After a sloppy 2 year period without Michael Dell, How could Dell revitalize his struggling company that had long, defined success in its industry?

Structure of Presentation

• What are the components of the personal computer industry– Business Models– Customers– Manufacturing, R & D, Marketing

• What was Dells approach-through mid 2000’s– Customers– SWOT Analysis– Dell’s Value Chain– Products and Services

Structure of Presentation

• Competitors-IBM/Lenovo, Compaq/HP, Gateway– How does the PC Market look?

• Was it the best thing for Michael Dell to return to the company?

• Why Does Dell want to get away from their trademark Direct Sales program?

• Where does Dell Go from here?– Recommendation

What are the components of the personal computer industry?

Business Models

• Dell and Gateway-Direct• IBM and Compaq- Indirect through Retailers

Build mass amounts of generic computers Ship to retailers

Customer takes home computer and sets up

themselves

Customer Order Specifications

Builds computer to customer specifications

Ships Computer, Sony Ships monitor and other

hardware

Customer Receives all pieces on one date

Dell

Competitors

Dell’s Approach

• Dealt directly with end user• Served Primarily Corporate Customers with

High end computers at low costs• Assembly started after order was placed

Relationship Buyers• Large Organizations• Repeat Orders• Outside and Inside Sales

Reps for each account• Customized Web based

stores

Transaction Buyers• Small-to-Medium

Businesses• Home computer users• Online or called in specified

order• Encourage more advanced

PC’s to buyers• Avoided inexperienced

buyersTwo types of Buyers Dell wanted to work with up to 2000, they need to expand their horizons to maintain growth

Dell HP/ Lenovo/ IBM/ Compaq/ Gateway

Hardware Intel and competitive global market

Intel and competitive global market

Software Microsoft Windows Microsoft Windows

Final Product Varied due to customer specifications

Non Customized

Even though they sold the same product, Users felt they had control over how “good” of a computer they were getting for their money

2008 Dell IBM/Lenovo HP/Compaq Acer Apple

US Market Share

29.4% 4.1% 24.7% 9.3% 7.9%

World Market Share

14.7% 7.6% 18.9% 10.9% 3.5%

Strengths US Market Direct Sales Model

Strong US Indirect Retail Model

Market share consistently on rise

Sleek design of computers, own UI

Weakness World Market

Expensive, not direct sales route

No Direct Sales route, some customers won’t work with them

Not any good brand recognition

Consistent decrease in market share

Supply Chain

Direct, introduced to retailers

Indirect Retail

Indirect Retail

Direct Retail

Price Retail-700Direct-Varied

Moderate High Low High

CustomersCustomer 2008 Dollar Share in Market

Large Business and Government 20.2

Small and Midsize Business 22.9

Home Consumers 45.9

Education 11.0

Total market size(billions of dollars) 50.9

Education needs to be focused on, every other market has been capitalized on. The focus needs to be on education and customer retention for the business’ you have currently.

Consumer Ratings (100 point scale)Brand 2009

Apple 84

HP/Compaq 74

Dell 75

Gateway 74

All others 74

Dell needs to improve its brand image and surpass their highest rating on 80 in 2000

Marketing and Sales

• HP- 1billion,2008• Apple-500 million,2008

What was Dell’s Approach through the mid-2000’s?

SWOT Analysis

Strengths• Direct Model• US Market Share• “Reseller Certification”

Weakness• No solid distribution

route or reseller• Poor Consumer Rating• Slow Innovation

Opportunities• Overseas Market Share• Distribution in Retailers• Expand Market Segment

Threats• Apple• Market Share Overseas

Dell Has room to grow in the retail segment

Dell Value chain

Customer Specifications Build OS Burn-In

Monitor /

Other componen

ts

Shipping Mkt & Sales

Microsoft Windows

DellFedEx

Dell controls all parts of the Chain, saving time during shipping and keeps inventory low having monitors shipped directly to customer.

DellDell Sony, Global Market

Dell Testing

Production and Logistics

• Tailored to each customers needs• Holds no finished goods inventory• Only took hours rather than days• Carried 4 days inventory vs. 20-30 days of

competitors• Shipment went from Dell to pickup monitor to

customer, no need to have extra inventory

Dell’s Direct Model was superior to all other competitors

Competitor’s IBM/Lenovo, Compaq/HP, Gateway

IBM and Lenovo

• Relied on Channel partners- Distributers and Resellers

• Tried shipping heavily configured PC’s• AAP-Authorized Assembly Program– Lightly configured PC’s – Other companies finished the computer

• Poor logistics for building PC’s caused higher prices– Tear downs and rebuilds cost time and money

• Ventured into direct sales

Compaq and HP

• 1994-Worlds Largest maker of PC’s through full line of PC’s

Individual Consumers Business Customers

Standard PC’s sold through retailersFailed MagazineFailed Phone orders

Own ForecastingDelivery of 65-day old PC’s

Optimized Distribution Model

• PC’s were built only after an order was received

• Deliveries continued to go through distributers and resellers-SLOW

• Direct Plus Program-designed to sell directly to small and mid size businesses.

• Tried to keep everyone happy

By 1999 Compaq had shot itself in the foot and reported significant losses trying to please everyone

• High Quality and High Performance• 75% PC’s sold through distributers and

resellers• Aimed at the high end user• HP Sticks with resellers and distributers• Average computer sold was 35 days old

Gateway/Acer

• Very similar to Dell• Focused on home users and small businesses

rather than large corporations• Acer became 100% Indirect and “Un-Dell”• Very inexpensive PC’s sold through retailers to

consumers. • 2nd Largest Producer of PC units

Apple

• Sleek Design • High Cost• Ease of Use• Opened on retail stores in 2008• Increased market share by ~5% in one year

after release of iPod and iPhone

How does the PC market look?

Apple

Lenovo/HP

Compaq/IBM

Acer

Dell

Differentiation

Cost

Low High

Low

Hig

h

Was it the best idea for Michael Dell to return to the company?

• Rollins sticks to Dell’s Historical Strategy and kept missing expected earnings.

• Pricing Mistakes, Bad Sony Batteries, Poor customer service ratings, poor accounting practices, no volume increases.

As soon as Michael Stepped down, problems surfaced that had been going on before he left the company

Michael Dell’s Return

• Brings in outside talent– Ronald Garriques from Motorola– Mike Cannon, from Solectron– Brian Gladden , from GE– Ed Boyd, from Nike

• Direct Model was a revolution, not a religion.• Opened channels to retailers• Launched a new line of laptops• Purchased Perot Systems• Decreased Sales, Decreased Returns

Why Does Dell want to get away from their trademark Direct Sales program?

Market Share for Each DistributionUS Europe Asia Japan Rest of

World

Retail 35 37 48 35 29

Distributor 22 39 36 32 46

Direct

Inbound 10 5 3 7 7

Outbound 20 10 11 19 15

Internet 11 2 1 8 2

Dell needs to shift to Retailers in the US and Globally. People want to see and touch what they are buying

Dell’s New Value chain

Fixed Configuration Build OS

Monitor /Other

componentsShipping Mkt &

Sales

Microsoft Windows

Retailers

Dell gave up all parts of the Chain, saving over $3 billion dollars on costs.

ContractorsContractors Global Market

Where does Dell go from here?

Optimally

• Dell would continue growth with new/ hip generation while innovating products around their new team

• Dell would expand into the global market via retail sales• Dell would expand into the global market via better

customer service and scrapping their direct end user sales model

• While also breaking into the retailing world and creating Dell stations rather than Dell vs. HP vs. Acer

• Possibly look to buy Acer to take more of the market

Recommendation Issue Action

Boring Brand Become more innovative, Appeal to more groups, offer more models in stores

Channel Increase Distribution, sell more models in stores, take out Acer as a growing, cheap brand, Cut Direct Sales approach

World Market Share Increase sales and distribution in growing markets such as Europe, and Asia

Focus Should be to all age groups, multiple models in stores, educate vs. expect

Value Chain Create checks and balances to create great products

Price Do not compete on Price, compete on number of models

Customer Service Have in multiple areas of the world