Dell Case Study

Dell Case Study

Synopsis:

Dell Inc. had an amazing and humble start. It was founded in 1984 by a 19 year old Michael Dell. He would purchase “the excess inventory of local retailers, added features such as more memory and disk drives, and sold them [personal computers] out of the trunk of his car” (Wheelen, 2015, P 32-1). His continued endeavors of assembling standard components and selling discounted PC’s via direct marketing turned his trunk business into “the world’s leading direct marketer of personal computers and one of the top five PC vendors in the world… In 2005, Dell topped Fortune’s list of ‘Most Admired Companies.’ Fiscal year 2005… was an outstanding year in which the company earned US$3.6 billion in net income on US$55.8 billion net revenue.” (Wheelen, 2015, P 32-1 & 32-2).

Soon after 2005, Dell Inc. fallacies surfaced evidenced by falling sales. Since its inception Dell Inc. made $600,000 in sales its first year and this figure doubled every year thereafter. However, “[t]he company’s early growth resulted in disorganization… Growth had been pursued to the exclusion of all else” (Wheelen, 2015, P32-2). Further, its competition was not lackadaisical and started to imitate the successes of Dell Inc. especially its direct marketing model. Its venture and direct marketing model failed in some overseas locations where culturally the people preferred working with a sales person. Along with the rest of the computer industry the 2008 recession also took its toll on Dell Inc.

During this conjuncture Dell Inc. sought to imitate its former glory via management changes, cost reductions to include plant closures, a move back to selling to brick-and-mortar stores, increased its product line and even reorganized the company from a geographic structure to four global business units based on its customers.  To further combat its decline, Dell Inc. initiated a three prong strategy. The strategy sought to improve core business by focusing on growing desktop and mobile computing businesses. It shifted its portfolio to high-margin and recurring revenue by expanding into servers, storage, service and software. Lastly, it endeavors to maintain a strong balance sheet with sufficient liquidity to respond a dynamic industry. It remains to be seen if “Dell [should] continue with its current strategy of following the consumer market down in price and adjusting its costs accordingly or, like IBM, should it change its focus to more profitable business services, or like HP, should it try do both?” (Wheelen, 2015, P32-5).

Resources:

• Michael Dell’s reputation and credibility
• International company
• Direct marketing knowledge and experience
• Diverse supplier and manufacturer of technology and services
• Brand name
• Experienced executives
• Financial capital
• Human capital
• Master at process engineering
• Excellent supply chain management
• Ability to exploit standard technology
• Buyer power
• International manufacturing plants
• Retail store presence
• Ability to manage customer groups’ i.e. large enterprise, public, small and medium business and consumer.
• Experience with higher-margin computing services
• Positive perception of its products

Capabilities:

• Manufacturing of computing devices
• Direct marketing
• Employee knowledge
• Experienced executives
• Process Engineering
• Supply Chain Management
• Buyer power

Core Competencies:

• Diverse supplier and manufacturer of technology and services
• Brand name
• Direct marketing knowledge and experience
• process engineering
• supply chain management

Finding of Fact:

The Information Technology “Industry has shifted from desktop PCs to mobile computing, software and technology services – areas of relative weakness at Dell” (Wheelen, 2015, P 32-5).

Recommendations/Justifications:

Dell Inc. undoubtedly failed to appropriately scan its external environment leading to its oversight when the industry shifted from desktop PC’s to a more complete hardware, software, and IT support package.  It is recommended Dell Inc. take stock of their core competencies, heed current industry trends and expand its products and services to provide a full IT service to its customers. By offering a complete package Dell Inc. will meet one its three-pronged strategies and be able to “shift the portfolio to higher-margin and recurring revenue offerings by expanding the customer solutions business in servers, storage, services, and software.