BUSINESS STRATEGY ASSIGNMENT

Dell Pursue a Growth in a Challenging Environment

Syndicate 2

Members of Syndicate :
Tamadara Hilman (29112042)
Adithya Nugraha(29112149)
Yulianita Rahayu (29112060)
Aditia Sovia Pramudita (29112061)
Ratu Sonia Gardenia (29112065)

SCHOOL OF BUSINESS AND MANAGEMENT

BANDUNG INSTITUTE OF TECHNOLOGY
2012
 Dell Pursue Growth in a Challenging Environment

Problems:

- Balancing expansion to retail

- Stagnant corporate market (large enterprise, government)

- Costumer market growing but not significant (home, small business)

- Downturn economic

- New entrants higher, rivalry higher (price war)

- Bargaining power of supplier high

- Leader change -> policy, goal

- New opportunity market (tablet)

- PC market stagnant

- Still focusing in US market

- US crisis, decrese in ability to pay -> demand changes--------

- Government regulation - to go green (higher cost)

- Inventory cost higher (dead stock higher)

- R&D cost 1% revenue << Apple (4-5%)

- Business model change (made to order -> made to stock) mass production

- Segment changes (corporation -> home user)

External Analysis

PEST Analysis

Political: Governments forces the industry to use technology that go green.

Economical: Economic downturn, make the customer think twice to buy a PC`s for themselves. They
prefer lower spec PCs in purpose to reduce the price.

Socio culture: Customer behavior in US, it shown that people who using PC`s are growth year by year.
That was the opportunity that even the economic was in crisis, people are still need PC.

Technological: An additional technological trend impacting the computer industry is that customers prefer
to use a single vendor for all of their computing platforms. From the customers perspective, this
simplifies technology upgrades and one company is accountable for all of its needs.

5 Forces Analysis

Potential Entrants

low

Industry
Competitor
Suppliers High High Customer
Rivalry among
existing firms

low

Substitutes

Understanding the external environment is key to successfully competing in the computer hardware
industry. Porters Five Forces of Competition provide a framework for Dell to outline the bargaining
power of suppliers and customers, the threat of new entrants, the threat of substitutes and the intensity of
competition. In this industry, the bargaining power of suppliers is high due to the limited number
of suppliers for key components. For instance, Intel sells 90%of the microprocessors used in PCs and
Microsoft provides 85-90% of the operating systems. In addition, 80% of the worlds laptops are
assembled in Taiwan. Likewise, the bargaining power of customers is also high due to the fact that PCs
are now commodities. Nearly all PCs contain the same components or the same type of
components. However, customers power remains limited because consumers may be willing to pay a
premium to computer companies that are able to provide technological solutions. Alternatively, the threat
of new entrants is low. The1990s saw a significant level of growth, but the early 2000s have shown signs
of contraction within the industry. The threat of substitutes is also low since the only available substitute
for a Windows-based PC is an Apple Macintosh. Finally, the intensity of competition is high since there
are relatively few competitors in the market. However, they all offer the same basic products and must
compete on price.

Internal Analysis

Corporate Structure

Dell is best described as a flat organization. From the factory floor to senior leadership very little
hierarchy exists to slow down the decision process. Employees are encouraged to pursue the most
efficient ways to complete their jobs and are permitted to implement these new efficiencies without prior
approval by upper management. This open-communication has made junior employees realize their ideas
are welcome and respected. Once proven to be successful, it is not uncommon for these ideas to be
implemented across the organization

Corporate Culture

Dell preserve its culture through open communication and honesty. Dell` s culture is described as
meritocracy which rewards those employees who work hard and critical of those who don`t.

Corporate Resources

Logistic: using technology such as information system in purpose to apply just in time inventories. And
for the customer they can buy their product using web to know is the product available or not.

Operations: based on source from the internet, Dell maintaining an efficient and streamlined operating
strategy.

Human resource: Dell employs over 55,000 employees. Dell using learning organization, so every
individual will be learned by themselves in purpose to have better carrier.
R&D: Dell was spend a lot of money in R&D, but it not good enough if compare with the other company
especially apple.

SWOT Analysis

Internal Factors

Strength:

Low bureaucracy system

Reward and punishment system in the organization

Maintaining efficient and streamline operating strategy

Apply learning organization

Weakness

Dell was in revolution of their distribution, from direct selling into distribution channel.

R&D budget is not good enough

Because they sell their product online, then they haven`t service to the customer.

They need prepare new leader beside Michael Dell

External Analysis

Opportunities:

Substitutes products are low

Market always growth even not so big

Threat:

Stagnant Corporate Market

Downturn economics

High Rivalry
Corporate Strategy using IFAS, EFAS, SFAS Table

IFAS

Weigh Ratin Weighte

Internal Strategic Factors
t g d Score
Strenghts
s1 Low bureaucracy system 0.050 1 0.05
s2 Reward and punishment system in the organization 0.075 2 0.15
s3 Maintaining efficient and streamline operating strategy 0.075 4 0.3
s4 Apply learning organization 0.075 4 0.3
s5 Percieved as High Quality 0.125 5 0.625
s6 Stability Financial Statement 0.100 4 0.4
Weaknesses
w Dell was in revolution of their distribution, from direct selling into
1 distribution channel. 0.125 3 0.375
w
2 R&D budget is not good enough 0.150 3 0.45
w Because they sell their product online, then they haven`t service to
3 the customer. 0.100 3 0.3
w
4 They need prepare new leader beside Michael Dell 0.125 3 0.375

TOTAL SCORES 1.000 3.325

EFAS

Weighted
External Strategic Factors Weight Rating
Score
Opportunities
o1 Substitutes products are low 0.25 4 1
Market always growth even not so
o2 big 0.1 4 0.4
o3 High Growth in Tablet Market 0.15 5 0.75
Threats
t1 Stagnant Corporate Market 0.15 3 0.45
t2 Economics Downturn 0.2 5 1
t2 High Rivalry 0.15 5 0.75
TOTAL
SCORES 0.85 3.6
SFAS

Weighted Duration
Strategic Factors Weight Rating
Score Short Int. Long
s1 Learning Organization 0.075 4 0.3 X X
s2 Stability financial statement 0.100 4 0.4 X
s3 Perceived as High quality product 0.125 5 0.625 X
w1 low R&D cost 0.150 3 0.45 X
w2 Need to find leader regeneration 0.125 3 0.375 X
w3 Distribution channel changes 0.125 3 0.375 X
o1 Substitutes products are low 0.25 4 1 X
o2 Market always growth even not so big 0.1 4 0.4 X X
o3 High Growth in Tablet Market 0.15 5 0.75 X X
p1 Stagnant Corporate Market 0.15 3 0.45 X X
p2 Economics Downturn 0.2 5 1 X X
p3 High Rivalry 0.15 5 0.75 X X X
TOTAL SCORES 1.7 6.875

From the SFAS table we can conclude that Dell was higher than average level in the same industry. It
shown that Dell was good.

EFAS

Stability Growth

IFAS

Survival Diversification

We thought that Dell should have growth strategy because they had IFAS point 3.325 and EFAS point
3.6. We suggest they to concentration their product line or do diversification. Then we need to calculate
the alternatives using QSPM Analysis.
QSPM Matrix analysis

Concentration Strategy Diversification

Key Factor weight Score Total Score Weight Score Total Score
Strength
Learning Organization 0.2 3 0.6 0.2 5 1
Stability financial statement 0.15 5 0.75 0.15 2 0.3
Perceived as High quality product 0.15 4 0.6 0.2 3 0.6
Weakness
low R&D cost 0.2 5 1 0.15 3 0.45
Need to find leader regeneration 0.1 3 0.3 0.1 3 0.3
Higher inventory cost 0.2 2 0.4 0.2 2 0.4
Total 1 1
opportunity
Substitutes products are low 0.2 5 1 0.15 3 0.45
Market always growth even not so
big 0.15 2 0.3 0.25 5 1.25
High Growth in Tablet Market 0.2 5 1 0.1 2 0.2
Threat
Stagnant corporate market 0.1 4 0.4 0.1 4 0.4
Downturn economics 0.2 2 0.4 0.2 2 0.4
Higher rivalry 0.15 2 0.3 0.2 4 0.8
Total 1 1
Sum Total Score 7.05 > 6.55

From the QSPM matrix we can suggest that Dell need to do concentration strategy. Concentration
strategy have 2 basic strategies, there are vertical growth and horizontal growth. Vertical growth, in
contrast, involves a firm's taking over a function previously performed by a supplier or a distributor.
Horizontal growth is the expanding of a firm's activities into other geographic regions and/or by
increasing the range of products and services offered to current markets. We more suggest horizontal
growth, in purpose to reduce the threat of economic downturn. With this strategy, Dell can survive with
the economic downturn because in the other region maybe not suffer the economic downturn. The other,
Dell need to increasing their product range, in purpose they have to growth their market in different
market.

Business Strategy using Diamond Analysis

 Focus
Cost
Aspects Differentiation Cost
leadership
Differentiation Leadership
Strength
Learning Organization X X
Stability financial statement X
Perceived as High quality product X X
Weakness
low R&D cost X X
Need to find leader regeneration X X
Higher inventory cost X X
Opportunity
Substitutes products are low X X
Market always growth even not so big X X
High Growth in Tablet Market
Threat
Stagnant corporate market X X
Downturn economics X X
Higher rivalry X X
Total 7 5 7 3

From this table we can see that Dell can reach 2 strategy, the first one become differentiation with the
broad market, and the 2nd one Dell can reach niche market that become different for narrow market which
mean Dell need to have a different product in every place they targeted.

Financial Analysis

Based on the extra data from the reliable source in the internet we could see, count and analysis how the
financial of Dell.

Balance Sheet 2003- 2004- 2005- 2006- 2007- 2008- 2009-

Items (in %) 01 01 01 01 01 01 01
Cash & Short-Term 29.98 26.68 42.24 39.2 40.17 28.92 34.31
Investments
Accounts 16.72 18.82 19.01 23.59 24 27.91 24.31
Receivable
Inventory 1.98 1.69 1.98 2.49 2.57 4.28 3.27
Other Current 9.01 7.87 9.55 11.34 11.04 11.01 14.15
Assets
Total Current
Assets 57.69 55.06 72.78 76.62 77.78 72.13 76.04
Net PP&E 5.9 7.86 7.28 8.68 9.4 9.68 8.59
Intangibles 8.81 9.29
Other Long-Term 36.41 37.08 19.93 14.7 12.82 9.38 6.08
Assets
Total Assets 100 100 100 100 100 100 100
Accounts Payable 38.71 37.89 38.32 42.58 40.69 41.7 31.35
0.73 0.82 0.43
Short-Term Debt

Taxes Payable
Accrued Liabilities 19.03 18.54 22.58 26.34 10.81 6.97 5.83
Other Short-Term 17.18 17.74 18.46
Liabilities
Total Current
Liabilities 57.74 56.42 60.89 68.92 69.4 67.22 56.07
3.27 2.62 2.18 2.18 2.22 1.31 7.16
Long-Term Debt

Other Long-Term 7.49 8.44 9 11.03 11.5 17.92 20.65

Liabilities
Total Liabilities 68.5 67.48 72.07 82.13 83.12 86.45 83.88
Total
Stockholders'
Equity 31.5 32.52 27.93 17.87 16.88 13.55 16.12
Total Liabilities &
Equity 100 100 100 100 100 100 100
Liquidity/Financial 2003- 2004- 2005- 2006- 2007- 2008- 2009-
Health 01 01 01 01 01 01 01
Current Ratio 1 0.98 1.2 1.11 1.12 1.07 1.36
Quick Ratio 0.81 0.81 1.01 0.91 0.92 0.85 1.05
 Financial Leverage 3.17 3.08 3.58 5.6 5.92 7.38 6.2
Debt/Equity 0.1 0.08 0.08 0.12 0.13 0.1 0.44

If we see from the data above, we can analysis that every year even in the downturn economics, they still
liquid. But we can see their quick ratio often below 1, it shows that Dell not liquid. We need to further the
analysis, the equation from quick ratio is current assets- inventory divided by current liabilities. We can
conclude that Dell have too much inventory. If we saw from financial leverage which is the equation is
total assets divided by shareholders equity, it shown that Dell have more assets than their shareholders
equity. It shown that their shareholder`s equity was bought into assets year by year. If we saw from
debt/equity, we can conclude that dell have low debt. They provide their money from shareholders equity.

We couldnt find the industry financial statement in purpose to compare is it Dell good enough for this
industry or not.

Recommendation

By used every analysis as the basis of the recommendation, there are:

1. Dell need to increase their sales.

2. To provide the first recommendation, they need to have a clear brand image for their 4
segmentation.
3. They need to took every opportunity they had, in purpose to have differentiation strategy they
need R&D budget that bigger than right now.
4. They need to spread their market outside the US and have more product`s range.
5. With this recommendation, they not only have a different product but also larger market. It will
evade the decline phase and Dell will continue to have new product life cycle.