Direct from DELLStrategies that Revolutionized an Industry!

By: Michael Dell

Presenters:Saad Asad KhatriM. Imran BurhanullahWasimullah Khan

The Revolution of DELL

i. Who is Michael Dell?ii. Company Philosophy of DELLiii. What made him Successful?

Who is Michael Dell?

• His Childhood•Looked at his hobby of stamp

collection as commercial opportunity at the age of 9

•With Newspaper subscription he earned $18,000 when he was a high school student

DELL StartupPurchased first computer in1980 and takes it apart

Wanted to beat IBM by Selling upgraded PCs at lower cost

Dell started from a College dormitory of Texas University in 1984 with only 1000USD, registered his company as PC’s Limited

Followed business-to-business model

DELL’s Timeline1980 Purchased first computer and takes it apart1983Wanted to beat IBM, Sells upgraded PCs out of UT Dorm

Room1984Registers a company PC’s Limited with $1000 loan,

Sells Direct to end users198612 MHz 285 based system. 30 day money back guarantee1987International subsidiary in UK1988Initial IPO $30 million1989Accumulates excess inventory1990First to sell through retail CompUSA, Best Buy, Wal-Mart1991Converts entire line to 486… high technology priority1992 Dell included for first time among Fortune 500 roster of

world's largest companies

DELL’s Timeline1993 $2 Billion in sales1994 Launches Latitude Notebook Setting new records on

battery life.

1996 Customers begin buying Dell computers via Internet at www.dell.com.

1998 Solidifies internet market. $12 million per day from customers. Sets up supplier network.

1999 Dell became the number one PC company in the United States, the largest World Wide market for personal computers.

2000 Company sales via Internet reach $50 million per day. For the first time, Dell is No. 1 in worldwide workstation shipments. Dell ships its one millionth PowerEdge server.

DELL’s Timeline2001 For the first time, Dell ranks No. 1 in global market share.

Dell is No. 1 in the United States for standard Intel architecture server shipments.

2002 Consumers choose Dell as their No. 1 computer systems provider.

2003 Dell introduces printers for businesses and consumers. Dell launches Dell Recycling to enable customers to recycle or donate to charity computer equipment from any

manufacturer. The name change to Dell Inc. is official, reflecting the evolution of the company to a diverse supplier of technology products and services.

DELL’s Timeline2005 Dell tops list of "America's Most Admired Companies" in

Fortune Magazine. Opens third major U.S. manufacturing location in Winston-Salem, North Carolina.

2006 Michael Dell ranked as No. 9 richest person in the world in 2006.

Dell ships more than 10 million systems in a single quarter (Q4, FY06) for the first time in its history.

2007 Michael Dell returns as Chief Executive Officer. Dell opens manufacturing facility in Chennai, India.

DELL’s Direct Model v 1.0The Direct Model is based on direct selling - not using reseller or the retail channel.

Direct relationship was first through telephone call then through face to face, and now through the internet.

In the Direct Model there was just one sale force and its totally focused through the customer.

DELL’s Direct Model v 1.0

Suppliers Customers

Dell Direct Model

Ownership of the value chain

Suppliers Customers

Competitor Model

Competitor ChannelOutsourcing

Loss of control over product &information flow & customer relationships

DELL’s Direct Model v 1.0• Form a direct model that specializes on market segments

or customer types.• Know EXACTLY what the customer wants and then

provide it.• Price is not a sustainable competitive advantage.• Sustain loyalty through customers and employees• Response Time• Quality Products• Valuable Features• Make the Experiencing of Products EASY

Golden Rule at DELL

• Disdain the inventory.

• Always Listen to Customer.

• Never sell indirect.

@ DELL Computers• Goal: Build a Better Computer than IBM• Driving Passion: How can we make the process of buying

a computer better?• Sell Direct• Eliminate Reseller Markup• Pass Savings to the Customer

For Dell, the timing was right: the beginning of a new consumer industry: Continued high growth and limited

supply

How the Model drives Market Share

Pass cost savings on to customer

Competitive pricing ignites demand

Lower cost drives Increased demand

CompetitivePricing

EfficientModel with lowestCost Structure

HelpDriveSupplierBusiness

DrivesMarketShare

Improved Customer Experience

Industry's most efficient procurement, manufacturing and distribution process

Billion Dollar ManagementA company success should always be defined by its strategy and its idea, and it should not be limited by the abilities of the people who are running it.

•Lee Walker•Tom Meredith•Bian•Mort Topfer

Sharing Power• Its critical for top management to share power successfully. • Focus should be on achieving goal rather than accumulating power for yourselves• Michael worked on CRM and extend thing like giving speeches and meeting the press.• Mort concentrated on the budget and day to day responsibilities of the company.

Divide and Conquer

The concept of DELL’s Divide and conquer was to segment the different market which ensures that each individual customer are served more effectively and efficiently.

DELL’s Market Structure

DELL’s Direct Model v1.1• In Version 1.0 of the Direct Model , reseller were

eliminated therefore markup and the cost of maintaining store were reduced.

• In version 1.1, they went one step further to reduce the inventory inefficiencies.

• Direct Model version 1.1 turn conventional manufacturing inside out .

• The quality of information is inversely proportional to the amount of assets required, in this case excess inventory.

DELL’s Direct Model v1.1• Design product so that the entire product supply chain as

well as the manufacturing process is oriented not just for speed but for velocity.

• To achieve maximum velocity design a product that covers the largest part of the market and with the fewest number of parts.

Benefits of Low Inventory

90

95

100

105

110

115

120

-14 -12 -10 -8 -6 -4 -2 0

TypicalDell

RelativeComponentCost

Weeks Relative to Delivery

With 3 DaysInventory,Dell Buys Here

With 90+ Day’s Manufacturerand Reseller Inventory, ChannelManufacturer Buys Here

10-12% Cost Advantage

Enter the Web• In June 1994 www.dell.com was launched.

•Dell Premier Pages:•Diagnostic databases•On-Line Ordering•On-line Tracking

Key: Shrink time and required resources to meet customer needs.

Key Recruiting Issue

•Can they think in economic terms?•What is their definition of success?•How do they relate to people?•Do they understand the strategy of the business

they are involved in?•Do they understand our business?

Create Powerful Partnership

•Develop one team, one strategy

•When a firm is hiring someone in an entry level or to run one of the largest groups, that person must be in a sync with company business philosophies and objectives.

•Hire Ahead of the Game

Create Powerful Partnership

•Segment the CEO

•Mobilize your goal around a common goal.

•Get Involved.

•Cultivate a commitment to personal growth

Learn Direct from Source

• Don’t be satisfied to know only your own industry.

• Don’t waste precious resource (time, money energy) guessing that what might work for your customer.

• Don’t play hard to get.

• Marry high tech and high touch.

Develop a Customer Philosophy

•Add value beyond the box

• Expand your range your vision.

•Become a valued advisors.

•Turn your customer into teachers.

Create Strong Alliance•Define your values tightly.•Keep it simple.•Keep your friend close and supplier

closer.• Invest in mutual success.•Be explicit and be objective

Bring Your Partners inside Your Business• Flip the demand supply equation.• Trade information for inventory•Gain velocity through out the chain•Collaboration on Research and

Development.•Consider the customer Working

environment.

Differentiate for Competitive Edge

• Focus on customer not your competition.• Play Judo with the Competition.• Turn disadvantage into profit• Set Stretch goals.

Talking to Employees•What are customers telling you? •How do you think the company’s products are

doing? •What are our biggest challenges? •What are the biggest threats to our success? •How can the company support you better? •Keys:

Mobilize people around a common goal, hire ahead of the game, cultivate a commitment to personal growth, get them involved.

Train Employees to be Owners•Look at goals, make them clear to everyone. •Study the obvious for non-obvious solutionsAsk customers how they would have it solved.•Make failures with learning acceptable•Constantly question even good stuff. No cover up.•Treat employees as owners.

DELL Market Coups• 12 Mhz 80286 Computer doubles IBM’s 6 Mhz speed.

Analysis: Technology enthusiast market wanted speed most of all.

• Laptops: Lithium Ion doubles battery life

Analysis: Laptop owners want long life batteries. Dell Tied up whole channel by contracting SONY to manufacture. Dell Introduced, chartered plane for reporters and analysts, gave them a laptop and flew to Los Angles… 4 1/2 yours later, they still had power. Great PR

DELL Market Coups•Low and Medium Size Server Market

Analysis 1: Servers have higher margins

Analysis 2: Competitors were treating servers as a cash cow for feeding the PC market. Dell entered market at about 20% lower price and told customers “even if you don’t buy from Dell, ask your vendor to match Dell’s price.” Server Dropped 17 percent in one year and reduced the size of the cash cow for competitors.

DELL’s SWOT AnalysisStrengths

• The Dell brand is one of the best known and renowned computer brands in the World. • Dell cuts out the retailer and supplies directly to the customers. • It uses information technology, and Customer Relationship

Management (CRM) approaches to capture data on its loyal consumers. • So a customer selects a generic PC model, and then adds items and

upgrades until the PC is kitted out to the customer's own specification.• Dell acts as a assembler not as manufacturer. PC's are assembled

using relatively cheap labor. • Dell has total command of the supply chain.

DELL’s SWOT AnalysisWeaknesses

•Within the strengths lies Dell's weaknesses. Much of its strategies have to rely on the capacity and capability of these manufacturing components. Continuous updates and process improvement is required so that they can keep up with Dell's pace of development. • High no. of suppliers from a plethora of countries, can cause Dell

some embarrassment. • Dell is a computer maker, not a computer manufacturer. It buys from

a group of concentrated hi-tech component manufacturers. Whilst this is a tremendous advantage in terms of business operations, allowing Dell to focus on marketing and logistics, the company is reliant on a few large suppliers, and to an extent is locked in for periods of time (i.e. unable to switch supply dues to the lack of large suppliers in the World).

DELL’s SWOT AnalysisOpportunities•Kevin Rollins replaced Michael Dell in 2004 as Dell's Chief Executive Officer. Michael Dell remained the company's Chairman. Despite founder Dell's massive success, new blood and a change in management thinking could lead the company into a new, even more profitable period. Dell was born in 1965, and founded Dell in 1984 with $1000 whilst studying at the University of Texas. He became the youngest Fortune 500 CEO in 1992, and will be a tough act to follow. •Dell is pursuing a diversification strategy by introducing many new products to its range. This initially has meant good such as peripherals including printers and toners, but now also included LCD televisions and other non-computing goods. So Dell compete against iPod and other consumer electronics brands. •Dell is making and selling low-cost, low-price computers to PC retailers in the United States. The PC's are unbranded and should not be recognized as being Dell when the consumer makes a purchase. Rebranding and rebadging for retailers, although a departure for Dell, gives the company new market segments to attack with the associated marketing costs. •The established value web corporate model have also allow Dell to have global wide access to customers and market. Reaching any niche market in any continent is therefore not a problem for Dell's marketers.

DELL’s SWOT AnalysisThreats

• The single biggest problem for Dell is the competitive rivalry that exists in the PC market globally.• Retaliation from competitors and new entrants to the market pose

potential threats.• Dell sources from Far Eastern nations where labour costs remain

low, but there is nothing stopping competitors doing the same - even sourcing the same or similar components from the same or similar suppliers. • Dell, being global in its marketing and operations, is exposed to

fluctuations in the World currency markets. Changes in exchange rates could leave the company exposed to potential loses in parts of its supply chain.

Key QUESTIONS

Is the Direct Business Model a new model ?

What new emerging technologies will push this further ?

AnswerQ. Is the Direct Business Model a new model ?

No, its not ! – all the primitive businesses used to trade like this – today hotdog stands all over Manhattan is an example of that model on small scale

AnswerWhat new emerging technologies will push this further ?

- SOA will help refine and innovate these and perhaps new similar kind of business models by reducing operational and transaction cost.

- Web Services will remove human interaction further – reducing cost for example:

- SLA will be negotiated by software agents - Vendors selection based on their expertise will be automated

- Long life Lithium ion batteries increased sales- RFID tags can further streamline the supply chain, inventory and shipment tracking process

Direct From DELLThe Video

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