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Dell, Inc. A Strategic Management Case Study October 8, 2013 Sophie Yanez University of the Incarnate Word
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Page 1: Dell 2

Dell, Inc.

A Strategic Management Case Study

October 8, 2013Sophie Yanez

University of the Incarnate Word

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Dell Inc., Strategic Management Case StudySophie Yanez

Table of Contents

I. IntroductionII. Dell’s Strategy

a. Vision Statementb. Mission Statementc. Strategies and Objectives

III. Recommended Vision and Mission StatementsIV. External Assessment

a. Porter’s Five Forces Modelb. External Factor Evaluationc. Competitive Profile Matrix

V. Internal Assessmenta. Value Chain b. Internal Factor Evaluation

VI. Porter’s Five Generic StrategyVII. SWOT Analysis

a. SPACE Matrixb. Boston Consulting Group Matrixc. Internal-External Matrix

VIII. Strategy and Objective RecommendationsIX. Recommended Implementation PlanX. Strategy Review and EvaluationReferencesAppendixes

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I. Introduction

Dell was founded in 1985 under the name, PCs Limited by Michael Dell who

at the time was a college student of the University of Texas. In 1988 the company’s

name was changed to Dell Computer Corporation. The company is headquartered in

Round Rock, Texas and is the world's #3 supplier of Personal Computers (PC)

behind HP who ranks as #2 and Lenovo who ranks as #1 (According to IDC

worldwide quarterly PC tracker). Dell provides a broad range of technology

products for the consumer, education, enterprise, and government sectors. In

addition to its line of desktop and notebook PCs, Dell offers network servers, data

storage systems, printers, ethernet switches, and peripherals, such as displays and

projectors. It also markets third-party software and hardware. The company's

services unit provides asset recovery, financing, infrastructure consulting, support,

systems integration, and training, as well as hosted IT services. On September 12,

2013, Dell announced that it would be going private in a deal valued at nearly $25

billion dollars. (Hoovers, 2013)

Their purpose as an organization is to deliver technology solutions that

enable people to grow and thrive. Over the past 26 years Dell has built a solid

worldwide company with:

• 100,000+ team members in over 180 countries

• 400,000 solutions in classrooms worldwide

• #1 healthcare IT services provider in the world

• 3.5 million connections via our social web community

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Dell can attribute much of its success to their customer service offerings,

global expansion and financial performance. The growing requirement for

efficiently managing support related costs among medium and large businesses is a

concern that is increasing in relevance in today’s IT environments. The company has

been struggling with the long-term decline in the personal computer business, while

at the same time trying to transform itself into a bigger player in enterprise

hardware, software and services. But those efforts at transformation have been

uneven, and the majority of Dell’s revenue is either derived directly from PCs or

from ancillary products like desktop displays and accessories (Hesseldahl, 2013).

Dell has been taking in quite some scrutiny in the past few months since their

CEO, Michael Dell, decided to take the company private with the help of Silver Lake

Venture Capitalist. To many this may seem as a sign of weakness or downturn for

Dell but in actuality this may give the personal computer company a fighting chance

to regain it’s #1 position in the market. By going private the company will initially

see an increase in operating expenses, but in the long run Michael Dell will be able

to take control of company processes and management changes without the inquiry

of shareholders and financial analysts.

II. Dell’s Mission, Vision and Strategy

The following information was retrieved from Dell.com:

Dell’s Vision Statement: It’s the way we do business. It’s the way we interact

with the community. It’s the way we interpret the world around us—our customer

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needs, the future of technology, and the global business climate. Whatever changes

the future may bring, our vision—Dell Vision—will be our guiding force.

Dell’s Mission Statement: Dell’s mission is to be the most successful computer

company in the world at delivering the best customer experience in markets we

serve. In doing so, dell will meet customer expectations of highest quality; leading

technology; competitive pricing; Individual and company accountability; superior

corporate citizenship; financial stability.

Strategies and Objectives: With the recent buyout and Silver Light

partnership, Dell is able to take the company forward in a direction that isn’t

hindered by stockholder opinions and market analysts.

According to a Forbes article written by Patrick Moorhead, Dell plans to be a

volume, “in it to win it” PC player. This statement comes from a keynote speech that

Jeff Clarke, Dell’s Vice Chairman and President of Global Operations and End User

Computing stated at the Industry Analyst conference in Austin Texas in 2013. Dell’s

“end user computing” growth plan is based on four primary elements: (1) simplify

their product and services portfolio, (2) obtain new customers, (3) win with

industry leading solutions and (4) scale alternative computing solutions (Moorhead,

2013).

Dell’s goal of simplifying its offerings is encapsulated in a program called

“Smart Selection”. With Smart Selection, Dell pre-builds what they it believe

will be the most popular configurations, or SKUs, and will ship them within

24 hours. This can be considered ‘build to order,’ which is something HP and

previously Compaq have been doing for a while.

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Dell now plans to be competitive in more price bands and says they it won’t

be walking away from business like it had in the past. To help accomplish

this, it plans on developing specific SKUs for specific markets, broaden its

portfolio with tablets, and better optimizing its channels of distribution.

Win with industry-leading end-user computing solutions by investing in

what they call “sales makers.”  This is its fancy name for salespeople. Dell

plans on aggressively pursuing new commercial customers to take business

from Hewlett-Packard and Lenovo.

Dell’s Wyse business is on a $1B run rate.  This is the cloud-client computing

business, which includes thin clients, but it’s a lot more than hardware.  It’s

an entire chain of hardware, software and services that goes from the end

point to the servers, networking, storage and security in the cloud

(Moorhead, 2013).

III. Recommended Mission and Vision

I recommend that Dell revise their vision statement to answer what type of

company they want to become instead of their current ‘it’s the way we do business’

response. My recommendation is to shift the statement to something more

powerful, something the employees and consumers can relate to and be inspired by,

such as:

“To become the world’s first choice when it comes to computing needs.”

With the recent strategy shift to take the company private, I feel it is fitting to

revamp the company’s mission statement to identify the scope of Dell’s operations

on how they will achieve the leading position in the PC technology industry. Their

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mission statement is on the right track, I would simply change the “how we are

going to get there” declarations and remove generalized statements such as

corporate citizenship and financial stability. I would remove those because if the

first objectives are met such as quality products, good services and competitive

pricing, then corporate citizenship and financial statements will be achieved

naturally. I recommend the following revision to the mission statement:

“Dell’s mission is to be the most successful computer company in the world by

delivering the best customer experience in the markets we serve. We will

achieve this by delivering the highest quality products to the every day

consumer and any size businesses, as well as developing innovative

technologies and maintaining competitive prices.”

IV. External Analysis

According to Hoovers, the demand in the PC market is driven by

technological advances, disposable income in the consumer market and corporate

spending cycles. The profitability of individual companies depends on supply chain

efficiency and ancillary products and services. This makes it to where large

companies, such as Dell, HP and Lenovo have advantages in leveraging extensive

marketing budgets and sales channels, securing component discounts, and

manufacturing efficiencies and small companies can compete by offering unique

products or localized service and support (Hoovers, 2013).

Porter’s Five Forces Model (Appendix A)

There are on-going actions by all of the major players as they work to

increase market share. There seems to be two approaches depending on the

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attributes of the company. The U.S. companies (Dell and HP) are launching efforts to

diversify into higher margin operations. The Chinese competitors (Acer and Lenovo)

seem to be willing to compete on a low-cost basis. There is almost no hope of

differentiating the products since all of them, with the exception of Apple, have to

run the current Microsoft Operating System. Additionally, there is full penetration in

all dealer networks by almost all brands, and significant Internet sales as well. Apple

seems more forward-looking and is working to maintain its niche market while

expanding into the mobile market.

This market is completely saturated, and market growth, in terms of units

sold, is almost stagnate. The players now face a zero-sum game. This may explain

why IBM chose to exit the field.

Tablets and smart phones are affecting consumers’ needs for a personal

computer. Worldwide PC shipments suffered the steepest decline ever in the first

quarter of 2013. According to IDC, the industry shipped a total of 76.3 million units

between January and March, a 13.9 percent decline over last year’s first quarter. The

PC industry continues to suffer from the rise of smartphones and tablets, which are

gradually replacing PCs as the primary computing device for many consumers

(Prafulla, 2013). Below you can see the decline in personal computer orders across

all competitors:

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In terms of customer loyalty, there is almost no brand loyalty in this largely

commoditized market. This means that anyone can enter and make a convincing

marketing pitch. They will have to understand that this pitch will be primarily on

the basis of price. Luckily, to actually manufacture PCs requires a significant amount

of capital investment. When coupled with the low net margins and high risks

inherent in this industry, raising such capital seems unlikely.

The suppliers in this industry are in an interesting position. There are only

two major players in the processor market, Intel and AMD, and all manufacturers

support both brands. Additionally, there are no major functional differences

between them. This leaves the PC manufacturer agnostic with respect to processors.

The other components of the PC are largely commodity items, so there can be no

pressure from these suppliers either. Since the PC has become a largely

commoditized item with almost no switching cost or brand loyalty, the buyers tend

to buy based on price. Buyers will buy almost any brand that matches their price

point.

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External Factor Evaluation

Dell is a technology company that has the opportunity to power the cloud

revolution that is taking place in the industry. With increasing technology

capabilities that allow for the development of applications and products from

anywhere in the world due to the cloud, Dell needs to find a way to become the

premier supplier for businesses and developers.

The more technically inclined the population gets, the more opportunity Dell

will have to sell their products. This is not just limited to large businesses. Education

has been revolutionized by technology, students are being asked to access

information through the Internet as opposed to libraries and books, which was the

case 20 years ago. The individual consumer still represents a large opportunity for

the PC industry.

Some of the threats affecting Dell’s future include the rapid change of

customer needs due to the introduction of smart phones and tablets. Consumers

that have been exposed to technology are intrigued by the ‘newness’ of it. As soon as

a product is introduced, there are 5 different variations that will follow with feature

upgrades from competitors. Dell needs to start innovating and stay in front of the

technology in order to remain competitive. For a more in depth view at the analysis

taken to reflect these statements, review Appendix B.

Competitive Profile Matrix

Dell’s top competitors include HP and Lenovo. Lenovo is gaining market

share over HP and Dell and now hold the number one position in PC sales (LPTPS,

2013). After reviewing these three company’s advertising campaigns, product

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quality reviews, market share position and financials, Dell’s position in the market

reflects their #3 ranking in the Competitive Profile Matrix in Appendix C.

Advertising: Lenovo’s brand campaign, "For Those Who Do" repositions

them not as a provider of devices, but as an enabler of the DOER lifestyle and DO

mindset of the consumer. "For Those Who Do" is the global brand umbrella theme. It

was created by Saatchi & Saatchi Publicist Group and is intended to appeal to young

consumers. "The youth market values most what they're doing with technology. If

you look at the ads, you'll see that the focus is not on the product or even on the

users, but what they're doing with it," Mr. Roman said (Bulik, 2012).

Dell’s recent commercial launch features a girl named Annie who dreams of

flying. “The power to do more” commercial campaign is meant to celebrate the way

Dell technology helps enable interests that people pursue outside of their work life

(Thielman, 2013).

HP launched their “make it matter campaign” and partnered with multiple

enterprise organizations such as Nascar and Beats Headphones. HP wanted to

refresh “The Computer is Personal Again” campaign that had been running

successfully for several years, and asked Liquid to focus on the diversity of new

systems that that the company was introducing. Liquid focused on the idea that the

new systems were designed for specific types of audiences and they developed the

campaign on the concept of a consumer’s “personality” (Liquid Agency).

All of the campaigns surround themselves around the individual consumer so

there wasn’t much differentiation between the campaigns. Dell scored a higher

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rating in this category based on the creativity and diversity of their commercials as

well as brand recognition.

Product Quality: Ratings for product quality were considered based on

Laptop World’s recent 2013 top laptop list. HP was ranked #3, Lenovo #5 and Dell

#9, all were trailing behind Apple’s Macbook which came in at #1(LPTPS, 2013).”

The following excerpts from the article say it best:

“Dell surely is among the top brands that manufactures best notebooks and

has time to care about their customers. Their customer support is so far the

best and in case something happens to your laptop their service centers

won’t take much time to fix it. Dell is an old brand when it comes to

computers and other electronics, but recently they started manufacturing

laptops and they have grown so fast that today they have more models than

one can remember (LPTPS, 2013).”

“HP is one of the oldest laptop brands and after merging with Compaq

they’ve become a lot more known than before. This brand is mostly known

for manufacturing standard laptops and all they care about is delivering

quality. Laptops from HP can be a little expensive but surely they are worthy

of their price. Recently they’ve also started producing netbooks that can

easily compete with ASUS and Acer netbooks and most of them cost less than

$500. They usually focus more on their sound and graphics section because

these days that’s all most of naive people care about (LPTPS, 2013).”

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Market Share: The IDC preliminary results show that Lenovo has taken the

#1 spot for personal computer market share with 16.7%, HP trails at 16.4% and Dell

at 12.2%. Acer Group and Asus are ranked among the top 5 brands in personal

computers. The market share rankings used in the Competitive Profile Matrix

determined the 1-4 ratings the companies received.

V. Internal Analysis

Value Chain Analysis

The Company’s value chain analysis is standard to the rest of the PC industry

and can be reviewed in Appendix D.

Internal Factor Evaluation

Michael Dell’s recent company buyout held a weight of 13% in the company’s

strategy factors. The company’s pace of internal transformation should quicken with

the company going private because any proposed strategy will no longer be subject

to shareholders. Michael Dell has argued that revamping his company into a

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provider of enterprise computing services in the mold of IBM is a complex

undertaking that is best performed outside of public markets (Gupta, 2013). Going

private gives Dell, Inc. the opportunity to do everything they have hoped for.

Dells’ plans to expand globally into emerging technological markets such as

India and China are strengths the organization has within their strategy. Dell plans

to double its store count and beef up its sales force in China during the next few

years. They also plan to expand their reach into smaller cities as it looks to offset the

harsh impact of rapidly falling personal-computer sales worldwide. Dell, which has

10,000 sales outlets in China, will also focus on developing its tablet business (Smart

Brief, 2013).

“India has been a great growth story for Dell. We have quite a large presence

there and I personally visit the country few times a year. We have a great team there

and about 27,000 people,” the Company’s Global Chief Michael Dell told PTI in an

interview (Davos, 2013). Dell, who was at the World Economic Forum Annual

Meeting, said the company’s plant and the operations and staff size in the country

would continue to expand as per the size of the business (Davos, 2013). Lenovo and

HP have also targeted China and India as part of their global expansion strategy so it

makes perfect sense for Dell to focus their expansion in these regions as well in

order to maintain market share.

One of the challenges that Dell faces in its current market is their

followership strategy. Dell invests far less in technology than its competitors, which

means they will always be one step behind from the industry. As competition

increases and PC’s become more of a commodity, differentiation through innovation

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becomes more difficult (Baker & Walsh, 2011). In the Internal Factor Evaluation

(IFE), the innovation of new products held the highest rating for the industry. Dell

will need to find a way to re-invent the PC standard and develop features that keep

it relative to consumers. The balance between the high cost to innovate and

lowering Dell’s current debt ratio will serve as a large challenge for the company.

Appendix E has a more comprehensive look at the IFE Matrix and reasoning to the

company’s 2.36 score.

VI. Porter’s Five Generic Strategies

Dell falls into Porter’s Type 2: Cost Leadership- Best Value strategy, because

along with HP and Lenovo, the company is focused on offering products and

services to a wide range of customers at the best prices available in the market (see

Appendix F). With the exception of Apple, the majority of the PC market falls within

this category. It is difficult to differentiate in the PC industry since the standard of

the PC has been determined for many years. While consumers are interested in a

low cost product, the quality of the product is still extremely important to them.

Substitute products such as smart phones and tablets are differentiation enough in

this market and would fall in the Type 3 category. Apple is focused on a more

specialized consumer that is considered price insensitive, which is why it falls in

Type 3 as well.

In order to employ the Best Value strategy, Dell should perform value chain

activities more efficiently than HP and Lenovo. Such activities would include

restricting the plant layouts, mastering newly introduced technologies such as cloud

computing, using common parts and simplifying the design of their computers.

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VII. SWOT Analysis

From the detailed SWOT analysis referenced in Appendix G, I would recommend

Dell implement the following strategies:

The SO strategies are (1) Dell should promote the efficiency of their Dell

servers in Green capable datacenters. Dell has the opportunity to set the standard

for powering the world’s cloud with Dell servers. They should partner with Amazon,

Google and Rackspace to build a more efficient, green energy powered server. By

partnering with hosting companies such as these, Dell has the ability to be

recognized as the only ‘green efficient’ server hosted in the world’s top data-centers.

Dell will also have the opportunity to sell their PC’s to employees housed at these

company headquarters and satellite offices. (2) With increasing global Internet

usage, Dell has the opportunity to provide a premier level of online customer

service. Dell should invest in their current chat support and online knowledge

center platforms.

The WO strategies are (1) Dell needs to remove itself from its current

followership strategy and invest more in R&D. With the improving technologies in

the market place, this is Dell’s opportunity to innovate something that its

competitors haven’t thought of. This opportunity would allow Dell a temporary

market share increase while its competitors work to catch up. (2) They should focus

expansion efforts in the Education sector. With younger generations becoming more

technologically saavy, Dell has the opportunity to create brand loyalty with students

and teachers that will eventually become consumers. Consumer’s that would be

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used to working with their products thus making it more likely for them to stick

with Dell.

The ST strategies are: (1) Leverage the Boomi acquisition to create a better

integration of cloud apps and on-premise apps. Boomi has the opportunity to

become the choice of cloud application dashboards if built properly and priced

competitively. (2) Dell needs to seek out partnerships with hosting companies and

colocation datacenters around the world. This will help to gain cloud computing

market share in global regions such as China and India.

The WT strategies are: (1) creating a new tablet or smart phone that can

compete with the likes of Apple and Android systems and ensure that it is

competitively priced. (2) Dell needs to start manufacturing it’s own PC parts. This

will lower the cost for supply chain, improve quality production and reduce

manufacturing dependency.

The Space, Boston Consulting Group (BCG) and Internal-External matrixes

helped with the building of these recommendations because it reflects that the

strategies recommended by the SWOT analysis are in line with the competitive

profiles of the Company. Dell falls under the Defensive category in the Space matrix

(Appendix H). It reflects that Dell has a very weak competitive position in a negative

growth industry. With PC sales decreasing industry wide and their #3 market share

ranking, the Space matrix reflects Dell accurately.

The BCG matrix reflects that Dell competes in a Cash Cow division in

Quadrant III. It has a high relative market share position, ranked third at 12.2%, but

competes in a low growth industry. According to this matrix, product development

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or diversification are two attractive strategies that Dell can adopt based on their

position (Appendix I). The IDC estimates that 2012 portable PC shipments were 202

million in 2012 and will only grow 0.9% in 2013.  Then from 2013 to 2017 portable

PC shipments will grow to 241 million or a rate of 18.3% over the four years with

the bulk of the growth coming from emerging markets (Jones, 2013).

The Internal- External (IE) matrix positioned Dell in division II of the nine-

block cell display (Appendix J). The IFE score of 2.36 and EFE score of 3.13 were

used to plot the graph and determine the positioning for Dell. Based on the

information used for the IE, Dell is in a Grow and Build state, which recommends

that backward, forward and horizontal integration, market penetration, or market

and product development strategies are put in place.

VIII. Strategy and Objective Recommendations

I recommend that Dell continue with their plans for global expansion. Since

almost 50% of Dell’s PC sales come from outside of the US so it makes sense for

them to continue down this path and expand in China and India. I would however,

recommend that they slow down the rate of expansion of their new data centers.

They don’t want to take on more than they can handle. The current debt to capital

ratio is hurting Dell from making all of the investments they need to make in order

to innovate. If they balance their investments between global expansion and

innovation, they have a better opportunity of meeting their goals to deliver great

products and services to their PC consumers. I would suggest they focus on the

quality of the products they are building and not so much the quantity that is being

produced. While market share is important, the quality of the products that are

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being produced reflect the Dell Brand. The company’s brand is an asset they need to

keep in order to get ahead.

In Dell’s vision statement they state their interactions with the community

will include the future of technology, however when I read about their current R&D

strategy, they aren’t staying true to that statement. In order to be the most

successful company in the world and in order to deliver the best customer service

experience, they have to be innovative in technology. If they don’t, their competitors

will always be 2 to 3 years ahead of them. I would recommend they invest additional

resources into their recent acquisitions, Boomi and Perot systems, so they can stay

ahead of the curve in the hardware and software needs of the cloud computing

industry. The low risk, low innovation (follower) strategy that Dell currently has

isn’t necessarily turning out to be a high return investment for them. For example,

Dell’s Streak 7 did not dominate the tablet industry or make a dent in tablet market

share. Also, it resulted in bad reviews for its poor quality, which hurts the

company’s brand. The consumer and business markets are moving towards a ‘we

want the newest and best product’ mentality in all of their technological devices and

services. Dell will continue to lose traction and customer loyalty if they do not keep

up with their competitors and innovate. Based on the recent buy out from Michael

Dell and Silverlight and the recent I assume that Dell is aware of a need for a new

strategy or they would not have acquired cloud computing and software

development companies.

IX: Recommended Implementation Plan

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I recommend Dell implements the previously discussed strategies by changing

their spending practices and reviewing their budget and current investments. Dell

needs to focus on reducing company debt and reducing the manufacturing cost of

their hardware products. With the recent influx of capital and privatization of the

company, I assume that Michael Dell already has plans like this in place or he would

not have worked so hard to gain back control of the company from it’s previous

shareholders.

Some possible risks to be aware of include the demand for Dell PC’s can grow too

fast to keep up with supply and demand or demand can decrease due to the

expansion of their competitor’s presence in the global markets. Dell will also need to

increase marketing and advertising spending in order to compete with market

saturation and market traction of Asus and Acer, which are not too far behind from

Dell. Dell could avoid these problems by diversifying the countries they expand their

datacenters in, by focusing on the quality of their products to ensure they are

superior to their competitors, and continually analyzing their market needs to

ensure their strategy is aligned with what consumers are asking for.

X. Strategy Review and Evaluation

Since stock price will no longer be available as measure of success for Dell,

the evaluation method I recommend to determine whether or not these proposed

strategies (global expansion, improved product quality and robust customer

service) are successful is to continuously review and measure:

1. Global PC sales trends

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2. Potential improvements in market share percentage for Dell and it’s

competitors

3. Product quality reviews from consumers

4. Customer service reviews

The strategy recommendation around the innovation of new products is

more challenging to measure than the others. The simple release of a product

doesn’t determine its success. Dell will need to determine a new products success

based on reviews from analysts and customers, as well as sales and profit margins.

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References

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Moorhead, P. (June 21, 2013). Dell’s PC Growth Strategy- In it to Win it. In Forbes, retrieved October 2013 from, http://www.forbes.com/sites/patrickmoorhead/2013/06/21/dells-pc-growth-strategy-in-it-to-win-it/

Prafulla.net, (n.d.) The Global PC Market is Collapsing (Infographic). In Prafulla.net, retrieved on October, 2013 from, http://prafulla.net/interesting-contents/world-interesting-contents/the-global-pc-market-is-collapsing-infographic/

Smart Brief. (April 12, 2013). Dell maps China expansion to offset falling global PC sales. In Smart Brief, retrieved on October 2013 from, http://www.smartbrief.com/04/12/13/dell-maps-china-expansion-offset-falling-global-pc-sales#.UlL7hSTFZ99

Thielman, S. (February 20, 2013). Ad of the Day: Dell Y&R dreams up an alternate universe in its latest spot for the computer maker. In AdWeek, retrieved on October 2013 from, http://www.adweek.com/news/advertising-branding/ad-day-dell-147420

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Appendixes

A. Porter’s Five Forces Model

B. External Factor Matrix (EFE)

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C. Competitive Profile Matrix

D. Value Chain Analysis (VCA)

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E. Internal Factor Evaluation (IFE)

F. Porter’s Five Generic Strategies

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G. SWOT Matrix

H. Space Matrix

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I. Boston Consulting Group (BCG) Matrix

J. Internal- External (IE) Matrix

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