CASE STUDY ON

Strategic Analysis
Of Dell Inc.
mujeeb [Pick the date]

Introduction:
The purpose of this report is to analyze the strategic position of Dell Inc. Headquarter in Round Rock, Texas; Dell computer was founded in 1984 by Michael Dell who was then an undergraduate student at the University of Texas. From very inception the company is providing superior value to its target market by providing latest technology at competitive prices around the world. Dell is cited as the largest player of the personal computer market. The company follows unique selling policy that is known as Dell Modelselling computers and other equipments directly to customer and build-to-order strategy thereby eliminating the intermediary margins and inventory costs. The mission statement of Dell has been divided into three parts customer satisfaction that states We are an established company striving to satisfy customers by meeting their demands of quality, responsiveness, and competitive pricing. Each customer is #1 , team satisfaction that states, Management and employees are committed to cooperating as a team for the purpose of profitability and gratification of a job well done and community satisfaction We will provide jobs in a clean, safe, environmentally sound atmosphere and be an active participant in community affairs (Dell, 2010).

1. External Analysis:
The primary industry of Dell is personal computer and computer equipments that are evolving with the passage of time due to constant advancement of technology. The dynamic nature of environment offers certain opportunities to Dell while posed certain threats to various player of the market including Dell. The competitors of Dell can be grouped into two categories: those

who sold their products directly to customer and those who use intermediary channel to distribute their products.

1.1.

PEST Analysis:

Dells environment consists of uncontrollable forces that directly or indirectly influence an organizations ability to achieve a desired result. In the words of Kotler and Armstrong marketing environment consists of the actors and forces outside marketing that affect marketing managements ability to build and maintain successful relationships with target customers (Kotler & Armstrong, 2003). These influences create both opportunities and threats for a manager. We will use the PESTLE analysis for determining the DELL macro environment analysis.

1.1.1. Political Factors:

The political environment of the business has pivotal effects on the performance of the business in the quest of achieving its strategic goals. The political instability started after the 9/11 has affected the market conditions all over the world. Most of the computer manufacturers belong to US and the country government is taking huge efforts to facilitate the business. This offers exciting opportunities across the world to manufacturer like Dell, HP, Acer, Toshiba, and IBM etc. In order to capitalize the growing needs of the market the government of US has strengthen its ties with China in order to exploit the comparative advantage of the country in the form of low labor and technological cost.

1.1.2. Economic Factors:

The economic environment has gone through tremendous changes after the advent of 9/11. In fact the event has completely changed the economic conditions of the world. Companies that were considered as giant in the market are now myths of the history. The condition stabilize relative in year 2006 and 2007 but after insolvency of Lehman Brothers and other giants of the US the economic condition all the world suffered. The interest rates are not stable due to huge fluctuation that arises from the instability in the financial situations. Inflation all over the world has surged to all time high. Due to huge expenditure on war terror fought in Iraq, Afghanistan and other parts of the world the GDP of various countries have shown a very low growth that have resulted in almost stagnant per capita income.

1.1.3. Socio-cultural Factors:

The values across the continents are changing with the passage of time, and now a global culture is arising meaning the presence of universal segment having the same values, likes and dislikes and other norms across the world. This offers exciting opportunities to various organizations including computer manufacturer in the form of standardized product development offers across the world with no adaptation. This translates into various economies, and low fixed costs, meaning change in attitude towards foreign brand.

1.1.4. Technological Factors:

Due to advent of the information technology the world has condensed to global village. The computing technology is leading the change from the front by offering exciting opportunities for advancement in technology. Technology has enabled the various manufacturers to enjoy low cost advantage and better quality. Manufacturer across the industry are trying their level best to

offer innovative products at competitive prices. Moreover the demands for the industry offerings are increasing with the passage of time due to extensive use of Internet and World Wide Web.

1.2.

Five Forces Analysis

The Porter's five Forces model is a simple and powerful strategy analysis tool that helps managers to know where the control lies in a company situation. It helps in understanding the strengths of the company in the market against the competitors, suppliers, and buyers. According to Porter the nature of competitiveness in a given industry can be viewed as composite of five forces, rivalry among competitive firms, potential entry of new competitors, potential development of substitute products, bargaining power of suppliers and bargaining power of consumers (David, 2005). The relationship of Porters five forces model for Dell have been depicted in appendix 1 accompanying the essay. In the following we will explore the five elements that constitute Porters five forces one by one and evaluate their impact on Dell in particular and personal computer industry in general.

1.2.1. Rivalry Amongst Existing Competitors:

The personal computer industry from the beginning is inclined toward consolidation, as the market type can rightly be cited as oligopoly. The industry contains players like Dell, IBM, HP, Toshiba, Gateway etc. The competition in the market is based on price and competitive advantage.

1.2.2. Threat of New Entrants:

Every player tries its utmost to beat and outperform competitors by producing the latest technology and then price them competitively. This probably the reason that new firms find it

very hard to enter the market and the existing competitors trying their level best to either maintain their market.

1.2.3. Bargaining Power of Buyer:

In the personal computer industry the bargaining power of the buyer is very high due to the fact that there is very less amount of brand loyalty in the market because most of the manufacturer produced identical products. In additional to absence of brand loyalty, the switching cost is very low in the industry because most of the systems are based on the Intel processor. Moreover, customer also feels comfortable with backward integration and building their own system through selecting the individual components manufactured by different producers.

1.2.4. Bargaining Power of Suppliers:

Traditionally the bargaining power of suppliers is also very high in the computer market. This is due to the fact that there are very few suppliers who supply the major components of the computer. For example the major suppliers of microprocessor are Intel and AMD. They are almost having the monopoly over the market. Moreover the organization will bear significant switching if the decided to change the component part suppliers.

1.2.5. Substitute products:

Usually the availability of substitute does affect the sales and profitability of the computer and its various components to huge extent. Traditionally the threat of substitutes is very high for Dell. The computer industry has traditionally experienced similar products produced by the different manufacturer with a very little distinction between a computers produced by one manufacture

with that of other. The competition between the rivals can be rightly cited as oligopoly because almost all the major producer manufactures identical products.

1.3.

The Industry Life Cycle:

The computer industry as a whole has entered the maturity stage of product life cycle (Norman, 2010). Some of the weak competitors have disband their production while others (HP and Compaq) have consolidated their business due to decreasing margins with the passage of time and economic crunch that have started after the insolvency of Lehman Brothers. Most of the competitors are trying their level best to differentiate their offerings from the competitors in order to reduced value for their consumers, while other are trying to produce aesthetic design, ease of use, superior product performance. As depicted in Figure 1 the customer now Requires solution and convenience as compared to technology and performance. In order to stay competitive in the market all the players should continuously innovate their offerings according to the latest trends of the market.

Figure 1: Customer Preferences: adopted from http://www.nngroup.com/reports/life_cycle_of_tech.html.

1.4.Competitors Analysis: The competitive strategies developed by Dell help the company to realize its mission by price leadership, price signaling and non-price competition in the market by constant development and modification of new products. Dell use cut-throat competition strategy by matching even offering lesser price in some cases as compared to HP and Compaq. HP and Compaq has now realize that cutting the prices for HP and Compaq products will not translates into increase in the market share for the merged organization and will led to decrease in the margin for the company because Dell will follow the same strategy within no time. Price leadership also helps Dell to attract huge margin for the company offerings. Dells strategy to produce constantly innovative products has helped the company by beating the competitors on non-price factors. Dell is working on this end by developing new and improved personal computers, laptops and other technological products (Dell, 2009). These new product developments help the company to boost its market share and differentiate the company as distinctive company that offers value to customers in the form of improved product performance, innovative technology and competitive pricing.

1.5.SWOT analysis: Strengths 1. Direct Sales Approach. 2. Market Leadership 3. Price for Performance 4. User friendly website 5. Latest Technology 6. Customization Weaknesses 1. Reliance on Corporate and Institutional Sales 2. Neglecting the College segments 3. Non-availability in Retail Segment 4. Changing Consumer needs 5. Merger of HP and Compaq

Opportunities 1. Untapped Market 2. Growing demand for Laptop 3. Increase usage of Internet 4. International Expansion 5. Business Diversification 6. Outsourcing

Threats 1. Volatile Market trends 2. Global Financial Crises 3. Slowdown in Economic Growth 4. Technological innovation 5. Slowdown in Industry growth rate 6. Emergence of China and Indian IT giants 7. Price Wars

Part 2: Internal Analysis: 2.1. Dells Internal Analysis:

Distinctive competencies are the core benefits that Dell enjoys in the form of low cost and superior product performance. Moreover Dell direct sales to customer by using its website is cited as the ideal strength that the company posses that is hard to imitate. In addition to this Dell design its products according to wishes of the target market (build to customer specification) that allow the company enjoy superior customer value and brand loyalty. The company ability to coordinate its various functions to produce exciting products is still another core distinctive competence that helps Dell to stand apart from competitors. Dell arrive its competitive advantage from three dimensions that are: 1. The value that the company creates for its customer b providing them superior technology, aesthetic designs, superior performance and technical support creates an enormous value for the offerings of the company. 2. Dell charge competitive prices for its various products in the market. The company follows variety of pricing strategies depending on the market conditions. The objective of the pricing policy is to create happy and satisfied customer profitably. 3. Dell has the ability to produce superior performance products at a very low cost due to its status in the market because the company enjoys various types of economies which are not at the disposal of other players in the market. The company thus has the ability to offer its products at significantly lower prices than its competitors in the market.

4. Dell differentiates their laptops and PCs many different levels including direct-tocustomer model, building better-quality performance and up-to-date technological products, and direct customer interaction in diverse marketplace.

2.2.

Dells Critical Success Factors:

2.2.1. Direct Model:

The company use direct sales approach that has enabled the firm to enjoy direct relationship without any intermediary with business and organizational customers. The company website have been integrated in such a way that it helps Dell to market their product on the internet, besides providing customization of the products according the needs of the market.

2.2.2. Price for Performance:

Dell use an integrated process management system that coordinate the company process from procurement to distribution and technical support to ultimate customer. This integrated process allows the company to use standardized policy across the world and enjoy various economies. Thus some of cost saved by using the method is passed on to consumer by offering valued product at competitive prices.

2.2.3. Customization:
Dell also offers the customization services to individual extent. It means that a customer is free to select the component parts of the computer he wish to have (SUIT101, 2010). For example a customer may select the Hard Desk capacity, the processor, RAM etc according to his own sweet well.

2.2.4. Reliability, Service and Support:

The company has differentiate its offerings from competitors by offering fast, reliable, and trustworthy customer services across the world that are available within 48 hours after lodging a complaint or problem with computer. This has helped Dell to enjoy unique value in the eyes of customer as no other company provides such type of services.

Chapter 3: Problem Diagnosis:

Over the years, the management of Dell has devised some of the very successful strategies to guide the business towards the accomplishment of its mission. However with the passage of time, the company has failed to have a proactive approach to capitalize the opportunities provided by the macro environment and sustained its competitive advantage. With the passage of time, the usage of internet across the world is increasing, and the competitor are taking steps to utilized this trend by following the Dell model of eliminating the traditional distribution system and focus on e-business. This is the root cause of problems that have start affecting Dell, and the company is losing its market share to competitors like HP and Compaq, IBM etc as Dell has its lost its differentiation (AJULA, 2009). Dell should now focus on another area that should be unique in the industry that will provide competitive advantage in form of differentiation to Dell. One way to achieve this end is to get patents of its R&D efforts. By doing so the competitors will not be able to copy the company strategy, but in order to achieve this objective the company needs to stop the extreme outsourcing strategy. Dell should focus on offering real innovative product rather than just imitating competitors products. Moreover the company should re-consider its outsourcing strategy. Traditionally the company outsourced its various components parts from other organization in order to provide competitive prices to the customer. The strategy was once a very successful, but keeping in view the present market conditions, this eliminates the company differentiation, because the outsourced firm provides the same component part to other competitors (Cuizon, 2009). Moreover the company should also consider some options like producing the proprietary

software in order to reduce its reliance on software giants. The strategy will also help the company integrate its offerings in a coherent way as did by Apple.

Appendix A:

Works Cited
AJULA. (2009). Comparative Analysis of PC Market Leader. Retrieved March 27, 2010, from American Jewish Univerrsity. Cuizon, G. (2009). Strategic Options for Dell Computer: How Dell can Address Challenges and Threats. Retrieved March 28, 2010, from Strategic Business Planning suit101.com: http://strategic-businessplanning.suite101.com/article.cfm/strategic_options_for_dell David, F. R. (2005). Strategic Management Eight Edition. USA: Pearson. Dell. (2009). Dell Computer Corporate Global Strategies. Retrieved March 28, 2010, from Dell Computer Inc: http://www.dell.com/html/us/corporate/brochure/global.htm Dell. (2010). Dell Mission Statement. Retrieved March 27, 2010, from Dell.com: http://www.dellmfg.com/mission.htm Kotler, P., & Armstrong. (2003). Prinicples of Marketing. USA: Pearson. Norman, D. A. (2010). The Life Cycle of Technology. Retrieved March 28, 2010, from NN Group.com: http://www.nngroup.com/reports/life_cycle_of_tech.html SUIT101. (2010). Dell SWOT. Retrieved March 29, 2010, from Suit 101.com: http://strategic-businessplanning.suite101.com/article.cfm/swot_analysis_of_dell_computers#ixzz0jO31D0Wv