Future ofFuture of

Grow for the Long Run

or

Die ?

Group : Tiphaine Lalonde, Adeeb Munim, Jean-Paul Nicolet, John Soltana

IIM – MBA 2006

On 1984 created a company on his own image with 1000 $ & called it

AFTER 20 years, Dell built a 60 Billion fortune !AFTER 20 years, Dell built a 60 Billion fortune !

Found “The One Thing” and did stick to it ….. the “Direct Model”.

Incarnated it in the « Soul of Dell » ….. & could sell PC & Servers …

& Earn Profits for years while PC giants, IBM, Compaq, … were in lose.

How many quarters separate Dell from DEATH How many quarters separate Dell from DEATH ? ?

Or could EVOLVE to SURVIVE …Or could EVOLVE to SURVIVE … Or REINVENT its future and LIVE …… Or REINVENT its future and LIVE ……

He understood to live one needs to Grow for Long Run otherwise face Death

BUT, but since 5 Quarters he could not Grow ….

Once Upon a Time,

ALICE, Alice from your Wonderland …ALICE, Alice from your Wonderland …Could you see FUTURE OF DELL ?Could you see FUTURE OF DELL ?

11stst Challenge: Challenge: steam quotation fall down steam quotation fall downQuotation Charts (NASDAQ 19/11/06)Quotation Charts (NASDAQ 19/11/06)

Signs of the stakeSigns of the stake

1.1. QuotationQuotationlost 40 % of value (43 US$ to 24 US$) since 1 year

2.2. Investor analysts doubt on Dell’s Investor analysts doubt on Dell’s RecoveryRecovery

1. Short term: Missed Financial Targets since > 1 year

2. Mid/long term: how to increase sales from 60 to 80 Billion $ by 2009 ?

• Dell lost leadership vs HP Dell lost leadership vs HP (3Q,2006) (3Q,2006)

22ndnd Challenges Challenges

Signs of the stakeSigns of the stake

3.3. Lost top leadership Lost top leadership in worldwide PC salesin worldwide PC salesAfter 3 years of leadership:

HP = 17.23% vs DELL = 17.18%

4.4. Revenue growth Revenue growth - 6% On PC Desktop (core product) -1% on all product segments

II. What is Dell’s II. What is Dell’s Singularity?Singularity?

““The direct model has become the The direct model has become the backbone of our company, and the backbone of our company, and the

greatest tool in its growth”,greatest tool in its growth”,

Michael DellMichael Dell

What is Dell’s Singularity?What is Dell’s Singularity?Business model :Business model : “Direct Model” “Direct Model”

is “To Be Direct in all we do” …. this is “Soul of Dell”

1) Do-it-the-customer’s way 1) Do-it-the-customer’s way => « Virtually integrating » customers into the corporation’s organization=> « Virtually integrating » customers into the corporation’s organization2) Apply ‘Dell Effect’ to a Ripe Market 2) Apply ‘Dell Effect’ to a Ripe Market =>=> Jump into the market when it is standards-based before it becomes Jump into the market when it is standards-based before it becomes commoditizedcommoditized3) Build-to-order 3) Build-to-order =>=> “Cutting inventory is financial imperative”, “Cutting inventory is financial imperative”, Kevin Rollins, CEO DELLKevin Rollins, CEO DELL4) Culture of Execution4) Culture of Execution =>“Dell Inc. is an extension of Dell the man” & Using ROIC metrics =>“Dell Inc. is an extension of Dell the man” & Using ROIC metrics5) Value information => 5) Value information => Information flow: Suppliers + Customers + Employees + Managers + Metrics forInformation flow: Suppliers + Customers + Employees + Managers + Metrics for « Liquidity, profitability and growth » « Liquidity, profitability and growth »6) Get others to Do More of the Work6) Get others to Do More of the Work« Choose what you want to excel at, and find great partners for the rest »« Choose what you want to excel at, and find great partners for the rest »

How Dell Does It, Steven HolznerHow Dell Does It, Steven Holzner

1984, starting with 1984, starting with 1000 US $ to reach 1000 US $ to reach 60 Billion US $ in 60 Billion US $ in 20 Years20 Years without any acquisition without any acquisition

ProductsProducts

35%

26.3 %26.3 %

10 %10 %

EnhancedEnhancedServicesServices

10 %10 %

15.2%

3.5 %3.5 %

Market segmentsMarket segments• Home & home office

• Small business

• Medium and Large Business

• Government, Education & Healthcare

Worldwide RevenueWorldwide Revenue

Dell’s revenue is ~60 Billion$Dell’s revenue is ~60 Billion$

#1 #2

#3

#1

# market position# market position

Worldwide Worldwide Market Market Share is Share is 17,18%17,18%

IV. Failures of Dell IV. Failures of Dell 1.1. Financial Analysts and consulting Financial Analysts and consulting

offices explain failures of Dell by offices explain failures of Dell by two thesistwo thesis

Thesis AThesis A Operational Excellence is in Question and

Product diversity around PC market

Thesis BThesis B Evolving his own “Direct Model” to adapt to

International Markets outside HomeLand“Time to a new model?”

FailuresFailures of Dell of Dell Thesis AThesis AFacts

Services Quality

1. Poor supportExternal Call centresTemporary People

Product quality

1. Exclusive contract with Intel

2. Exclusive contract with Microsoft

3. Laptops Battery Sony explosions

4. Poor R & D in technology

5. Products around PC world

Actions in progress

Services Quality

1. DELL would hire 1500 call centers workers2. DELL would recruit a Chief Service Officer

Services 21% growth vs. 5% growth for the company overall in Q2/2006

Product quality

1. Integrating AMD only in June 2006

2. Integrating Linux platforms for servers

3. Recalling for 400 000 Laptops

4. Increase R & D Server and Storage.

5. Enlarging productsPrinting & Imaging

Consumer electronics: smart phone, hybrid PDA-mobile phone marketHome entertainment business: TV Plat screens

Failures of Dell Failures of Dell Thesis BThesis BFacts

• Problem of selling PC DESKTOP to home users, China on 2005 => Different Customers’ behavior

2. Slow Growth• NOT able to grow in

emerging marketso China (#3, 10%, 3,5 less

market share than #1 Lenovo)o India (#4, 7% market share, 3

times less that #1 HP)% Central/East Europe

~26% Growth

• SLOW growth in mature markets

• US & Western Europe Growth < 5%

Actions in Progress

New Approach: « Purely You »More adapted for Consumer oriented

business2 “Dell Direct Stores” & 185 “Dell kiosks” in Malls in US

• Order face to face• Delivery directly to customer

Could Dell apply it to increase his growth outside US?

VI. How to grow ?VI. How to grow ?

Future ofFuture of

How to Grow ? How to Grow ?

1. Extending the “Direct Model” area• Dell is in “Trial & Error” strategy to extend

toward near neighboring markets to PC BusinessConsumer Electronics -> Home Entertainment

2. Exporting the “Direct Model” to new markets and New Value proposal• to other products outside the PC Business• to Services rather than products

How to Grow?How to Grow?

• “Solutions” company:o Developing Infrastructure services:

helping companies manage their computer operations ~ IBM

o Acquiring/alliance making with infrastructure consulting companies(on 15/11/06, DELL has acquired ASC a British based IT infrastructure consulting company)

• Experimenting Remote tools in US:

o Dell Connect o Dell Support

How to grow ? How to grow ? “Direct Model”“Direct Model”

1. Evolving the “Direct Model” itself Example: “Dell Direct stores” Blended approach: Face to face + virtual

Would this permit Dell to grow in mature and emerging markets?

2. Product innovation + Customer Relation Innovation

3. Jumping into the market in• Innovation phase rather than Standardization phaseOR• Commodity phase, finding the Anamorphous

4. Grow through acquisitions

Scenario ACould Dell Change without Changing ?

Scenario BCould DELL reinvent its own future in DELL 2.0 ?

Have The “Second” Thing? Or the “One Thing” for second time ?

Future ofFuture of

Could Dell compete for the FUTURE

rather than competingfor the NEAR FUTURE ?

Future ofFuture of