Why Innovations are important?

Direct from (/with)

Blue Ocean Strategy

Actually we come across this everyday!

Today, Dell Corp. is the number one-ranked PC vendor in the U.S. and third largest globally.

Dell currently employs around 103,300 people and operates in 170 countries around the world.

It is listed th in the Fortune 500 list.

Today’s Dell Corporation

Dell Computer Corporation was founded in 1984 as “PC’s limited” by 19-year old Michael Dell.

It was started just as a 500 sq.ft facility in a Texas University dorm room!

As opposed to traditional selling, Dell was started with an innovative approach of selling called the Direct-Marketing approach.

Humble Beginnings

All the corporate in the 1980’s sold their products through an indirect approach.

In Indirect model, products were sold to end-customers through resellers a.k.a retailers.

17 out of top 25 computer companies of 1989 no longer exist today.

Computer Industry in 1980’s -The Indirect Model

As the products are sold through retailers, the mark-up value went up.

The Indirect model results in a imbalance between the supply and demand.

The Indirect Model

Situation:Suppose a dealer(reseller) orders 100 computers and receives only 10 from the manufacturer, it does not satisfy his demand. So the next time, to get what he wanted, he may tend to order 1000 computers and in the end receive as many as 663! Which is way over his demand.

Thus the remaining computers stays in the store as inventory.

Inventory Problems

Due to this imbalance between supply and demand, resellers are stuck paying for excess inventory.

Thus they are forced to sell their excess products at lower prices.

This situation was called the “Gray market”.

Gray Market Situation

In Indirect selling, customer feedback to the manufacturer is difficult with the reseller as the hindrance.

Customer service done by the reseller is not satisfactory.

The manufacturer has to predict the future demand which cannot be 100% correct.

Other Cons of Indirect Model

In Direct selling, the middleman retailer is scrapped, thus resulting in a direct link between manufacturer and end-customer.

This successful method was then emulated in other industries such as banking, automotive, logistics and pharmaceuticals.

Selling Direct

1984: Registers Dell Computer Corporation DBA PC’s Limited. Sells Direct to end users.

1986: First original Dell product(Turbo PC). 12 MHz 285 based system.

1988: Global expansion. Direct model worked in all communities. But also adjusted to all cultures.

1989: Dell’s market capitalization has grown to $80 million. Michael Dell is the “Entrepreneur of the year”.

Growth in First 5 years

After 5 years of steady growth, the company decided to buy so many chipsets, which got outdated even before selling.

This resulted in inventory and also outdated chipsets means outdated PCs.

Dell released the “Olympic project” in 1989 end. It was a very ambitious, clearly becoming the fastest computer of that time.

It was technology for technology’s sake.

Inventory and Olympic issues

Because of that extended pieces of outdated chipsets, their resulted in a “Dell gray market” for a short period of time.

Dell Olympic was scrapped even before daylight. Technology for customer’s sake.

Instead of forecasting demands, Dell used the direct model to get the demand from the customers.

Lessons learned

Because of this direct model and exclusive customer-feedback ability of Dell, it is able to forge partnerships with its component suppliers.

Formulated order and manufacture policy. Resulted in zero inventory.

Forging Partnerships

Growth continues and in 1994 entered the league of top 5 PC vendors in the world.

Achieved 10.7% market share in 2012.

Currently the world’s third Computer company. Still serving Direct.

Further Growth

Growth continues and in 1994 entered the league of top 5 PC vendors in the world.

Achieved 10.7% market share in 2012.

Currently the world’s third Computer company. Still serving Direct.

Further Growth

Clearly Dell’s success can be attributed to its Blue Ocean Strategy of 80’s – Direct Selling.

Other examples are

Blue Ocean Strategy…cont

Hot Mobiles in 2007 when Iphone was introduced

Ultimate Blue Ocean Strategy – IPhone

Any Questions?

Thank you for listening!