dell inc.: changing the business model

Dell Inc.: Changing the Business Model(Mini Case)

Karolina Barańska Salmoon Bashir Giorgi NadareishviliNino Tsintsadze Tako Azariashvili Ana Shilakadze

About Dell

DELL INC. was founded in 1984 by Michael Dell at age 19 while he

was a student living in a dormitory at the University of Texas. The

original name of the company was PC’s limited.

DELL TECHNOLOGS Net Sales or Revenues for the year 2016-2017

was 61.64B while the Gross profit in this year was 12.96B.

Objectives

The specification of the process map supports the quality of the products manufactured

and the flexibility of Dell towards its customers through sales representative or its

website that enables a range of variety of products for their customer to choose from.

Added more Quality to the products manufactured by Dell.

Made Dell a little more flexible to the demands of its customers.

Made Dell more dependable to its customers

Mis

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"Dell's mission is to be the most successful computer company in theworld at delivering the best customer experience in markets we serve.Dell Inc. listens to customers and delivers innovative technology andservices that give them the power to do more.In doing so, Dell will meet customer expectations of:

Highest quality

Leading technology

Competitive pricing

Individual and company accountability

Best-in-class service and support

Flexible customization capability

Superior corporate citizenship

Financial stability

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Dell maintained its No. 2 share position in the global x86 server market

Dell Software registered double-digit revenue growth year-over-year

Dell grew PC shipments by nearly 10 percent year over year

Dell is ranked by Gartner No. 1 in Worldwide IT Services for Healthcare Providers

Dell delivers year-over-year growth across every region globally

With a market share of 15.9%, Dell was the third largest PC vendor in the world in the first quarter of 2017 after Lenovo and HP Inc.

Dell provides a classic example of how the principles of

strategic management have been used to translate an

innovative vision into a successful and sustainable

enterprise. Their vision statement basically tells the way

they do their business. They want to be successful in

the digital world for this they rely on latest technology.

Dell provides quality products to cater the needs of the

people. In intend to build good relationship with their

customers and suppliersStr

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Rapidly changing market

Centralized structure

Positioning of the company

Transition between business models

Supply chain issues

Pros and Cons of direct sales

The main issues:

• The industry’s focus shifts from desktop PCs to mobile computing, software

and technology services – areas of relative weakness at Dell;

• Dell abandons its original business model based on direct sales and value

chain efficiencies have been abandoned;

• Cost reductions and competitive pricing led to fall in customer service

rating – previously a strength of the company.

The Dilemma:

Should Dell continue with its current strategy of

following the consumer market down in price and

adjusting its costs accordingly or, like IBM, should it

change its focus to more profitable business services,

or, like HP, should it try to do both?

External Environment Analysis

External environment PESTEL

Political–Legal

• Regional trade pacts provide access to other markets with great potential (O)

• Law regulations individual for every market (T)

• Unstable political situation in increasing parts of the world (T)

• Developing environmentalism – laws on pollution, energy usage and waste management policies (T)


Economic

• Unstable, but recovering economy after crisis; demand is growing (O)

• Accelerating process of globalization (O)

• Changing economic ratios: inflation, currency fluctuation (T)


Socio-cultural

• Developing nations becomes better educated – need computers and accessories (O)

• Changing lifestyle – more people from different social groups need computers (O)

• Demographics – the age group of people who need computers is increasing (O)

• Consumer desires attractive, high-quality and technologically advanced appliances (O)

• Customers’ trends are changing very quickly. (O/T)

• More and more customers expect ecofriendly products (O/T)


Technological

• Computers and information technology increasingly important (O)

• Rapid technological improvements in PC industry (O)

• Outsourcing (O)


Environmental

• Energy and water availability (T)

• Visible climate change, natural catastrophes (T)


Political–Legal

•Regional trade pacts provide access to other markets with great potential (O)

•Law regulations individual for every market (T)

• Unstable political situation in increasing parts of the world (T)

•Developing environmentalism –laws on pollution, energy usage and waste management policies (T)

Economic

• Unstable, but recovering economy after crisis; demand is growing (O)

• Accelerating process of globalization (O)

• Changing economic ratios: inflation, currency fluctuation (T)

Socio-cultural

•Developing nations becomes better educated – need computers and accessories (O)

•Changing lifestyle –more people from different social groups need computers (O)

•Demographics – the age group of people who need computers is increasing (O)

•Consumer desires attractive, high-quality and technologically advanced appliances (O)

•More and more customers expect ecofriendly products (O/T)

•Customers’ trends are changing very quickly. (O/T)

Technological

• Computers and information technology increasingly important (O)

• Rapid technological improvements in PC industry (O)

• Outsourcing (O)

Environmental

• Energy and water availability (T)

• Visible climate change, natural catastrophes (T)

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External environment - Porter’s Five Forces

Rivalry High

• Gateway, Acer, Toshiba, and Lenovo, HP, IBM, Oracle have competitive advantages, big resources & global brand awareness (T)

Bargaining Power of Buyers High

• Because there is a lot of players in the market (T)

Bargaining Power of Suppliers

Moderate

• Dell has a large number of suppliers that varies from hardware, software and services suppliers. However, because of just-in-time approach it’s very dependent on suppliers (T)

Threat of Substitutes High

• Smartphones and tablets (T)

Entry Barriers High

• Entering this market requires a lot of resources. It is hard to compete with existing companies, because they operate on the basis of economy of scales and brand awareness (O)

Internal EnvironmentAnalysis

A. Corporate Structure

• Divisional Corporate Structure – Dell is the CEO (s)

• Centralized decision-making: major decisions made by Dell (also, he owned the

largest block of stock and continued to be the “Heart and Soul” of the firm (s/w);

B. Corporate Culture

• Company’s overall philosophy: high emphasis on customer support and

service(s).

• Company’s Main focus on manufacturing – Dell becomes the master of

engineering (s)

• Lack of R&D– Dell spent 1% of sales on R&D VS 5% typically invested by other

companies(w)

Note: Dell had Efficiency Business model

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c. Corporate Resources

• Market posture: efforts focus on four global business units based on

customers: Large Enterprise, Public, Small & Medium Business, and

Consumer(s)

• Finance: a. Dell’s tock falls 42% since January 2007 (w)

b. Decrease in revenue, as well as, operational income (w)

c. Current and quick ratios look better than the industry average, as well as,

debt to equity ratio (s)

d. Financial leverage tends to decrease from 2009 to 2010 (s)

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Financials

USD in Millions 2010 2009 2008 2007 2006 2005 2004

Revenue 52,902 61,101 61,133 57,420 55,788 49,121 41,444

Operating

income

2172 3190 3440 3070 4382 4206 3544

Net Income 1,433 2,478 2,947 2,583 3,602 3,018 2,645

Earnings per

share

0.73 1.25 1.31 1.14 1.47 1.18 1.01

Source: http://financials.morningstar.com/direct/ratios/r.html?t=XNAS%3ADELL&region=usa&culture=en-

US&productcode=MLE&cur

Financials - profitability

2010 2009 2008 2007 2006 2005 2004

Financial

leverage (av.)

5.97 6.2 7.38 5.92 5.6 3.58 3.08

Return on

equity %

28.91 61.9 73.1 61.09 67.31 47.68 47.43

Return on

invested capital

19.32 45.51 55.27 47.11 61.46 44.18 43.65



Financials – Liquidity/Financial Health



Dell Industry Dell Industry

2010 2010 2009 2009

Quick ratio 1.03 0.63 1.05 0.60

Debt/equity 0.61 0.42 0.44 0.46

Dell 2010 2009 2008 2007 2006 2005

Current ratio 1.28 1.36 1.07 1.12 1.11 1.2

c. Corporate Resources

• R&D: the company invests only 1% of its sales in R&D (w)

• Operations: a. Dell had its own assembly line in various countries,

including the US; though some operations, such as component production

and express shipping were outsourced (s) b. Dell became the master of

process engineering and supply chain management (s);

• Human resources: due to Dell’s retrenchment strategy, the company

cut 10,000 jobs since 2007 (even though there is no mentioning about

employee relationships, the drastic cuts might have caused dissatisfaction

of a lot of people) (unclear);

• Information System: Dell made a 3.6 billion purchase of a Perot

Systems, an IT service company; it allowed the company to expand into

higher-margin computing services (s).

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VRIO Framework

1. Value: Does it provide customer value and

competitive advantage?

2. Rareness: Do no other competitors possess it?

3. Imitability: Is it costly for others to imitate?

4. Organization: Is the firm organized to exploit the

resource?

Analysis of strategic factors

Internal Factors (IFAS)E

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TOWS

Strengths (S)

- Functional Structure (S)

- Centralized structure: major decisions made by Dell(s)

- Master of process engineering and supply chain management (s)

- Marketing: efforts focus on four global business units based on customers:

Large Enterprise, Public, Small & Medium Business, and Consumer(s)

- High emphasis on customer support and service(s)

- Its own assembly line in various countries, including the US(s)

- - Information System: Dell made a 3.6 billion purchase of a Perot Systems, an IT

service company; it allowed the company to expand into higher-margin computing

services (s).

Opportunities (O)

- Unstable, but recovering economy after crisis; demand is growing (O)

- Accelerating process of globalization (O)

- Computers and information technology increasingly important (O)

- Rapid technological improvements in PC industry (O)

- Outsourcing (O)

- Regional trade pacts (O)

- Tax exemptions for conducting business in special economic zones (O)

- Developing nations become better educated (O)

- Changing lifestyle (O)

- The age group of people who need computers is increasing (O)

- Consumer desires attractive, high-quality and technologically advanced

appliances (O)

- Customers’ trends are changing very quickly (O/T)

- More and more customers expect ecofriendly products (O/T)

SO Strategies

- Ability to respond quickly to changing environment

Own assembly lines - chance of producing whatever is required

Best engineering and supply chain - opportunity to quickly

produce new products

- Great contact with costumers - ability to receive information

regarding their wishes first on the market

Opportunity to develop new products for the changing market

by being first to receive information and quickly start

developing

- Special business units for each type of costumer - ability to

offer products and services required for each of them and

choose the most profitable markets


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EF

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TOWS

Weaknesses (W)

- Centralized structure: One man show (w)

- Dependant on costumer views (w).

- Lack of R&D (W)

Opportunities (O)

- Unstable, but recovering economy after crisis; demand is growing (O)

- Accelerating process of globalization (O)

- Computers and information technology increasingly important (O)

- Rapid technological improvements in PC industry (O)

- Outsourcing (O)

- Regional trade pacts (O)

- Tax exemptions for conducting business in special economic zones

(O)

- Developing nations become better educated (O)

- Changing lifestyle (O)

- The age group of people who need computers is increasing (O)

- Consumer desires attractive, high-quality and technologically

advanced appliances (O)

- Customers’ trends are changing very quickly (O/T)

- More and more customers expect ecofriendly products (O/T)

WO Strategies

- Market is changing fast and requires new products, R&D

must become a priority to deal with this issue

- Dell must create a team of experts who will participate in

decision making and reduce threat of mistakes

- Costumers always demand low prices, but they also want

innovative products. Understand costumers rather than just

listen to them. Train direct sales reps in research to get the

right idea from costumers

- Announce the new product lines and services to get the

market excited and deal with the stock falling issue


xte

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EF

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TOWS

Strengths (S)

- Functional Structure (S)

- Centralized structure: major decisions made by Dell(s)

- High emphasis on customer support and service(s)

- Marketing: efforts focus on four global business units based on

customers: Large Enterprise, Public, Small & Medium Business, and

Consumer(s)

- Its own assembly line in various countries, including the US(s)

- Master of process engineering and supply chain management (s)

- Information System: Dell made a 3.6 billion purchase of a Perot

Systems, an IT service company; it allowed the company to expand

into higher-margin computing services (s).

Threats (T)

- Changing economic ratios: inflation, currency

fluctuation (T)

- Law regulations individual for every market (T)

- Unstable political situation in parts of the world (T)

- Developing environmentalism (T)

- Quickly changing trends (O/T)

- More and more customers expect ecofriendly products

(O/T)

- Visible climat change, Natural catastrophes (T)

ST Strategies

- Receive feedback from the costumer to be prepared for

upcoming changes on the market

- Quickly changing trends can be delt with better R&D

- Own assembly line and centrilized structure could be core

values in case of requiring quick response in rapidly changing

environment

- Dell is master of process engineering, which can be altered equally

professionally to respond to the new trends of environmentalism,

climate change and etc.


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TOWS

Weaknesses (W)

- Centralized structure: One man show (w)

- Dependant on costumer views (w).

- Lack of R&D (W)

- Finance – Dell’s stock falls 42% since January 2007 (w)

Threats (T)

- Changing economic ratios: inflation, currency fluctuation

(T)

- Law regulations individual for every market (T)

- Unstable political situation in parts of the world (T)

- Developing environmentalism (T)

- Quickly changing trends (O/T)

- More and more customers expect ecofriendly products

(O/T)

- Visible climat change, Natural catastrophes (T)

WT Strategies

- In case of quick changes for political reasons centralized

structure can react faster

- Financial review is required to free up money in order to

invest more in R&D, on the other hand ongoing operations

cannot be hulted to maintain position on the market

Strategic Alternatives and Recommended Strategy

Growth through concentric diversification – Market requires new and innovative products

Dell can use its strengths to learn about costumers needs faster than its competitors and is in position to quickly offer newproducts based on the feedback

This will require more investment in R&D and thus additional funds

Growth through horizontal diversification – Expanding to new less developed countries as Dell’s outdated cheap products could be more interesting for them

Establishing itself on new markets; additional income

Unstable political environment in some countries, requiring new supply chains, additional marketing costs

Strategic Alternatives

Retrenchment through sell out/divestment – closing down less profitable product line Storage (4%)

Freeing up more money for R&D and additional marketing costs

Loosing a specific part of the market

R&D Strategy – Dell should produce more innovative products

This will respond to the market needs; Dell is in position to provide

Completely changing the current strategy; new additional costs

Strategic Alternatives

Re

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Str

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• Combination of Several Strategies1

• Final goal - R&D Strategy, market requires new and innovative products 2

• Free up money for working on new projects 3

• Should remain in its field of expertise4

• The company has to find new markets with more interest in its products5

• Retrenchment through sell out/divestment; combination ofGrowth through concentric and horizontal diversifications, inorder to finally arrive at the R&D Strategy.6

Imp

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Create a new department for R&D and bring in professional from outside, but the same field:

- Dell was not concentrated on R&D and might not have a strong enough team

- New team should be created to develop this part of the company

1Hire an international sales manager:

- Dell needs someone to lead entrance in different markets

- Preferably someone with the experience of dealing with less developed countries

2

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New and stricter reporting system:

- Monitor new people Dell himself doesn’t know

- Control work in the unaccustomed field

1Strengthen HR involvement and establish new system of team building and sharing of corporate culture:

- New employees locally and internationally, who are not accustomed to corporate culture

- New executives who, while implementing new ideas, must become part of the company

2

Thanks for the Attention