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Table of Contents
1. INTRODUCTION.......................................................................................................................3
2. OVERVIEW OF DELL...............................................................................................................3
3. APPLICATION OF STRATEGIC MANAGEMENT THEORY TO DELL...............................3
3.1 INTERNAL PERSPECTIVE................................................................................................3
3.2 EXTERNAL PERSPECTIVE...............................................................................................5
3.3 PORTERS GENERIC STRATEGIES COMPETITIVE ADVANTAGE..........................8
4. CURRENT SITUATION.............................................................................................................9
5. CONCLUSION..........................................................................................................................13
6. RECOMMENDATIONS...........................................................................................................14
REFERENCES..............................................................................................................................16
APPENDIX....................................................................................................................................21
1. INTRODUCTION
The present study is carried out to analyse the strategic management policies in order to evaluate
the sustainability of an organisation. The case study selected is Dell Computers. The strategic
management theories shall be applied to Dell to identify its strategic management policies and its
role in the sustainability of the organisation in the market. An internal perspective and external
perspective of Dell shall be examined using the strategic management tools such as SWOT
analysis, VRIO framework, PESTLE analysis, Porters 5 forces and Porters generic strategies. A
scrutiny of the current situation of Dell shall also be performed to help in providing appropriate
recommendations to Dell to improve its sustainability.
2. OVERVIEW OF DELL
Dell was founded by Michael S. Dell in 1984 as a start-up venture for PCs. It has now grown to
become a global technology leader. Dell offers a wide range of desktop, notebooks, data storage
systems, network services, printers and peripherals to numerous categories of customers. Dell
has over 111,300 employees (Dell, 2014).
FACTORS
AT DELL....
competitors
Strong brand identity and brand value that is estimated at $7.5 billion
(Jurevicius, 2014)
The firm applied the SWOT analysis on the strategies adopted and decided
to provide the customers with customized products (Schneider and Perry,
Strengths
2000)
The use of the Just-in-time technology reduces the inventory costs and
space
Dell is also a recognized leader in internet sales (Ignatiuk, 2009)
Extensive dependence on the suppliers
Ineffective customer services
Dell does not have an enviable relationship with retailers and distributors
Weakness
Opportunitie
s
(Sou, 2014)
A lack of focus on innovation and R&D
No patenting
Customization strategy might not encourage sustainability (Ignatiuk, 2009)
Quality of services is also reported
Strong potential in emerging markets, namely, China and India
Expansion of the services and products that are offered, focussing on
Threat
Rare?
Costly to Exploite
Competitive
Organizationa
imitate?
d by the insinuation
l Performance
Yes
firm?
Yes
Sustained
Persistently
customer
Competitive
above average
selling model
Low pricing Yes
advantage
Temporary
Above average
Direct
Yes
Yes
No
No
Yes
strategies
competitive
Customizatio
advantage
Temporary
Yes
Yes
No
Yes
n of products
Just-in-time
Above average
competitive
Yes
No
No
Yes
inventory
advantage
Temporary
competitive
advantage
Above average
PESTLE analysis of a firm, which centres on the political, economic, legal, environmental, social
and technological factors, aids the effective decision-making of the organization (Allen, 2014).
FACTORS
Political
Dell
Government red tapes, security developments and restrictions on online
Economic
Technological
Social
growth in sales.
Technological advancements, namely, EDI, DSS, intranet, electronic faxes,
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teleconferencing etc are also implemented across the supply and value chain
of Dell
Thus, Dell has been able to take the technological development in the
Environment
al
fraudulent information about the PCs that were sold to the clients.
It was found to be misguiding customers on details relating to rebates,
Legal
FACTORS
For Dell.....
Home computers and desktop PCs are constantly challenged by the surge
in the demand for tablets and smart phones, that bring the facilities of a
Threat of
16.5% and 70.5%, with the demand for PC dipping by 13% (Columbus,
substitutes
2013).
Although Dell has ventured into manufacturing tablets, Rougeau (2014)
has identified the company to have had an unsuccessful attempt with smart
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Competition
phones.
Therefore, the threats from substitutes is medium for Dell
The competition in the industry is enormous, with the likes of Apple, HP
and IBM
The power that a firm enjoys in the market is temporary with the strong
competition
Organizations compete based on prices, products and innovation
(Ignatiuk, 2009)
Thus, competition from rivalry is high.
According to Schmid and Vogl (2014), Dell is recognized as a firm that
constantly changes its suppliers. The firm is also known to cancel the
association with a supplier if the standards are not met.
With the switching costs of the industry being high focussing on
Buying power
of suppliers
Buying power
entrants
to the clients increases the control that the clients have (Miller, 2014)
Although Dell adopts the low price strategy, the dip in the quality of
of customers
Threat of new
trends in the industry, and have an enviable association with retailers and the
diverse channels of distribution
Therefore, the threat from new entrants is low.
Dell has adopted the cost leadership strategy to compete with its market competitors. It strives on
attaining cost leadership by focusing on operating efficiency, development of capabilities, actions
for organisational effectiveness, flexibility in business investments and cost transformations
(Dell, 2010). The ability of Dell to minimise its costs has enabled it to offer low cost products to
its customers and attain a unique position in the market. The advertisements for the products of
Dell are found to be easy to understand and fairly straightforward (Nielson, 2013). Dell
Computers also have the competitive advantage of offering its products to a wide range of
customers which encompasses individual buyers, government and businesses. It is a broadcoverage cost leader in the industry (Besanko, 2010).
Dell is the low cost leader in the global PC industry. It follows sell-direct strategy wherein Dell
markets its PCs directly to the customers based on the customer order and eliminates costs
associated with wholesaler and retailer. Dell also follows build-to-order strategy and so
maintains optimum inventory levels and eliminates idle inventory (Miltenburg, 2005). Dell
Computers have attained the third position in the overall market share and good financial
performance due to its cost leadership strategy. In addition, to the above strategies for its cost
leadership, Dell also offers low-cost after-sales service through telephone-based technical
support service and on-site maintenance through third-party. Since it directly sells to the
customer, it encourages the customer to make their payments immediately which enables
negative working capital (Chandra, 2009).
However, it must be noted that the cost leadership strategy of Dell is losing its significance, as its
major competitors Lenovo, Acer and HP have imitated its low-cost production management
practices, as mentioned in the VRIO Framework. This has resulted in the dangerous eroding of
its competitive advantage and is compelled to look for different ways to compete well in the
market (Hill and Jones, 2012). Hence, it is evident that the initial success that Dell enjoyed from
its cost leadership strategy due to its broad-coverage, sell-direct strategy, build-to-order strategy
and low-cost after-sales service has been losing its sheen with more industry players also
imitating its practices and achieving similar competitive advantage.
4. CURRENT SITUATION
The total shipments of PC were identified to decrease by 10.0%, with customers focussing on
tablets and smart phones, playing a waiting game. However, the top three players in the PC
industry were recognized to have a 46% market share, as tabulated below by Jones (2013).
10
Figure: Comparison of the market shares of the top five players in the PC industry
Source: Hachman (2014)
Hachman (2014) has mentioned that an innovation and a focus on the quality of the products
including the design and the thickness of the notebooks shall encourage an increase in the sales
of PC. However, the lack of focus on innovation has restricted the sales and a growth in revenue
for Dell, as discussed below.
As identified earlier, there is an increase in the sales of tablets and smart phones have resulted in
the reduction in the sales of PC computers. Morgan (2014) has added that a decrease in the PC
sales and the price war in the low-end of the PC market has negatively influenced the financial
status of Dell.
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12
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5. CONCLUSION
The current study strived to analyse the strategic management policies of Dell Computers in
order to evaluate its sustainability in the industry. The internal and external perspective of Dell
was identified by the application of the various strategic management tools and theory.
The internal perspective of Dell was analysed using SWOT analysis and VRIO Framework. It
was identified from the SWOT analysis that Dell has a strong brand value and offers customised
products at low cost. However, the customer services have not been effective and there is no
innovation at Dell. It can tap into the growing markets and expand into the Smartphone industry.
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Dell faces stiff competition from many players in the industry. From the VRIO framework, it was
apparent that the direct selling model of Dell offers it sustained competitive advantage. The low
pricing strategies, product customisation and just-in-time inventory by Dell offers temporary
competitive advantage.
The external perspective of Dell was examined with the PESTLE analysis, Porters 5 forces and
Porters generic strategies. The PESTLE analysis revealed that technological and environmental
factors have had a positive influence on Dell. Social factors have had a medium impact. The
political, economic and legal factors have had a negative influence on Dell. According to Porters
5 forces, competition from rivalry is high and bargaining power of the customers is high. Threat
from substitutes is medium. Bargaining power of the suppliers and threat from new entrants is
low. The study on Porters generic strategies revealed that Dell follows the cost leadership
strategy due to its sell-direct, broad-coverage, low-cost after-sales service and build-to-order
strategies.
The scrutiny of the current situation for Dell highlighted that it holds the third position in the
world PC industry; however, its PC sales saw a dip. The restriction in its revenue and sales has
been attributed to Dells low focus on innovation and spurt in demand for tablets and
Smartphone's.
6. RECOMMENDATIONS
The following are some of the recommendations offered to Dell on the basis of the insights
gained from the above study.
Dell has to enhance its innovative capabilities and its R&D efforts
There was a clear lack of innovation in Dell which enabled its competitors to progress while its
own sales dipped. Dell has to embrace innovation culture and also enhance its R&D efforts to
offer various unique products and services to the customers in order to sustain in the market
(Kalb, 2013).
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Dell has to progress from direct selling to selling its products in electronic retail stores, using the
internet channels and social networking media such as Twitter to reach out to its current and
potential customers (Boone and Kurtz, 2012).
Dell has to significantly improve the quality of its after-sales service to enhance its market share
and revenue (Enderle, 2013).
The booming Smartphone industry is valued at $150.3 billion and Dell can make its foray into
the attractive and growing industry to boost its sales (Jean-Baptiste, 2012).
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APPENDIX
Figure: The upsurge in the number of online shoppers for digital products
Source: Emarketer (2014)
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