Threat of New Entrants/ Entry Barriers

Factors HUFA MUF Neutral MFA HFA Comment

(1) A (2) (3) (4) (5)

Mass production of PCs,

workstations and servers
Economies of Small * Large
etc in order to cover the
Scale
per unit cost.

Capital Required Low High In the shape of assembly

plants and R&D
*
(Technology is fast
changing)

Expected Low High Hp immediately

Retaliation discontinued supplying
*
its printers to dell for
resale at its website.

Differentiation Low High Innovations are

happening in the
*
components and parts of
the PCs

Access to Ample Restrict Due to retail margins

Distribution * ed and reseller fees are
Channels involved

Experience Curve Insignificant Signific Requires managerial

*
ant skills

Govt Action Low High Few Government

*
restrictions

Brand Loyalty Low High A trend towards

customization derives
*
loyalty to a particular
brand

3+4+4+4+2+2=19/6=3.16

Exit Barriers
 Factors HUFA MUF Neutral MFA HFA Comment
(1) A (2) (3) (4) (5)

Specialized Assets High Low Since the assembly and

manufacturing plants used for
* assembling the components in
the PCs can’t be used for
something else.

Fixed cost of exit High Low Assembly and manufacturing

* plants cost force the firms to
stay

Govt Barriers High Low Govt. does not force the firm
*
to stay in the industry

Strategic Interrelationship High Low Few companies have gone

*
through acquisitions

4+2=6/2=3

Competitive Rivalry
 Factors HUFA MUFA Neutral MFA HFA Comment
(1) (2) (3) (4) (5)

Composition of Equal Size Unequal Few established firms

Competitors * Size were dominating the
industry

Market Growth Slow High Awesome growth

Rate opportunities exist in
*
Asia and Latin
American countries

Degree of Commodity High Advances are coming in

differenciation microprocessors, disk
*
drives and wireless
devices

Strategic stake High Low

Scope of Global Domesti Markets are being

*
Competition c explored beyond U.S.A

Fixed storage Cost High * low Inventory storage cost

Capacity Increase Large Small Dell produced small

fraction. All pc vendors
*
kept minimum amount
of dealer inventory.

Strategic stake High low Because of growth

* potential and
opportunities for growth

Degree of Commodity High

*
Differentiation

3+3+2+3=11/4= 2.75

Power of Buyer

Factors HUFA MUFA Neutral MFA HFA Comment

(1) (2) (3) (4) (5)

Number of Important Few * Many End users, stores all

 Buyer over world

Importance to final To maintain quality dell

quality of buyers obtained information
High Low
product * from its customers &
had strong technical
support programs.

Switchng cost Low High Buyers can loose one or

* more advantages of
leading brands

Threat of backward High Low Too many

Integration * manufacturing
intricacies are involved

Product Supplied Commodi Special Technology was rapidly

ty ty changing and
*
companies were
responding to it.

% of buyer’s Cost High * Low

Profit earned by Low High

*
buyers ]

4+5+4+4+2= 19/5=3.8

Power of Supplier

Factors HUFA MUFA Neutral MFA HFA Comment

(1) (2) (3) (4) (5)

# of important Few * Many There are many

Supplier suppliers who are
 supplying the needed
inputs

Importance of Purchases are done in

buyers industry to * large quantity to reduce
Small Large the total cost
suppliers profit

Quantity purchased Firms purchase in large

by the industry of * quantity to reduce unit
Low High
supplier product cost

Switching Cost High Low More focus on quality,

leadership and
* technology and
performance of the
suppliers

Availability of Low High

*
Substitutes

Threats of Forward High Low Manufacturing

Integration * intricacies require
expertise

Suppliers product an All pc components are

important input to important for the
Highly * Less
the buyer’s business industry
importan importa
t nt

2+3+2+4+1=12/5=2.4

Threat of Substitute Product

Factors HUFA MUFA Neutral MFA HFA Comment

(1) (2) (3) (4) (5)

Threat of * Technology is changing at a very

obsolescence of high speed
Hi Low
industry’s product

Aggresiveness of * Very few substitutes exist such

subtitute product as typewriters etc
Hi low
in promootion
Switching cost Low * High Substitutes products do not cost
much

Perceived Hi * Low Because the technology gives

price/value maximum advantage in terms of
task simplicity

5+4+4=13/3=4.3

Overall Industry Attractiveness

Factors Unfavorable Neutral Favorable

Entry Barrier 3.16

Exit Barrier 3

Rivalry among
2.75
existing firms

Power of
3.80
Buyers
 Power of
2.4
Suppliers

Threat of
Substitute 4.30
Product

Overall Industry Attractiveness of the industry is Favorable =3.23

Dominant Economic Traits

Market Size and growth rate:

 The compound growth rate of world wide IT industry from 2007 to 2010 is 7.7% (2007 $1.2
trillion) & (2010 $ 1.5 trillion). Hardware $560 billion, software $327 billion and services $613
billion.
 Industry trend shows that it is in growth phase because industry participant believe there is
ample opportunity for future growth in Russia, China, India, several other Asian countries, and
parts of Latin America.

Number of Rivals:

Table 1
Preliminary Worldwide PC Vendor Unit Shipment Estimates for 4Q08 (Thousands of Units)
 4Q08 4Q08 Market 4Q07 4Q07 Market 4Q08-4Q07
Company Shipments Share (%) Shipments Share (%) Growth (%)
Hewlett-
Packard 14,915.4 19.1 14,405.0 18.7 3.5
Dell Inc. 10,319.7 13.2 10,971.7 14.2 -5.9
Acer 9,637.3 12.3 7,351.3 9.5 31.1
Lenovo 5,549.2 7.1 5,808.4 7.5 -4.5
Toshiba 3,654.9 4.7 3,026.9 3.9 20.7
Others 34,006.4 43.6 35,632.7 46.2 -4.6
Total 78,082.9 100.0 77,195.9 100.0 1.1

Note: Data includes desk-based PCs, mobile PCs and X86 servers.
Source: Gartner (January 2009)

Scope of competitive Rivalry:

 All the rivals compete globally because users are globally spread.
 The sale of HP products was 67% outside United States and more than 66% of Dell employees
were located in countries outside United States.

Number of buyers:

 When dells sales dropped it supplemented its direct sales strategy by forging partnerships with
retailers worldwide, resulting in 12000 retail stores worldwide had its products by mid-2008. Hp
also strengthened its sales by acquiring Compaq, which did it sales 70% through its sales force,
hp combined it with its strong retail channels worldwide.

Product Differentiation:

 Rivals products were less differentiated. Dell differentiated its offer by innovative manufacturing
techniques.

Product Innovation:

 R&D is Important for the industry. $600 million was R&D share in Dell’s annual budget 2008.
APPLES R&D budget continues to increase year-over-year. In 2008, it totaled $1.1 billion,
increasing 41 percent from $782 million in 2007, which compared to $712 million in 2006 1. HP
has a very large R&D budget ($3.5 billion in fiscal year 2008) 2

1
http://www.macblogz.com/2008/11/05/apples-annual-sec-filing-advertising-rd-budget-increase-patents/
2
http://www.forbes.com/2009/12/10/hewlett-packard-labs-intelligent-technology-mitra.html
Supply/demand conditions:

 Industry is not overcrowded with too many competitors

Pace of technological change:

 Strong role of technology. There has been continual growth in computer hardware including
Intel Microprocessors, Memory Caching, RAM and Hard Disk. These changes came in response
to bulky and huge memory occupying games, software and operating systems like Microsoft
Windows Vista3. New advances were coming rapidly in some component parts that inventories
used to get obsolete in a matter of months.

Vertical integration:

 Industry players are partially integrated.HP and Dell both rely on a logistics matrix of contract
manufacturers, suppliers and assembly lines in which a great deal of effort is expended finding
the lowest-cost part suppliers.

Economies of scale:

 Dell & hp have achieved economies of scale, but via different means. Dell had a build-to-order
system, very strong direct sales force, innovative manufacturing techniques; this made them
achieve scales. Hp reduced its operating costs to reduce its unit-cost. Compaq reduced its unit
costs by improve inventory turns, reduce operating expense by $130 million, reduced channel
inventory by more than $800 million.

Learning/experience curve effects:

 Industry is not characterized by this, but dell has a unique business model which gives it a
significant cost advantage via its model and according to Mr.dell its difficult for rivals to copy its
model the manner dell has implemented it.

Drivers of Change in Industry

Internet and E-Commerce:

3
http://www.helium.com/items/1504605-the-importance-of-computer-technology-in-industry
Many companies are selling products through internet like Dell. It reduces the cost of consumers and
consumer feels comfortable by shopping through Internet. Trend of shopping through internet is
increasing day by day. Due to rapid expansion of search engine, social networking etc, the demand for
digital devices to support these activities increase.

Product Innovation:
The PC industry is growing rapidly. There are continues changes are coming in the products. Different
companies are trying to introduce new model with different innovative features. Competition is
increasing and consumer has more choices to buy.

Manufacturing product innovation:

Dell was regarded as a world class manufacturing innovator and pioneer in how to mass produce
customize product, resulting in rivals move to find out its own new ideas of manufacturing.

Globalization:
Major companies are expanded their market and gone to different geographic locations all over the
world. The PC industry is growing in different places of the world and companies have great
opportunities.

Marketing:

Marketing through internet is one of the important drivers of change. Companies are doing huge
marketing and advertising in this field as uses of internet is increasing.

Impact Of Drivers of change on the Industry:

 Collectively driving forces increase industry product demand because internet, globalization and
product innovation have the strongest impact on the industry.
 Collectively driving forces make competition intense because every industry player is striving
hard to achieve advance technology, low cost, market development and cater the emerging
needs arising due to increase use of internet.


Key Success Factors

Technology:
 As it is a technology based industry every company works to have expertise in scientific
research.

Strategic Group (Mapping) in Dell Computing, Inc

High
Dell
P
HP Compaq
R
IBM
O

C
T

N Low QUALITY High

Low

Criteria: The Computer industry is evaluated on the basis of Product Lines and Quality
Industry dynamics on dominant strategic groups (Porter five
forces of competitive)

Group 1 (Dell, HP Compaq, IBM)

 Barriers to entry / Entry Barriers: High

Small computer firms do not have technical and financial requirements to match with the well-
established firms

 Exit Barriers: High

Since Dell & HP Compaq is well-established, it is difficult for them to exit from the industry
because they have a huge investment in the business to a large extent

 Competitive rivalry: High

Dell and HP Compaq are in intense competition when it comes to PC and workstations and even
servers.

 Power of buyers: Low

Since this group is considered well-established firms, the bargaining power is low and number of
important buyers is many because they can’t dictate their terms and conditions.

 Power of suppliers: Low

The number of suppliers are many therefore they cannot dictate on their terms and conditions
based on price.

Group 2 (Gateway, Sun Microsystems)

 Barriers to entry / Entry Barriers: Medium

Any small firm can enter the market to capture the share of medium sized firms

 Exit Barriers: High

Considerable amount of capital is required in production of computers.

 Competitive Rivalry: Medium

The competition within this strategic group is not as high as it is in the 1 st group.

 Power of buyers: High

Although the numbers of buyers are many in this industry the threat of switching from this
strategic group to the first group is high because the buyers have options in terms of switching
to quality brand.
  Power of suppliers: High
Although the numbers of suppliers are many they can dictate their terms and conditions to this
strategic group because they have options of switching to 1 st strategic group.

External Factor Analysis

External Factors Weight Rating Weighted Score Comments
Opportunities
Growing market of 0.15 3 0.45 The market for
China PCs in China was
the third largest in
the world
Attraction from 0.15 4 0.6 This is a big
price- conscious market
people because of
White-Box PCs
Growing interest 0.15 3 0.45
in note book New generation
computer likes Note books
0.15 3 0.45 New generation
Growing interest likes Hand-Held
in hand-held PCs PCs

Threats

Competitors are 0.05 4 0.2

trying to copy They can be
Dell’s business successful in
techniques future
0.15 4 0.6 And big brand
names of
High competition competitors
Continuously 0.1 3 0.3
changing This industry is
technology rapidly change
Acquisition of 0.1 3 0.3
Compaq by This is a big threat
Hewlett-Packard for Dell
Total 1 3.35
 Internal Factor Analysis
Internal Factors Weight Rating Weighted Score Comments
Strengths
Strong Built to 0.2 4 0.8 To satisfy
order strategy customer
0.1 4 0.4 To pick the best
Strong partnership parts of different
with suppliers products
Strong Direct Sales 0.1 4 0.4 With thousands of
strategy phone, fax and
internet orders
0.05 3 0.15 Dell contracted
Customer service with local service
and technical providers to handle
support customer requests
for repairs
0.1 4 0.4 Over 50% of Dell’s
technical support
Selling through activities were
internet being conducted
via the Internet.
Ability to sell low- 0.1 4 0.4 This makes Dell
cost and best company
products successful
0.05 4 0.2 Deals in PC,
servers, data
storage devices,
Strong product data-routing
line switchers etc.

Weakness
0.1 1 0.1 They should do
Less emphasis on business in retail
Retail selling also
Less emphasis on 0.1 1 0.1
consumer market
as compared to
corporations They should see
this big market
0.1 2 0.2
Dell was market
leader in low-end
and mid range
servers but low in
Low revenues in revenues because
“Servers” of low price.
Total 1 3.15
 VALUE CHAIN ACTIVITIES

Inbound Logistics

Michael Dell believed that it made much better sense for Dell Computer to partner with reputable
suppliers of PC parts and components than to integrate backward and get into parts and components
manufacturing on its own.

Strengths: Dell worked with suppliers to minimize the number of different stock-keeping units of part
and components in its products and to identify ways to drive costs down

Weaknesses: No weaknesses found

Operations

Dell customers could order custom-equipped servers and workstations based on the needs of their
applications.

Strengths: Dell’s build-to-order strategy meant that the company had no in-house stock of finished
goods inventories.

Weaknesses: No weaknesses found

Outbound Logistics

Dell saw its direct sales approach as a totally customer-driven system, with the flexibility to transition
quickly to new generations of components and PC models.

Strengths: Management believed Dell’s ability to respond quickly gave it a significant advantage over PC
makers that operated on the basis of large production runs of variously configured and equipped PCs
and sold them through retail channels.

Weaknesses: Problems found with design flaws and component defects

Sales & Services

Dell operated with sales and service programs aimed at just two market segments – high-volume
corporate and governmental buyers and low-volume business and individual buyers. Dell’s sales to
individuals and small businesses were made by telephone, fax, and the Internet.

Strengths: Customer could talk with a sales representative about specific models, get information, faxed
or mailed to them, place an order, and pay by credit card.

Weaknesses: Language issues

Supporting Activities

Customer Service and Technical Support

Dell contracted with local service providers to handle customer requests for repairs; onsite service was
provided on a next-day basis. Dell also provided its customers with technical support via a toll-free
phone number and e-mail.

Strengths: Dell kept close track of the purchases of its large global customers, country by country and
department by department

Weaknesses: No weaknesses found

Key Issues/Problems

Acquisition of Compaq by Hewlett-Packard

Compaq was acquired by Hewlett-Packard in May 2002 and because of this their product line are
increased. This is a big Issue for Dell.

Low Revenue in “Servers”

Although Dell was the market leader in the number of low-end and midrange servers shipped but
because of its low prices trailed far behind Hewlett-Packard, IBM and Sun Micro systems in total
revenues from server sales.

Strategies
Product Development: Dell does business in PC, Servers, data storage devices, data-routing,
switches and PDA etc.

Direct sales and build to order:

The two successful strategies of Dell are direct sale and build to order.

Selling at Low cost:

Dell products are selling at low cost and better quality.

Three Alternative strategies

1. Mergers and acquisition with other companies

Dell should go for merger and acquisition with other companies so it can further increase its product
line.

Strength: Good brand Image

Weakness: Needs Huge investments

2. Unrelated diversification:

They should go for Home appliances industry. This business will increase its exposure worldwide.

Strength: Good brand Image

Weakness: Less experience

3. Market expansion
 Expand the market in other developing parts of the world.

Strength: Previous Experience

Weakness: Needs Huge investments

Weigh Sony weighted Nintendo weighted Microsoft weighted

Strategic Factor t Rating score Rating score rating score

Technology 0.25 4 1 4 1 4 1

Innovation 0.20 3 0.6 4 0.8 4 0.8

Sales Distr 0.18 3 0.54 3 0.54 3 0.54

4 0.6
R&d 0.15 3 0.45 3 0.45

3 0.36
0.12 3 0.36 4 0.48

2 0.20
0.10 2 0.20 2 0.2

1 3.15 3.47 3.50

Opportunities
•  India, Pakistan and Bangladesh are the untapped markets.
• Market penetration in education and Government markets.
•  Cost reduction in latest technology.
• Partnership or acquiring of suppliers.
• Dell has opportunity to sell computer directly to retailers.
Threats
•  Fluctuation in currency outside US.
• Major competitors in the market.
• Most of the countries are hit by recession which may result in the reduction of revenues.
• Government Policies.
• Bargaining of Suppliers.
• Rapid change in technology obsoletes the product in small span of time.
• Aggressive marketing by competitors.
Opportunities

Personal computers are becoming a necessity now more than ever. Customers are getting more and more educated
about computers. Second-time buyers would most likely avail of Dell’s custom-built computers because as their
knowledge grows, so do their need to experiment or use some additional computer features.

Demand for laptops is also growing. As a matter of fact, demand for laptop has overtaken the demand for desktops.
This is another opportunity for Dell to grow in other segments.

The internet also provides Dell with greater opportunities since all they have to do now is to visit Dell’s website to
place their order or to get information. Since Dell does not have retail stores, the online stores would surely make up
for its absence. It is also more convenient for customers to shop online than to actually drive and do purchase at a
physical store.

Threats

In a volatile market such as personal computers, threats abound. Computers change in a constant sometime daily
basis. New software, new hardware and computer accessories are introduced at a lightning speed. It is essential for
Dell therefore to be always on the lookout for new things or introduce new computer systems.

The threat to become outmoded is a pulsating reality in a computer business. Not only that, companies must produce
products that are high in quality but low in price. This is one challenge that Dell contends with.

One of the biggest external threats to Dell is that price difference among brands is getting smaller. Dell’s Direct Model
attracts customers because it saves cost. Since other companies are able to offer computers at low costs, this could
threaten Dell’s price-conscious growing customer base. With almost identical prices, price difference is no longer an
issue for a customer. They might choose other brands instead of waiting for Dell’s customized computers.

The growth rate of the computer industry is also slowing down. Today, Dell has the biggest share of the market. If the
demand slows down, the competition will become stiffer in the process. Dell has to work doubly hard to differentiate
itself from its substitutes to be able to continue holding a significant market share.

Technological advancement is a double-edge sword. It is an opportunity but at the same time a threat. Low-cost
leadership strategy is no longer an issue to computer companies therefore it is important for computer companies to
stand out from the rest.

Technology dictates that the most up-to-date and fastest products are always the most popular. Dell has to always
keep up with technological advancements to be able to compete.

Read more at Suite101: SWOT Analysis of Dell Computers: Strengths, Weaknesses, Opportunities and
Threats Analysis http://www.suite101.com/content/swot-analysis-of-dell-computers-a92597#ixzz1JDEZGyM4
 TOWS Matrix
Strengths - S Weakness - W
1. Strong Built to order strategy 1. Less emphasis on Retail
2. Strong partnership with selling
suppliers 2. Less emphasis on consumer
3. Strong Direct Sales strategy market as compared to
4. Customer service and technical
corporations
support
5. Selling through internet 3. Low revenues in “Servers”
6. Ability to sell low-cost and best
products
7. Strong product line
Opportunities - O 1. Mergers and acquisition 1. Increase advertising about
1. Growing market of China with other companies (S6, servers (W3, O1)
2. Attraction from price- O3,04)
conscious people because of 2. Expand market in other
White-Box PCs parts of the world (S6, O4,
3. Growing interest in note O3).
book computer.
4. Growing interest in hand-
held PCs

Threats – T 1. Increase advertising (S6,

1. Competitors are trying to T2)
copy Dell’s business
techniques.
2. High competition
3. Continuously changing
technology
4. Acquisition of Compaq by
Hewlett-Packard
CRITICAL SUCCESS FACTORS

DELL’s direct-to-customer business model is the key to the company’s dramatic growth and success and has focused

on selling directly to customers. This helps eliminate the middleman and offers customers more powerful configured

systems than most competitors. The direct model enables DELL to develop a thorough understanding of customer

expectationswhich strengthens customer relationships and increases customer satisfaction and loyalty. One of the

characteristics that distinguishes DELL from its other competitors is that DELL provides the mode to custom the

computers of the customers’ choice and taste and deliver the system to the customer as it is the most crucial and

critical success factor behind DELL Computers. Therefore, DELL must be aware of the benefits they wish to realize,

how it will be realized and ensure only investments of appropriate amounts of resources to obtain benefits. DELL

relies on reputation in the US market of award-winning service and a high-quality product. Customer satisfaction and

consumer awareness surveys should be conducted quarterly to ensure the image that DELL creates for itself within a

culture has not existed before there is a positive one. Market timing and speed are critical to many industries, such as

technology, pharmaceuticals, and some consumer goods.

DELL’s competencies are their cost/ strategy. In consistent to being an integrated cost leader, DELL produces high

quality PCs by using their Direct Business Model approach and sells them directly to the customers. DELL’s

weaknesses are single sourcing, new product and reliance on corporate clients. DELL has opportunities like the

potential growth in overseas markets as the industry is still in growth phase and the entering of the new product

markets. Henceforth, the threats are technological changes that are expected since technology can only get better.

Global economy and increased competition in which DELL’s financial ratios identifies that the company is no match

for their competitors. DELL’s most competitive force is the Direct-Model concept which helped them to reach above-

average returns and remains in business today. Customers have developed a brand-name loyalty to Dell because of

their low cost differentiation strategy. The huge threat faced by DELL is the fierce competition in the industry. If DELL

enters into a merge it would not have to spend so much money and time trying to develop a face-to-face

communications, if the local business is already well known. According to cost saving benefits, the company will not

have to spend any extra money for product development if it is already developed. Furthermore, there will be plenty

of joint financial support. If there is synergy between the two companies, their market penetration will be that much

easier to achieve. DELL initiated ways to overcome its weaknesses and use its strengths to gain advantages over its

competitors- by careful analyzing of the factors that contribute to the company’s success in business strategies that

had implemented created the path for the company’s continued success. fro

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