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03/28/2012

Strategic Analysis - Case Study Of Dell Computers


Strategic Analysis

 

Introduction

            Accordingly, one of the largest industries in the global market is the computer and information technology market. There are many players in this industry but there are only few industry that survive and still surviving with its stiff competition. One of these firms is Dell Inc.   The case study is about the market situation of Dell, specifically in 2002 wherein the PC enterprise has been able to top the PC Companies. Primarily, the main goal of this paper is to analyzed and assess critically the strategy of dell, its strategic alliance and the impact of merger of two big computer companies in Dell.   

Overview of the PC enterprise

            In 1984, Michael Dell (a self-made businessman) has established Dell Computer while he was a student. At first, the PC enterprise offers upgraded IBP personal computers to their target market and a year later, the firm has been able to put establish their own brand which is Dell.  Since its establishment, the PC enterprise uses the direct selling as their marketing approach for product distribution. The PC enterprise also tried to enter retailing, however, because of its major downturn in 1990s, the management have maintained the direct selling approach. The PC enterprise’s growth has been very fast that after a decade, the PC enterprise has been regarded as a multi-billion PC enterprise. Additionally, the PC enterprise had been recognized as one and the topmost PC manufacturers as well as distributors in the American market and has a good market position in the global market. The success of the Dell as PC enterprise is highly attributable to its efficient business and marketing approach.

Strategy of Dell

Consequently, Dell’s competitive position was not achieved in an instant, the PC enterprise had faced various challenges, but because of the strategy, the PC enterprise has been able to achieve market leadership. As mentioned in the case, the PC enterprise has been able to retain their leadership in the market environment because of their continuous focus on providing the best possible client. The PC enterprise is doing this through the unique business model that they have established. Accordingly, this DIRECT MODEL begins and ends with their clients or target market and takes five basic principles like considering most efficient pat to the clients or target market, single point of accountability, build-to-order approach, low cost leader and standards-based technology.

            It can be said that the main contributor to the success of the PC enterprise is by meeting the needs and demands of their clients or target market through this model. In this regard, the PC enterprise has been able to directly make transactions to their clients or target market.  Furthermore, the removal of the mark up for resellers and also the reduction or the total elimination of large inventories has been achieved with this approach. Direct selling helps the PC enterprise sell their products at factor prices, providing more affordable cost for their target market. This business model do not only considers client satisfaction but also consumer loyalty leading to profitability.

            While their competitors are producing computer products in volumes and sells it through retailers, Dell chose to consider more direct value chain model, in which products are marketed directly to the clients or target market by the PC enterprise.  Such direct business model, is particularly useful for the pc enterprise since this permits it to achieve their organizational objectives of providing products and services and the specific needs of the clients or target market within the shortest plausible period (Thompson & Strickland, 2003). 

The five principles of the direct business model enabled PC enterprise to make use of a distinctive buying and selling technology. The business model essentially supports the notion that the most effective approach to reach out to the clients or target market is by considering direct customer relations. With the use of this direct business model, Dell’s clients or target market are able to avail and get the right resources for their basic computer needs. This business model does not only benefit their clients or target market by also the entire PC enterprise. Apart from the removal of the retailer mark ups from the flow of the business, the direct relations of Dell to their clients or target market also enable the PC enterprise to strengthen their PC enterprise-consumer relations. Like for instance, if dell’s Product will be distributed with the use of multiple channel partners, the PC enterprise may not be able to determine who are their specific users since most retailers tends to keep their records from the companies. Nonetheless. with the direct business model, the Dell are able to determine their clients or target market/end users, the type  of computer products and services they have availed  the shipping location and also the amount they have spent for the products or services provided. Such information are being used by the PC enterprise to offer related products or services. Additionally, these information and insights from the client also helps Dell to coordinate well in their production team to determine what products are being purchased more and which products need more market boost. In this regard, it can be said that the strategy of dell has become benefits since it enabled the PC enterprise to become highly involved in their operations.

            It can be said that the build-to-order approach of the PC enterprise is also beneficial for the clients or target market as it avoids issues in terms of misconception of the client’s demands (Thompson & Strickland, 2003). As has been noted in the case, build-to order feature is considered as one of the basic tenets of Dell’s strategy to be able to meet the client’s preferences. In this approach,, the clients or target market has the opportunity to obtain the computer systems based on their customized  and personalized needs. Such principle of PC enterprise also makes sure that expensive inventory as well as computer aging is highly prevented. Additionally, through effective and proficient manufacturing and supply chain approach within Dell, the PC enterprise has been able to sell their computer products and services prices attractive and interesting to the clients or target market. The PC enterprise’s standards-based technology on one hand is also beneficial to their clients or target market since it provides them different alternatives and options to choose from.

            In the business history, Dell was considers as one of the pioneers of the build-to-order business strategy, that ultimately become a trend in other industries. With this approach, the company has been able to establish and generate computer units with custom-made Monitor size, memory, speed, drives, and other related computer features.  With their business principles, clients or target market can access such approach by means of their website or by directly visiting their factories.  The factories of Dell can be found in some areas in the United States and in order foreign cities as mentioned in the case (Thompson, Strickland & Gamble, 2005). Dell perceives that initiating the build-to-order approach is not only for the goal of giving the clients or target market what they really demanded and needed, but it is also a useful approach for cost reduction in terms of overhead costs and inventories. The build-to-order approach is a strategy that has good potentials in working for clients or target market who visit their website and have their own computer system configurations (Steinberg, 2001).  In addition, the consideration of the build-to-order feature in Dell’s business model has been able to lead the company to become more customer oriented (Brown & Brown, 2002).

Dell Strategic Alliance

As noted, strategic alliances relates to the essential move of the companies and firms to reinforce their strength in the business market to face strong competition. According to  Urban and Vendimini (1992) , this consider cooperative agreements between industries in which each party cooperates on an equal functions. Strategic alliance considers the collaboration with regards to the human, production, technological, information, financial resources and others which leads to mutual commitment. It has been noted that strategic alliances in the business market has been able to help pressure some industries to link with other industries. It is said that strategic alliance can come in different approaches and mostly the parties are trading partnership which improves and develops the competitive approaches of the participating firms by giving a mutually beneficial trade in various resources.  Those firms that are successful in alliance consider careful selection of business partners, some of the considerations that the industry should give consideration in the parallelism in cultural characteristics, alliance evolution and potential value contribution. Moreover, business, partners and alliances should be able to give strength on their partners and complement the goals of the industry.

It can be said that alliances could be functional or quantum partnerships, with quantum collaboration meeting the objectives of development and competitiveness while the function aspect adheres to the specific relationships, processes or factors. Firms that successfully engage in strategic alliances need to meet the different goals of different individuals in the industry. In addition, this also support the value of generating activities of the industry by permitting these firms to improve their core competencies and solve their weaknesses.

The alliance of Dell Inc. as a computer manufacturer as well as a software industry attributes to having a strategic alliance because Dell Inc has been able to establish the market of the computer and software products as well as its technical support services.  Strategic alliance of Dell Inc has been able to add value to clients or target market by giving them an integrated channel for hardware/software demands and technical support services.    

Accordingly, the alliance of Dell  with the best suppliers in terms of the PC components actually lead to more than just the manufacturing of the high quality products but also provides different approach that benefited the entire company in various ways. For example, this business model enables the company to operate with fewer than seven days of inventory. Apart from having the computers equipped with the next-generation components, this industry also obtained large and considerable savings from inventory costs. Because of the fast production processes, the PC company has been able to release their quality products in less than a week after the components had been provided (Thompson & Strickland, 2003).

Strategic alliance of Dell, like in IBM is one good example of Dell’s partnership. To be able to get and acquire the best component supplies for their computer products, Dell has been able to establish a strategic alliance with IBM. As mentioned in the case, IBM played an important part in the success of Dell. In this alliance, Dell has availed a total of sixteen billion dollar worth of IBM parts as well as their personal computers components, servers as well as workstations for three years. The company selected IBM as its major supplier as the former give due respect to the growing capacities and capabilities of IBM and its expertise in manufacturing quality components. Even though IBM is in fact one of major rival companies in the market, the PC enterprise still establish an alliance with the best suppliers to be able to come up with the best possible computer products and services (Thompson & Strickland, 2003). It can be said that Dell has numerous suppliers which are also given consideration because of its ability to manufacture quality OC components.

Hence it can be said that strategic alliance has been able to help Dell achieve growth and development within the industry since it provides them with greater advancement in terms of production by considering only the best components to be used in their computer products. Strategic alliance helps Dell to recognise what is still missing in the company and make use of this to consider strategies to complement with such shortcomings. Based on the given case, strategic alliance with IBM has actually help Dell to stand up on its own and become one of the largest PC industry in the global market.

Merging and Impact

Dell as a major player in the pc market has many competitors such as Compaq and HP. Compaq-Computer is considered as one of the largest suppliers of the personal computer system and also one of the top computing industries in the global market. On the other hand, HP is a computer Industry that operates in the international market with a good and competitive brand image.  Since Dell has been gaining a lot of attention because topping the pc market, different companies has been able to consider strategic move of merging and Compaq and HP has never been an exemption.

The rationale of the merger between these two companies has been based on the stiff competition in the computer industry and because of the competitiveness of companies like Dell with their direct business model strategy.  It can be said that the merging of Compaq and HP  has been because of the notion that they will be able to integrate their marketing approach quickly, reach a more developed customer base, reduce rivalries and prevent competition from doing so. In addition, the rational of the acquisition is the attempt to accelerate the initiation of new technologies with integrated resources from both companies (Freidheim, 1998).

 The rivalry between these pc industries is very stiff and HP is known to deliver three times faster as that of Dell.  The merging of these two industries is said to have major threats for Dell since it provides more opportunities for HP and Compaq as they operate as one now. Currently, HP is also considering Direct model and Compaq has a strong direct sales model which can help each other to boost their market share.  In addition, the merger leads the two giant companies to provide price competition and Dell should be highly aware of this. Compaq emulated the model before merger with HP. The merged companies can also enhance the local computer vendors leading a very stiff competition for Dell.

Conclusion

Based on the given case, it can be noted that Dell Computer has been able to sustain their competitive market position in the pc industry because of their direct business model strategies. The success of this organization can be attributed in this direct model approach which starts and ends with their clients or target market.  As a pc industry which is known for providing excellent and quality computer products and services, direct model provides an avenue for the client which generates easiness in buying and purchasing responsiveness to the demands of their clients or target market. The competitive edge and position of the company can be noticed in the given case study.  Direct selling has helped the company in terms of their financial, human resource and customer management and the presence of their factories and websites has actually helped them to easily response to the needs of their clients or target market. 

            By and large it can be concluded that even if other companies are merging to compete in the computer market, Dell computer can still be ahead of the competition because of their unique and distinctive strategy and because of their ability to make direct contacts with their target market. 

Reference

Brown, B. & Brown, M. (2002, April). Dell Computer Corp. PC Magazine. Retrieved February 17, 2006 from www.findarticles.com

Dell (2006). Direct Model. Dell Inc. Retrieved February 10, 2010 from http://www1.us.dell.com/content/topics/global.aspx/corp/background/en/directmodel?c=us&l=en&s=corp&~f=lg

Dell Services Can Enhance Value of New Corporate Desktop Systems: Build to Order, Deployment, Recycling Services Ease System Lifetime Management (2005, June 2). Business Wire.

Dell Unveils New Austin Projects. (1997, June 6). PR Newswire. Retrieved February 17, 2006 from www.highbeam.com

Steinberg, D. (2001, September). Dell Computer. Ziff Davis Smart Business. Retrieved February 17, 2006 from www.finadarticles.com

Thompson, A. Jr. & Strickland, A.J. III (2003). Strategic Management: Concepts and Cases. 13th ed. New York, NY: McGraw-Hill. 

Thompson, A., Strickland, A., Gamble, J. (2005). Dell Computers in 2003: Driving for Industry Leadership (pp. C-109-139). Crafting and Executing Strategy. 14th ed. New York: McGraw-Hill.

 

 

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