growth 5. Taping the Ultrabook market

Threats
1. Growing demand for smartphones & tablets 2. Profit margin decline on hardware products 3. Slowing growth rate of laptop markets 4. Intense competition 5. Merger of HP and Compaq 6. Price Wars 7|Page

Strategic Analysis of Dell Inc.

Internal Analysis
Distinctive competencies are the core benefits that Dell enjoys in the form of low cost and superior product performance. Moreover Dell direct sales to customer by using its website is cited as the ideal strength that the company posses that is hard to imitate. In addition to this Dell design its products according to wishes of the target market (build to customer specification) that allow the company enjoy superior customer value and brand loyalty. The company ability to coordinate its various functions to produce exciting products is still another core distinctive competence that helps Dell to stand apart from competitors. Dell arrive its competitive advantage from three dimensions that are: 1. The value that the company creates for its customer b providing them superior technology, aesthetic designs, superior performance and technical support creates an enormous value for the offerings of the company. 2. Dell charge competitive prices for its various products in the market. The company follows variety of pricing strategies depending on the market conditions. The objective of the pricing policy is to create happy and satisfied customer profitably. 3. Dell has the ability to produce superior performance products at a very low cost due to its status in the market because the company enjoys various types of economies which are not at the disposal of other players in the market. The company thus has the ability to offer its products at significantly lower prices than its competitors in the market. Dell differentiates their laptops and PCs many different levels including direct-to-customer model, building better-quality performance and up-to-date technological products, and direct customer interaction in diverse marketplace.

Exhibit 6 : Generic Strategy

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Strategic Analysis of Dell Inc.

Exhibit 7 : Strategic Group Maps

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Strategic Analysis of Dell Inc. Exhibit 8 : Diversity in Dell

Exhibit 9 : Value Chain Analysis

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Strategic Analysis of Dell Inc. Customer Value Proposition


Dell sells its products at low prices because of its just-in-time ordering system which minimizes stock and the need to calculate demand in advance They provide an opportunity for the customers to choose what specification they want through Dells customization program and the prices are quoted accordingly. The sales and marketing efforts of Dell are focused around customer groups whereas many of the technology companies focus around product lines. The ability to quickly respond to the design flaws and component defects reported by the customers gives a significant advantage for Dell over the other PC makers. The direct sales approach by Dell gives an edge over the other manufacturers which acts as a totally customer driven system. This customer driven system provides flexibility to transition quickly to new generations of components and PC models. Dell website provides almost all the details what the prospective customer wants like configuration, price customization, track order etc. As the sales through website is higher than the sales inquiries received via phone. This helps to identify the level of customers E-Loyalty regarding the purchase mode. Dell has an efficient way of delivering free On-Site service for most of its PCs by having a tie up with local contract service providers to support the customers requests for repairs. Customer notify dell regarding the repair which in turn dell provide support through the contract service providers. Dell provides a password protected and customized website called Premier page for all premiere customers like Corporate, Government and Institutions which gives access to information to all Dell products and configurations and place order online which routes electronically to high level managers for approval and the assembly then delivery. The management of inventory records of the purchases for its large customers makes it easier for the Dell support and sales personnel to provide recommendations and suggestions about the PC purchases, configurations of customers PC network and to provide value-added services. The customers of dell products are encouraged to provide reviews which is inspected by dell later and posted in the website which in turn help the prospective customers to choose among the best. The concept of feedback from the customers is encouraged in dell. This is achieved by a website called Idea Storm where the customers of dell products post suggestions and opinions to improve the quality of the products. Dells R&D focus on new developments which would prove most useful and cost effective for customers. The philosophy of dell is to think on behalf of its customers to seek out for new technologies arriving at the marketplace and to adapt to the design, features, options and solutions that are most relevant to the customers.

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Strategic Analysis of Dell Inc.

Action Plan
Increase standard As the competitors have better standards in the same product line which makes it a weakness in the competitive market. By inspecting the quality of the parts before entering into production will reduce the defects and compete or come in par with the competitors standard. Idea Storm The senior management takes the decision of the design and the features depending on the feasibility of the production. The feedback site called Idea Storm by Dell has various suggestion and opinion which should be considered majorly and using the innovation expected by the people should be identified for the feasibility for production. By fulfilling maximum expectation of the customers with the integration of the companys low cost goal, market share can be increased drastically. Trade Off There are not many Dell products available in the retailers as they sell its products through direct selling (website) and customized which are the companys core values. This customization needs time and bought through dell site, thus makes the home users disappointed who are interested in buying directly at shop by examining the product and buy some other brand instead. So keeping in mind of the home buyer and electronic buyers, dell products should be sold at retail stores and in the website. Student focus Only 5% of the Dells total sales come from education institutions like schools and colleges as the company did not focus in that market unlike other competitors. This is one of shortcomings of dell. Through effective marketing by providing discounts to students, sales can be increased. To focus on innovation Providing more emphasis on Research & Development will help the company to stay ahead of the industry through the development of new products. Increase of spending in R & D from 10% when compared to its competitors. R&D should be done without changing its focus from mass customization. To expand their support and services This strategy encourages Dell into the business consulting. Dells expertise in the field of Support and services would definitely provide differentiation in the market. Customer service is one of the key success factors for the company which should be enhanced. To strengthen the customization of Dells product, the firm must increase its suppliers those who can integrate well with the Dells supply chain. To modify its retail sales in markets by launching retail showrooms where customers doesnt have access to internet or credit cards.

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Strategic Analysis of Dell Inc. Competitive Business Strategy


1. Strategic alliance: Dell needs to form strategic alliance with Healthcare business process outsourcing and Technology service respectively. Due to this alliance, Dell reduces administrative costs and streamlines the process. Dell and Perot systems formed alliance to provide fully integrated virtualized health care technology solutions to reduce cost and improve patient care. 2. Virtual Integration: Dell basically stitches together a business with partners or suppliers like AMD, Seagate technology etc that are treated as if they are inside the company. When launching a new product, the supplier engineers are right in the dells plant and the problem is fixed in real time. 3. Offensive Strategy: When rival computer companies provide relatively higher cost, dell decreases its price by timely discounts which acquires the market share overall.

DELLs Corporate Level Strategy


In order to gain, competitive advantage a corporate level strategy that involves selecting and managing a group of different businesses competing in different product markets is necessary for Dell. Because of this ratio and the existing links between its diversified businesses, a related constrained diversification strategy is being employed. This strategy has enable Dell to expand value of its resources and capabilities by sharing activities and exploiting economies of scope between its businesses. Hence transferring it to a new business eliminates the need for additional cost. Moreover, the intangible resources are difficult for competitors to reproduce and Dell has made use of that. For example, Dell started to make servers from the confidence it created among people. Their PC desktops and laptops have acquired the brand value for Dell. So this intangible resource that they have acquired over years has helped to launch servers under the brand name. Thus, the resources and capabilities are utilized to achieve diversification of Dells offerings.

Exhibit 10 : References
Wikipedia http://www.nngroup.com/reports/life_cycle_of_tech.html. http://www.dell.com http://google.com Forbes website Dells Annual Reports Various university links for details on any strategy Bloomsberg, Reuters etc.

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