Dell strategic manamgent paper - Nha To and Hoa Nguyen

Heilbronn University

Internationale Betriebswirtschaft - Interkulturelle Studien

Internationale Betriebswirtschaft - Osteuropa

Strategic Analysis: Dell Inc.

Specialized in PC segment, U.S. Market

submitted to

Herr Prof. Dr. Christian Buer

from

To Tran Duc Nha (178129)

Nguyen Viet Hoa (178121)

Summer Semester 2012

I

Table of contents

Table of contents .................................................................................................................................. I

1. Introduction................................................................................................................................. 2

2. External analysis .......................................................................................................................... 2

2.1. PEST Analysis ............................................................................................................................ 2

2.1.1 Political factors ................................................................................................................... 2

2.1.2. Economic factors ............................................................................................................... 3

2.1.3. Social factors ..................................................................................................................... 3

2.1.4. Technological factors ........................................................................................................ 4

2.2 Industry analysis ........................................................................................................................ 4

2.2.1. Bargaining Power of Suppliers .......................................................................................... 4

2.2.2. Bargaining Power of Buyers .............................................................................................. 5

2.2.3. Threat of Substitute Products ........................................................................................... 5

2.2.4. Threat of new entrants ..................................................................................................... 6

2.2.5. Rivalry amongst existed competitors ................................................................................ 6

2.3. Market structure ...................................................................................................................... 7

3. Internal analysis............................................................................................................................... 8

3.1. Dell’s vision ............................................................................................................................... 8

3.2. Corporate structure .................................................................................................................. 9

3.3. Dell’s business model ............................................................................................................... 9

3.3.1. Direct model ...................................................................................................................... 9

3.3.2. Customization and elimination of inventory and intermediaries ................................... 10

3.4. Range of Products .................................................................................................................. 11

3.5. Co-ordination with Suppliers.................................................................................................. 12

3.6. Excellent service ..................................................................................................................... 14

3.7. Turnaround in Dell’s strategy ................................................................................................. 15

4. SWOT analysis ............................................................................................................................... 17

4.1. Strengths ................................................................................................................................ 17

4.2. Weaknesses ............................................................................................................................ 18

4.3. Opportunities ......................................................................................................................... 18

4.4. Threats .................................................................................................................................... 19

5. Conclusion ..................................................................................................................................... 19

6. References ................................................................................................................................. 21

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1. Introduction

Dell was founded by Michael Dell in 1984. The products and services range

includes enterprise solutions and services, software and peripherals, client

products and financial services. Dell Inc. has its corporate headquarter located in

Texas yet it business is operated worldwide through the network of subsidiaries. In

spite of wide products and services range, Dell highly focuses on selling computer

systems directly to customers, including enterprises and end customers. The core

value of Dell’s business strategy is based on the direct customer model and

effective supply chain management.

The aim of this report is to study the unique business model of Dell, its competitive

advantages and how Dell makes use of them to achieve considerable success over

the previous decades. The analysis will be conducted via two mains part which are

internal and external analyses. The SWOT analysis and further developments will

also be presented at the end of the report as a consolidated part of the preceding

parts.

Within the scope of this strategic analysis, the paper is mainly focused on the PC

segment in the U.S. market.

2. External analysis

2.1. PEST Analysis

2.1.1 Political factors

The ever-changing nature of the technology industry is crucially dependent on

political environment. According to Dell annual report in 2011, 52% of its

consolidated net revenue came from inside the U.S., which means that

government regulations play an important role in the performance of the company.

In the recent years, there have been many uncertainties in the political environment

including political instability notably after the 9/11. In the international market,

challenges emerge in countries without political stability. Many countries try to

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protect their domestic manufacturers by enforcing restrictive policies which prevent

or limit foreign companies from entering the markets. There are few choices for

foreign companies to enter those markets. One of which is to launch a joint venture

which local companies, with whom they have to accept minor shares and share

their technological know-how. However, as globalization is taking place worldwide,

there are many governments who actively try to ameliorate political situations to

attract investment from abroad, and thus, create considerable opportunities for

foreign companies especially those operate in the technology field.

2.1.2. Economic factors

The economic environment refers to the nature and trend of the economy including

economic structural anatomy, economic policies, organization of the capital market

and business cycles, etc., in which the company performs. As the computer market

in the US has gone through the mature stage and the majority of computer sales

are to replace or upgrade existing computers, this bring a negative effect on Dell’s

sales within the US, Dell’s main market. However, Dell still expects a growth of ten

percent in the following years in the computer industry (The Dell Company – A

strategic analysis, 2006). Thus foreign markets and their economic factors play a

leading role in fulfilling Dell’s growth objective. Dell annual report in 2011 cited:

“Our future growth rate and success are substantially dependent on continued

growth of our business outside the US, including in the key emerging countries of

Brazil, Russia, India, and China”. This growth is substantially affected by economic

situation in the specific country or region. Besides growth opportunities in foreign

markets, there are increasing risks which Dell might encounter for instance

changing inflation rates, currency fluctuation, and exchange rate of home currency.

2.1.3. Social factors

Social forces have a big stake in shaping the nature of the computer hardware

industry. The social environment determines the value system, which affects the

way business is practiced. The trends in social environment are sometime the

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main cause which decides the size of the market. Furthermore, the demand on a

specific market is also dependent on the educational standard of that country or

region. Moreover, as computers have become an integral part of modern life, more

and more younger people in immature markets are now the main target group of

computer companies. Additionally, brand name has a strong influence on buying

decision. Nowadays, people do not only buy something just because it looks nice

or it has fantastic features but also to acquire the value originated from the brand

name.

2.1.4. Technological factors

Technological factors have a significant impact on the technology industry.

Technological factors affect every company in the industry in two main dimensions:

development of new products or sales of current products. The development of

internet globally has enabled companies to approach closer and easier to potential

customers than ever. Moreover, the advance in technology is a prerequisite which

every company in the computer industry must possess as a competitive

advantage. Regarding the high-end computer market, there are numerous

products and services which might confuse customers in making buying decision.

There are obviously rooms for development in technology, which creates plenty of

opportunities for computer companies. However, as they are all competing in a flat

world, they always have to encounter the risk of imitation.

2.2 Industry analysis

2.2.1. Bargaining Power of Suppliers

Bargaining of Suppliers in PC industry is relatively strong. In particular, the Central

Processing Unit (CPU) is a core component for PC manufacturer. CPU is vital

because it decides how the PC performs. Improvements or innovations in PC

quality almost always come as a result of innovations in CPU areas. Because of

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the importance of CPU, most of the profit in PC industry is given to CPU providers.

Virtually, PC manufacturers can only find CPU from one of these following two

suppliers: Intel and AMD. In short, CPU suppliers have a strong bargaining power

toward PC manufacturers. PC manufacturers cannot compete with CPU suppliers

but to cooperate with those suppliers because the production process of PC is

dependent heavily upon CPU.

2.2.2. Bargaining Power of Buyers

The bargaining power of buyers in US's PC market is also to certain extent strong.

PC in US has been increasingly commoditized as the manufacture-cost plunged

significantly since 2000s. Also consumers have a wide range of choice in the PC

market with at least 5 major brands: HP, Dell, Apple, Toshiba, and Acer.

Additionally, consumers also have a wider range of choice to meet the needs that

once only PC can fulfill: texting, email, music, web-surfing, gaming, etc. It is

because of the emergence of a plethora of hi-tech gadgets as superior

substitutions to a PC (which is mentioned in the substitution part). Consumers

nowadays are not in need of PC to a high degree. To sum up, the bargaining

power of buyers in US's PC market is strong.

2.2.3. Threat of Substitute Products

To define the substitutions for PC, consumers’ usage of PC need defining first. On

their PC, customers process document, listen to music, web-surf, read, email, text,

watch video, play games. All of those functions, nowadays, can be done on many

other devices which might be cheaper, lighter, smaller, and faster, for example:

smart phone, iPhone which one can text, surf web, etc.; music players such as

iPods, game console such as Xbox, Sony Play Station, etc. Perhaps the only thing

a PC can do comparatively better than those gadgets is word-processing with the

keyboard which is not always what consumers look forward to doing on their PC. In

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short, PC industry now has a very wide range of substitutions making PC relatively

elastic with respect to price and increasing customer’s bargaining power.

2.2.4. Threat of new entrants

The PC industry of US has a low risk of new entrants. PC is no longer an extreme

high-tech product. A simple PC nowadays does not have high technological

requirement. Thus, the start-up of a PC vendor is not too high, provided that a

company has sufficient funds and gets support from input suppliers (for the CPUs

and other parts). On the other hand, there is a certain type of barrier, in regard of

economies of scale which plays an important role in PC industry generally today.

Price competition in PC industry has been and will still be fierce as the producing

cost of it keeps decreasing which makes the only way to survive is to attain

economies of scale. Another barrier for entrant is the distribution channel; it

determines the vendor's access to customer. Without an established distribution

channel, it is not possible for new entrant to compete with the existing players. In

short, the threat of new entrant in USA's PC market is quite low due to the

challenges in achieving economies of scale and setting up distribution channel.

2.2.5. Rivalry amongst existed competitors

Low threat of entrant implies that a few big players in the industry enjoy the

business. There only five major players in US PC market. at the end of 2011, HP,

Dell, Apple, Toshiba, Acer group in order are the 5 biggest player in US PC market,

accounted altogether for 87.6% market share. Rivalry amongst competitors in

American's US industry is intense, HP until the end of 2011, held the No. 1 position

with 23.1% market share, with Dell closely at 2nd place with 22.4% market share.

The market also witnesses a very strong growth of Apple amongst the top five

vendors. Also Lenovo’s US is looming as a new threat with shipments growth of

40% year-over-year. Yet, Lenovo’s US is not large enough for it to break in the top

5 ranking in US market. (Gartner, January 2012).

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2.3. Market structure

As mentioned above, the 5 companies: HP, Dell, Apple, Toshiba, Acer possess

more than 80% of the US Personal Computer market. The market where there are

a few companies that dominate the market is an oligopoly one. Personal computer

market in US is therefore an oligopolistic one. The commoditization of the personal

computer has become a powerful driver in the cost structure of this industry in

general. In the particular case of US, the cost has been driven down in the past 10

years in the US market. The figure below shows the general trend of computer

price in US, period 2008-2010.

Figure: Computer Price Index in US from the Bureau of Labor Statistics

Computer hardware industry is still a very prospective business emerging

countries, such as Latin America and non-Japanese Asia. However, specifically in

the PC market of US, the industry has entered the mature stage in its product life

cycles with decreasing growth rate. One question likely to be posed is when the

personal industry will come to the decline phase, paving the way for a new

industry. According to Raymond Kurzweil in his book "The Singularity Is Near:

When Humans Transcend Biology" (Kurzweil, 2006), personal computer industry

probably will come to an end or undergo a transformation into what is not the

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Personal Computer we know today. There is a relatively high possibility that few

computers will prevail in home. Instead, computers will become gadgets or devices

that people dress on, or even implanted, for example, in eyeglasses, with the retina

as the screen (Kurzweil, 2006). Innovation and advance in technologies are born

every year, and become the powerful engine to propel forward the personal

computer industry, even into its decline as Kurzweil implies, and at the same time

making the industry fiercer than ever.

3. Internal analysis

3.1. Dell’s vision

Dell’s vision provides a framework to its corporate strategy. Dell’s vision also

consists of values which the company is trying to pursue. Dell’s official website

cited: “Dell is committed to being a good neighbor in the communities we call

home. We must continue to grow responsibly – protecting our natural resources

and practicing sustainability in all its forms – and improve the communities where

we live and work through our financial and volunteer efforts." The company’s vision

is primarily based on the concept built-to-order and selling directly to customers. In

2007, Dell launched a campaign of using the new slogan “Yours is here” which

briefly means that the company’s customization system is high possible to satisfy

all customers’ requirements. Dell aims at creating a force of loyal customers

through its superior experience in field of creating values. Dell is committed to its

direct relationships with customers and providing them best products with

outstanding technology and excellent services. Dell has been continuously trying to

build an image of an easy-to-use, easy-to-buy products and superior support. It is

crucial that Dell possesses its competitive advantages which are latest technology,

PC customization, loyal customers and best-in-class service to maintain its leading

position in the PC market.

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3.2. Corporate structure

Dell’s organizational structure is highly results driven. With the number of

employees up to 55.000 people, Dell needs a clear structure in which everyone

can effectively collaborate. The flat corporate structure enables Dell to stimulate an

open environment for communication. Employees at Dell excessively benefit from

this structure since it gives them freedom in doing their works.

Dell applies the matrix organizational structure which is function-based (marketing,

finance, human resources, strategy), customer-based (consumers, small and

medium businesses, public institutions and large enterprises), and market-based

(EMEA, Asia-Pacific and Japan and Americas).

The operation of Dell is put under the board of directors, in which Michael Dell

serves as the chairman of the board and CEO of the company. There are five

committees, which set up by nine members of the board of directors, supervise

specific issues of the whole corporation. Those committees include Audit

Committee, Compensation Committee, Finance Committee, Governance and

Nominating Committee and Antitrust Compliance Committee

This structure was the result of the restructuring and management changes in late

2008. Dell’s CEO, Michael Dell referred to the changes as “a response to customer

desire for faster innovation and globally standardized products and services.”

3.3. Dell’s business model

3.3.1. Direct model

The core value of Dell’s business model is selling directly to customers. This direct

model has significantly changed the computer industry since Dell introduced it in

1984.

Back in 1984, the whole PC industry was utterly integrated to hardware companies

like IBM and software companies like Microsoft. Holding the handle of the knife,

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IBM and Microsoft made huge profits out of their products and services. The

connection between providers and customers were weak which brought difficulties

for both parties in matching supply and demand. In terms of distribution channel, a

certain company in PC industry which uses indirect distribution channel, the

process of producing a computer and delivering it to the final customer has to go

through five participants including suppliers, PC makers, distributors, retailers and

final customer. The contemporary trend was to display the tailored computers in

the stores and wait for customers to come. This means that there were few

interactions between PC makers and customers.

Dell chose a different way to do it, the well-known direct distribution channel. In this

direct model, products are delivered straight to customers by Dell. According to

Ireland (2009), in the manufacturing process, Dell sources components directly

from suppliers, assembles them according to customer specifications and then

delivers to customer free of charge. The ordering process is done via telephone or

its customization platform www.dell.com. This direct model was proven to be an

effective one for years because customization, fast delivery and low price gave Dell

a higher profit margin over IBM and HP.

Using an effective business model, within 12 years of development from 1984 to

2006, Dell advanced from a nonentity to the market leader. The market scenario in

2006 was dramatically changed with Dell topping the list of 10 most admired

companies in the U.S. Dell’s market shared in U.S. market even reached 33%.

3.3.2. Customization and elimination of inventory and intermediaries

Dell’s customization system allows customers to specify every component from

software to hardware they want to have in their computers. The system also

enables quick process from both parties. Customization has become a competitive

advantage for Dell since it can easily listen to its customers’ requirements, and

thus, this advantage helps Dell to match its supply with demand of the market. This

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customization model is mutually related with the direct business model as it

shortens the distribution channel and eliminates all inventories.

Moreover, customization gives Dell a means to eliminate all inventories. Compared

to its competitor HP, which has three to four weeks of inventory, Dell only has three

days of inventory. This effectively lowers inventory costs to the lowest level in the

industry. Later when the PC market became matured, the elimination of inventories

and intermediaries allowed Dell to cut the prices and gain market share while still

maintaining high profitability. (Hill and Jones, 2007)

3.4. Range of Products

To compete in an intensely competitive PC industry, Dell employs an extremely

flexible direct distribution system to aim at certain segments of products,

geographical areas, and customers that yield the best margins. Quote former CEO

Kevin Rollins: “We cut the market and then cut it again, looking for the most

profitable customers to serve,” (Grant, 2010).

This illustrates lucidly when looking in detail at how Dell segment its customers in

the sphere of PC. Dell products in PC business areas are divided mainly into

laptops and desktops for 5 groups of customers: for home, for small and home

office, for small and medium business, for education government and healthcare,

for large enterprise. Within each of those are another layer of customer

segmentation based upon their wants and needs they expect to fulfill in using a

PC. However, the marketing effort of Dell essentially channel into the Business-to-

consumer group, namely the first 3 group of customers: home use; small and home

office; and small and medium business.

For home use, with Laptop and Desktop, Dell characterizes the needs and desires

of several sub-category of customer: everyday computing; intricate design; high-

performance; gaming. For everyday computing, Dell offers often the Inspiron series

which stress the benefit of efficiency and effectiveness in handling daily task. To

customers that yearn stylish design, Dell provides ultrabooks, in the line of laptop

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category, which are ultrathin and powerful, including Inspiron and XPS series; in

the line of desktop, Dell offers a All-in-One Space-Saving type, also from Inspiron

and XPS series, all of which consists of only a big screen with all the components

inside, a keyboard, and a mouse. To the fan of high-technology, Dell presents, also

both in laptop and desktop lines, series of products which place emphasis on high-

performance, equipped with the latest, leading-edge technology (Inspiron and

XPS). And finally to gamers, Dell produces a special line of laptop and desktop

named Alienware particularly designed for gamers with “bleeding-edge graphics”,

and performance.

For small and home office, Dell supplies products with different value proposition to

customers. In the category of laptop for small and home office, Dell pitches

Inspiron with Style and entertainment; Vostro with mobile value and service support

as premiums; Latitude deemed as level of high performance and durability; and

XPS – focusing on advanced technology. For desktop, Dell offers 3 series: Vostro,

OptiPlex, Dell Precision. Vostro series centers on the ease of use and economical

price. OptiPlex series aid users work in networked environment. Dell Precision

series features advanced applications and graphics with ISV-certified reliability.

A few observations can be drawn from the way Dell segments and presents its

laptops and desktops to customers. Dell produces different series of laptop and

desktop to cater to the variety of consumers needs. Besides, Dell also presents the

same series of PC slightly different for different group of consumers in order to

stress the salient benefits that matter most to each certain type of consumer.

3.5. Co-ordination with Suppliers

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Above is the diagram of the Value Chain in Personal Computer industry, it shows

that PC manufacture company like Dell mainly purchase the input component from

suppliers then assembly and sell the products to customers. In the progress of

globalization, modern laptop become a typical example of a globally spread value

chain component. Location for each part of the process is selected in order to

benefit from places with best combinations of cost and technical know-how. The

trade-off, apart from higher inventories or cost of transportation, is primarily the

cost of time. To attain Just-in-time scheduling, physical proximity is required

between production activities. In the wake of 2008 crisis, a new need has arisen:

distant supplier should have enough access to credit which incurs another

disadvantage on globally dispersed value chain. (Grant, 2010).

Unlike companies that follow a globally spread value chain, Dell Computer forgoes

the cost advantage of globally dispersed value chain and focuses instead on

integrated operation. That permits Dell to have fast access to final market, enabling

it to compete on speed and delivery reliability. (Grant, 2010).

Dell takes advantage of the Internet to develop a constructive relationship with their

order, part of what helps Dell attain superiority in its distribution channel with Just-

in-time inventory. The suppliers and Dell really have to engage and keep close

eyes on the operation of each others. Dell uses planning program to forecast the

volumes of component requires for the assembly of their computers. The

information system then passes the forecast onto Dell’s suppliers which, after

analyzing the data, would respond to Dell with estimation of cost, and their

production plan. (Solis, 2001).

The information system Dell employs to attain their supply chain excellence

performance is the “i2” supply chain management... “i2 streamlines the supply

chain by providing component suppliers and Dell planners with global views of

product demand and material requirements. It also provides real-time factory

scheduling and inventory management, so employees can generate key reports

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based on accurate and timely data, pinpoint inventory on the factory floor, and

receives supplier deliveries on a true just-in-time basis (i2 supply chain

management systems).”

This system enables Dell to have swift turns of manufacturing schedule every two

hours, helping Dell to effectively manage the huge amount of customer orders. The

information on the schedule is also accessible to Dell’s suppliers with high

accuracy and celerity. That allows suppliers to increase their efficiency, avoid

excess in input. Suppliers are also bound to respond with speed to the information

and deliver the required materials to specific locations for product assembly.

(Soral, 2004).

In short, one core element of Dell competitive advantage lies in the superior supply

chain management Dell forges by utilizing technology to optimize the information

flow, and information interpretation between Dell and suppliers.

3.6. Excellent service

Services after purchasing are one critical part in Dell strategy in PC industry; Dell is

also well-known with each excellence service. In PC service after purchase, Dell

offers support in 2 ways: (1) customer log in online and go through a troubleshoot

process to see if the customer can solve the problem with the guide from Dell on

drivers, technical support and other resources; (2) customers can choose to call a

service center or a “solution station” for help. It is in the “solution stations” that Dell

substantially gains customer satisfaction.

In fact, the customer technical support operation in Dell is outsourced to

independent companies which cost them a lower level of salary. Dell excellent

customer service is carried on by an Indian specialist company. Inside US, Dell

also outsources to specialist companies in spheres of PC maintenance and repair

function. Excellent help over phone, if there is defective part the computer; a

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maintenance person will come to the customer and replace that defective part

within 24 hours. (Hill and Jones, 2007).

In addition to helping customer, operation in service also serves as a bridge

between Dell and its customer, and the performance in fact of its products.

Specialist companies also have the responsibility to report data of problems and

product failure to Dell in order to help better design of product. Outsourcing service

operation, thus, brings to Dell not only the cost advantage but also the benefit of

saving the time and effort to invest in its competitive edge while still retains

excellence customer service and the opportunity for improvement from customer’s

feedbacks. (Hill and Jones, 2007).

3.7. Turnaround in Dell’s strategy

Starting from 2000, the U.S. PC market became matured. Companies in the

industry must seek for different strategies to improve sales. Dell decided to shot in

the direction of business customers. After the dotcom bubble burst, there was a

fear in investment in IT, which dramatically reduced the profit of Dell. Dell began to

reduce price to secure the situation. Dell also tried to diversify into other areas and

new markets.

Dell experienced decreasing profitability and negative growth in the U.S. in 2006.

Customer support and product quality were negatively influenced since Dell

decided to cut costs to meet its financial targets. Operating in the most ever-

changing industry, the existing approach seemed to be obsolete. The modern

world needed both branding and innovative products yet Dell could not provide

either of them. The highly successful strategy in the past could not ensure a bright

future for Dell.

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Another point that added to the downturn of Dell was its products positioning.

While its competitors were trying to provide high-end products and services, Dell

still stuck with its lower-end models.

In order to overcome the concurrent challenges, Dell’s decision was to expand their

business to other segments or markets. The markets for servers and printers,

which were new to Dell, were the choice since they had higher margins than PCs.

As stated in the annual report 2011, Dell also has business in servers and storage,

mobility products, software peripheral categories. Those products and services

moved Dell from a purely PC maker to a diversified IT company.

In 2003, Dell started to extend its product lines to the consumer electronics market.

Plasma TVs, MP3 players and digital cameras were introduced. Dell also tried to

combine PCs and consumer electronics. According to Ireland (2009), the XPS line,

a high-end sub-brand in the media PC segment, was a representative for this new

direction. Regarding the disadvantage in technology innovation, Dell invested more

in R&D and kept on improving its innovative products toward the industry trends.

However, an increased emphasis on R&D would distance the company from its

core competencies. Increasing R&D changes its focus from mass customization

of mature products to smaller batches and product introduction

and growth. Additionally, it would limit the company from utilizing its direct sales

model, as new products require multiple distribution channels to ensure they are

available to customers as quickly as possible. Currently Dell's strength is the

sales of mature products through mass production, bringing quality and price

without the cost of R&D

Realizing that the U.S. PC market had matured, Dell expanded its operations to

new markets notably BRIC countries. However, Dell’s direct selling business model

seemed to be not effective in some markets since customers prefer to see and

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examine the products before buying or because the lack of Internet in those

markets.

4. SWOT analysis

Strengths

High brand recognition

Effective business direct model

Effective supply chain management

Loyal customers

Weaknesses

No proprietary technology

Problems with direct model for home users

Opportunities

Discerned customer

Opportunity to better exploit the existing succes model

Threats

Demanding market: quality, price

Price differentiation is no longer an advantage

Challenge to look for new way to continue differentiating the brand

4.1. Strengths

Dell is obviously one of the best renowned computer brands in the world. The high

brand recognition puts Dell among the first choices of customers when they

consider upgrading or purchasing new PCs.

The direct business model itself is considered to be the greatest asset of Dell.

Utilizing this model, Dell can directly reach customers without any intermediaries.

The direct model stimulates communication between Dell and buyers, thus, makes

Dell easier to match its supply with customers’ demand.

As Dell is not a manufacture, it buys components directly from suppliers and

assembles the computers using cheap labor, and then Dell delivers them directly to

customers according to their specifications. The direct model helps Dell have a

close-knit relationship in both directions, suppliers and final customers. This allows

Dell to lower the cost of inventory and have a better understanding of its supply

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chain. Moreover, Dell’s customization system is wholly based on the Internet,

which makes customers easy to access and thus enhance Dell’s efficiency.

In terms of targeting markets, Dell has a long-standing clientele which is the

business executive category. This provides a firm foundation for Dell’s stable

revenue for since most of its sales revenue comes from large business and

government organization.

Furthermore, the excellent customer services ensure Dell a long-term relationship

with its loyal customers.

4.2. Weaknesses

The major weakness that might hinder Dell’s performance is that Dell has no

proprietary technology over its competitors. This is the result of low investment in

R&D and the low-cost strategy. There was a voluntary product recall in 2004 due

to faulty batteries. Since the battery technology of Dell PCs belongs to Sony, it

might negatively influence Dell’s image if problems are caused by Dell’s partners.

For home users, Dell’s direct method and customization approach might pose

some barriers since it is impossible for customer to touch and try the product

beforehand.

The huge range of Dell’s products and components are greatly dependent on many

suppliers from various countries. This can be troublesome for Dell when the market

fluctuates.

4.3. Opportunities

As customers today has become more informed about personal computers

because an increasing number of them are second-time buyers. As customers

become more discerned and know what they want, this trend is a great opportunity

that Dell can still exploit with it effectual Direct Model framework to cater to the

needs of customers.

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The increasing pace of development in communication and technological

integration also brings about opportunities for Dell. As it has become usual today in

US for customers to go to the Internet and customize their computer, place orders,

this help compensate for Dell's lack of physical retail stores and increase the

efficiency for Dell and also the customers in the buying process.

4.4. Threats

PC market in US is a volatile and fierce market despite already being in its mature

stage: the price keeps on being lowered, product quality is still being constantly

improved and demanded with higher speed and more efficiency.

One major external threat to Dell now is that other competitors have become close

substitutes for Dell. Dell unique model which allows it to succeed in cost-saving

and once achieved great success, no longer give it a strong competitive

advantage. The reason is because the gap between Dell and other competitors

prices have been narrowed and also because price difference is not a critical issue

for buyers in US market.

The decreasing growth rate of the PC industry in US is another serious threat for

Dell. Although Dell still holds the second position in the US market, it is confronting

intense competition from other big players. The competition for market share will

immensely intensify in the future as the market slow down. Dell will have to find a

novel way to differentiate their brand from competitors. Also it is going to be a

challenge for Dell in finding a new competitive edge to replace the now-fading

Direct Selling model which will soon become ineffectual in the future.

5. Conclusion

This strategic analysis has examined the current standing of Dell in the US market

through: (1) a macro analysis of the general environment and the industry

circumstance. And (2) an internal analysis of Dell key factors to success in each

function. The PC industry in US is currently in its mature stage, dominated by a few

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big players competing fiercely against each other. The general trend in the PC

market of US also includes price driving-down of personal computer which is

usually coined as “commoditization of PC”. In our business analysis, Dell enduring

competitive advantage is revealed, which is its unique Direct Selling Model,

reaching customer with the highest level of celerity and reliability. This advantage

is derived from Dell ability to effectively manage its distribution channel to customer

and its coordination with its suppliers. This advantage allows Dell to assembly PC

with low cost which has become for a long time one of Dell primary value

proposition to customers. However, as it is showed in our consolidation SWOT

framework, Dell is now confronting with intense challenge which will hinder it to

persist the success with the competitive advantage mentioned above. Price

different is no longer really a concern for US customer; the immense speed of

technology innovation; all of that propel Dell to continue effectively exploit the

advantages it has once created while at the same time, look for new competitive

advantage to continue differentiate its brand in the future.

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6. References

Dell Values In Action, Retrieved on: 12.06.2012 , from:

http://www1.euro.dell.com/content/topics/global.aspx/about_dell/values/main/value

s?c=eu&l=en

Grant, Robert.(2010). Contemporary Strategy analysis, 7th edition. Publisher:

Wiley

Hill, C. W. L and Jones, G. R. (2007): Strategic Management: An Integrated

Approach, 7th edition. Publisher: Houghton Mifflin

Ireland, Hoskission and Hitt (2009): The Management of Strategy: Concepts and

Cases, 8th edition. Publisher: South-Western CENAGE Learning

Solis, Adriano O. (2001). Some success stories in supply chain management.

Retrieved on: 15.04.2012, from http://goo.gl/AV8i0

Soral, P. Dell: Building a World-Class Supply Chain Solution. Retrieved on:

15,04.2012. from http://www.intel.com/ebusiness/pdf/affiliates/i2-dell.pdf