Dell Dan McLindon Kyle McDaniel Jeremy Smiley Tom Anderson
Feb 25, 2016
Dell
Dan McLindon Kyle McDaniel Jeremy Smiley Tom Anderson Ray Moorman
Key Question for Dell
• What is Dell? A computer manufacturer? A consumer electronics company? An online retailer? An IT service partner? What is their focus?
Secondary Questions• What contributed to Dell’s success and rapid growth in the late 1990’s?• Is Dell’s build to order model still an advantage?• Why is Dell choosing to become more like HP and HP more like Dell?• What does Dell do well and where does it struggle?• Can Dell ever be successful in B2C market in developing countries with
Direct to Consumer distribution?• What is Dell? A computer manufacturer? A consumer electronics
company? An IT service partner? What is their focus?• What is Dell doing today to set itself apart from the competition in the
highly competitive and rapidly evolving computer hardware industry?
Dell Computer Company Overview
Founded 1984 by Michael Dell
Vision PC’s could be built to order & sold directly to customers
2 Major Advantages of Business Concept
1. Bypass distributors & retailers eliminated markups2. B2O reduced risks & costs of having inventory
Sell Direct & B2O Business Model Success
2003 – most efficient procurment, mfg, & dist in PC industry. Gave profit & costs advantage over rivals
Dell Inc. Product TimelineYear Product Current Position In Market Success of Failure?
1984 PCs 2nd behind HP (15% market share)
Success
1995 Website Revenues greater than Yahoo, Google, eBay and Amazon combined
Success
Late 1990’s X86 Servers 1st domestically, 2nd behind HP globally (11% global market share)
Success
2001 Data-routing switches and Data storage devices
Storage – 5% market shareRouting – 2% market share
TBD
2002 Large Enterprise IT services <1% market share Success, rapidly growing revenues
2002 White label PC N/A TBD, forecast to achieve $380 million in sales (2003)
2003 Printers 20% market share in US, 5% global
TBD
2003 Consumer Electronics N/A TBD
2003 Retail POS systems N/A TBD
Conclusion – Expanding product set into several highly competitive markets with well established players. Strategy is be the low cost leader.
Build to OrderAdvantages Disadvantages
Selling direct to customers cuts out the middleman, which increases Dell’s margins.
Customers not able to touch and feel the product, which is a large ticket purchase
Mass customization using standard parts allows Dell to control their costs and enables them to pass savings to customer.
Build to order requires innovation and investment in manufacturing technologies and facilities.
Build to order allows for JIT, reducing costly inventories of components, which may quickly become obsolete.
Competitors have been able to outsource to third party manufactures, pushing the burden of component inventory costs onto suppliers.
Conclusion – Dell has spent its time and money on innovation to become an efficient manufacturer of computer hardware. Was that an effective use of their resources?
Is Build to Order still an advantage?
Enabled success in late 1990’s•Dell low cost leader•Improved reputation for quality. Allowed Dell to control quality and be first to market with new products•Competitors tried to copy, but with limited success. Long learning curve
Still works well in B2B •Businesses like to customize a solution that fits exactly what they need•BTO gives Dell the ability to control quality and the opportunity to sell additional value adds to enterprise customers
Struggling in B2C•Difficulty with distribution in emerging BRIC countries, especially China•Competitors have closed the gap on price and product offerings by outsourcing manufacturing•Dell even starting to in laptops
PEST Analysis for DellCategory Issue Threats/Opportunities Ranking
(1-5)
Political 2008 Economic downturn Threat – economy also impacting govt. spending
3
Economic 2008 Economic downturn Threat – companies and individuals cut down IT spending
3
Social Rising incomes and demand for IT in BRIC countries, especially SE Asia and Eastern Europe
Opportunity - ½ of world’s population 4
Growth in popularity of social networking and mobile society
Opportunity – increasing demand for servers and network gear
4
Technological Explosion in data information and content
Opportunity – Dell can provide hardware and services to drive
4
Global expansion of Internet
Opportunity – requires installation of millions of servers
5
Industry Overview (Supply)Porter’s five forces:
Rivalry among existing competitors
High
Threat of substitute products
High
Bargaining powerof buyersHigh
Threat of new entrants
High
Bargaining power of suppliers
Low
Porter’s Five Forces
Factor Analysis Impact
Threat of substitute products Growing popularity and sophistication of mobile and smart phones. Servers need to run
the networks behind phones.
Bargaining power of suppliersSeveral suppliers of PC components. Technology has become standardized. Dell has decided to form long term partnerships with key suppliers to take advantage of volume-based discounts
Relationship with suppliers may suffer
as Dell shifts to outsourcing laptop
manufacturing.
Bargaining power of buyers Many options in terms of what type of computer hardware and software to use. B2B customers can also negotiate prices on hardware, software, and service contracts.
With standardization comes
commoditization.
Competitive rivalry Lots of well established players in all markets that Dell competes in. Majority competing on cost in a race to the bottom
Compression of profit margins . As
price decreases sole focus is cutting costs.
Threat of new entrants Growth of white-label PC makers and resellers, especially in Asian market, shows how easy it is to enter market, as industry moves to standardized technologies.
PC companies need to find a way to
differentiate themselves
Industry Overview (Supply)
Factor Ranking (1-5)
Threat of substitute products
Bargaining power of suppliers
Bargaining power of buyers
Industry Overview (Supply)
Factor Ranking (1-5)
Rivalry among existing competitors
Threat of new entrants
HP Dell
Operating philosophy
Build to Stock, outsource manufacturing, large
distribution network of retailers and resellers
around the world
Build to Order, control manufacturing, direct to customer sales on own
website
Key productsGlobal leader in PCs,
servers, and printers. 67% sales outside USA.
US leader in PCs and servers, 2nd behind HP globally . 39% of sales
outside USA.
Market Share in PC Sales 18.8% Globally23.9% in USA
14.9% Globally28% in USA
Financials $104.3 billion revenue, $7.3 billion profit (2007)
$61.1 billion revenue, $3 billion profit (2008)
Key Acquisitions
2002 – Compaq2008 – EDS
2005-2008 - $7 billion on other software, tech, and
service companies
2007-2008 spent $2 billion on software capabilities for value-added services
Dell Versus HP
US Market Share – Dell vs HP
0
5
10
15
20
25
30
35
40
1998 2000 2002 2004 2005 2006 2007
% o
f Mar
ket S
hare
DellHP
World Market Share – Dell vs HP
02468
101214161820
1998 2000 2002 2004 2005 2006 2007
% o
f Mar
ket S
hare
DellHP
• Conclusion – From 2005 declining trend in both US & World Market Share for Dell. HP has gained market share during that time. Possible reason for HP’s success is acquisitions (Compaq 2002, EDS 2008)
Is Dell’s Build to Order model still a competitive advantage or has it
become a liability?
Internal Analysis – Markets Served
Conclusion – Dell is strong in the US B2B market, but that strategy does not translate to success in B2C. Only 39% of sales generated outside US, compared to 67% global sales by HP.
Internal Analysis – Core CompetenciesCore
CompetencyDescription
Build to order •Build to order business model allows for JIT, keeping inventory costs down. Keeping manufacturing in-house enables control of quality and faster new product releases.
Direct to Customer
Sales
•Cuts out retail markup. Allows Dell to maintain higher profit margins and charge lower price.
B2B value added
services
•Services like asset tagging and software downloading differentiate Dell from competitors. Enabled by in-house manufacturing.
Build to order
Direct to Customer
Sales
B2B value-adds
Red – Easy for competitors to develop
Yellow – Possible for competitors to develop
Green – Very difficult for competitors to develop
Internal Analysis - Manufacturing
Build to Order/
D2C Sales
Conclusion – Dell already starting to outsource its competitive advantage. Can it still compete with HP in the B2C market?
Will outsourcing manufacturing impact their advantage in B2B
market?
Recommendations Develop a more focused strategy. Examine where the company is creating
the most value for customers and invest in that business line Focus on growth in B2B channel and the continued development of
value-added IT services Everyone competing on price, need to find new ways to create
value