Dell Pursues Growth in a Challenging Environment I. Company Overview Dell was founded in 1983 by Michael Dell, an 18 year old college freshman from Texas who started out upgrading hard drives for IBM compatibles on nights and weekends. Dell is leading technology provider that design, develops, manufacturer and support PC’s, software and peripherals, storage and servers, and associated services. Within a year, his service business had grown to an incredible $6 million from performing computer upgrades for local area businesses and he dropped out of school to concentrate on the business. When Dell changed his strategy and started offering custom built-to-order machines, the business exploded, with $70 million in sales by the end of 1985. Evolving into an assembler company, Dell was able to exploit certain events occurring in the industry and swiftly adapted to meet market conditions. Five years later, total sales had grown to an unbelievable $500 million and Dell became nationally known as a supplier of state-of-the art desktop and portable computers. Dell continually achieved phenomenal records in sales and profit growth, eventually making it the most successful company ever in the PC industry, surpassing $25 billion in 2000. As one of the world's premier providers of computer products and services, Dell was the US market leader in its core products, the desktop and laptop markets by 2001.
Transcript
Dell Pursues Growth in a Challenging Environment
I. Company Overview
Dell was founded in 1983 by Michael Dell, an 18 year old college freshman from
Texas who started out upgrading hard drives for IBM compatibles on nights and weekends.
Dell is leading technology provider that design, develops, manufacturer and support PC’s,
software and peripherals, storage and servers, and associated services. Within a year, his
service business had grown to an incredible $6 million from performing computer upgrades
for local area businesses and he dropped out of school to concentrate on the business. When
Dell changed his strategy and started offering custom built-to-order machines, the business
exploded, with $70 million in sales by the end of 1985.
Evolving into an assembler company, Dell was able to exploit certain events
occurring in the industry and swiftly adapted to meet market conditions. Five years later,
total sales had grown to an unbelievable $500 million and Dell became nationally known as a
supplier of state-of-the art desktop and portable computers. Dell continually achieved
phenomenal records in sales and profit growth, eventually making it the most successful
company ever in the PC industry, surpassing $25 billion in 2000. As one of the world's
premier providers of computer products and services, Dell was the US market leader in its
core products, the desktop and laptop markets by 2001.
II. Problems
Although Dell is seen to be a highly successful company, analysts worry that the recent
slumping economy in the 4th quarter of 2000 and the market saturation in the technology
arena could prevent Dell from achieving its prior growth rates and profits. Can it continue to
maintain its stellar track record in light of the sudden decrease in demand, especially with
lower and lower profit margins resulting from price wars in the industry? Should Dell
continue forward with its highly successful ‘direct model’ strategy to try and sustain its
profitability in light of the industry’s-10% growth rate and 50% reduction in profit margins in
late 2000, or should it change its expectations and react to the commodity nature of the
environment? Dell’s immediate challenge is to try and sustain its positive growth rate, spike
its stock prices, and conquer new markets. But how does Dell choose its next product or
service to offer the world? It must make the right choices as to what is the next value
proposition that really matters to its customers. Another challenge for Dell is how to cope in a
new world where technology devices and components cost less and less (resulting in
shrinking profit margins) that become obsolete practically overnight.
III. Analysis of Business Situation
Method that used to analyze external factor for business issue that happened to Dell Inc.
industry is Five Forces Porter’s analysis:
Task Environment based on Porter’s Five Forces
1. Threat of new entrants (Medium)
In The computer industry, it was difficult to find a new competition, because the competition
usually involves only a few vendors. In this case, the competitors are Apple, Lenovo, Acer,
HP, Toshiba, Fujitsu and others. They are also old players.
2. Rivalry among existing firms (High)
As they told in the case that competitors are more advanced in innovation, while innovation is
a critical field in the computer business. The need to facilitate the gadget features of everyday
life are growing higher, the lack of innovation will destroy the growth of a computer
company.
3. Threat of substitute product or services (High)
Computer market vulnerable to innovation. Technology companies are easily destroyed if
they do not innovate, in this era, the development and innovation of new technology are
rapidly increase. So companies must continue to innovate
Threat from Substitutes: HIGH
Rivalry among Existing Competitors: HIGH
Bargaining Power of Suppliers: HIGH
Bargaining Power of Customers: HIGH
Threat of New Entrants: MEDIUM
4. Bargaining power of buyers (High)
Internet growth worldwide is rapidly increases. Along with it, the demands of computing
device are also increase. Computer is becoming a mandatory item in every home, even
individually owned.
5. Bargaining power of suppliers (High)
The numbers of supplier components like LCD, Graphic Cards, Chips, RAM and Memory
are numerous. Like Sony, Samsung, ASUS, NVDIA, etc.
PEST Analysis
1. Political
Government regulation about go green will impact to the R&D cost, to research about go
green feature.
2. Economical
Rate of economic growth increased, it is not difficult only to buy a computer or
gadget. But national crisis in US will affect to buyers priority to buy computer.
Changes in U.S. monetary policy as well as economy policies around the world may
lead to volatile exchange rates, exposing Dell to currency risk despite its foreign
currency hedging program.
3. Social-culture
In today's modern era, the role of technology is enormous. Technology becomes part of many
people in the world live, to work, lifestyle, even education.
4. Technological
Similar companies continue to compete in develop and innovation, also competing to release
cheap products that suit the needs of users. To make it happen, the company put a large
investment in the R&D. In the recent year, patent protection war done to hinder technological
innovation from competitors.
5. Environmental
Dell’s reliance on renewable energy as well as being more energy efficient estimated
to save the company $ 3million a year.
Physical resources, environmental issues, and weather has little impact on the
computer industry given that all computer parts are artificially manufactured.
However, weather issues may affect the ability of a computer company’s supply chain
to operate efficiently. Adverse weather can negatively impact the competitive edge of
a company such as Dell which relies on “just in time” inventory methods as well as
direct sales to its customers.
Problems Analysis
Internal factor (7)
Balancing expansion to retail
Bargaining power of supplier
Leader change in policy and goal
Still focusing in US market
Inventory cost higher (dead stock higher)
R&D cost 1% revenue (lower than competitors)
Business model change from made to order to made to stock)
