Q1. Evaluate Dell's strategy over the period of the case, paying particular attention to sources of competitive advantage, strategic development and performance.
Dell was founded in 1983, by Michael Dell who became his career in medicine but soon abandoned his studies in his first year when he saw the opportunity for the business in this field. There main objective was to draw customer toward themselves, with out bringing too many intermediaries in the business. They have implemented the ‘Direct business model' which eliminates retailers that add unnecessary time and cost, or can diminish Dell's understanding of customer expectations and thus allows the company to builds systems to order.
Over the past few years, Dell has grown from no 5 to number 1 in the personal computer market. This has happened in the end of 2002. This growth occurred mostly in the US market, where it has improved its shares from 24.1 to 29.2 percent in 12 month at an expense of their close rivalry HP and Gateway. Dell has different product like servers, storage products, switches, workstation, etc.
One of the main objectives of dell was to grow globally; Michael Dell expanded his business through out the world. Countries like Australia, China, Japan, Korea, India, Taiwan, Malaysia, New Zealand, Singapore, and Thailand. The major computer system manufacture was in 6 locations - Austin, Texas, Nashville, Tenn.; Eldorado do Sul, Brazil (Americas), Limerick, Ireland (Europe and Middle East Africa).
The Dell Business Model
This model basically starts with the customer and end with the customers. It has 5 basic simple steps, first step was how to get build the most efficient path to the customer, Dell believe that the most efficient path to the customer is a through direct relationship with no intermediaries to add confusion and cost.
Secondly, the single point of accountability- they believe that technology sometime become too complex, so building things and making its simple was the key steps.
Thirdly- building the machines (computer) according to Order. They came with an idea about how they should build computer according to the customer need. By easy customising and ordering through the company website will help the customer build exactly what their need.
Fourthly- it's a low cost leader. They emphasised on the customer needs, by starting its production in the fastest and efficient way. In north of Round Rock, just north of Austin where the manufacturing plant is places, the process starts with an empty computer box starts off from this end, passes through a highly and most efficient factory line, which pass through different department and come out with the complete product. This process takes 90 minute, when the production line is working efficiently.
Finally the Dell Box is packed and delivered to the customer within fours days. The most important ingredient is Efficiency. Supplier has built their factories close by and inventory has been kept low.
Michael Porter's Generic Advantage Strategies:
Competitive advantage can be described in two ways in terms of a Firm's performance, which is low cost of differentiation. A firm's position in the market will be determines whether a firm's profitability is low or high or just average by its performance. The generic competitive strategies are further divided into three other parts which is called Cost leadership, differentiation and focus. The focus strategy has two variant, cost focus and differentiation focus.
matrix of competitive advantage vs. scope
Cost Leadership Strategies
In this strategies, a firm set out it main focus on cost by reducing it cost and becoming a low cost company in the market. This all depends on the structure of the company. This may include the scale of economic, technology management, preferential access to raw materials and many other factors. The company have to take advantage or even exploit all the different resources which will lead them to become a low cost producer. If they have achieve this then there will be above the average performer in the industry. Hence they can command prices closer or to an average range.
In this strategy, a company tries to come out with a product which is totally unique. The company try to come out with wider dimension which will be valued by the customers. The company will put one more or more attributes in their product which will be very important from the buyer point of view. Hence positioning it very uniquely to meet the needs of a buyer, this will be rewarded for its uniqueness with a premium price.
This Generic strategy deals both with cost and differentiation strategies. Which are categories in two parts, (a) Cost focus and (b) Differentiation focus? The focuser narrow down the competitiveness with in the industry. In Cost Focus the marketer seek for cost advantages in its target segment. Where as in differentiation focus a firm seek differentiation in its market seek. The both focus strategy relies on different segments of the market or targeting new segment. The target segment must have an unusual need of the buyer where as they must be able to deliver system which served best to the target segment. The different between the cost and the differentiation focus are that cost focus aims at the differences in the cost behaviour of a consumer where as the differentiation focus aims at the special need of the consumer in the market.
After analysing the Porter Generic Advantage Strategies, it can be seem that Dell business model was similar to the Porter Generic Advantage Strategies because Dell came up with the cost leadership strategies, where removing all the intermediaries and keeping the cost at minimal and taking advantage of the market as well as exploiting the technology system of their production line, etc. Hence, becoming the Low Cost Producer in the market, this has leaded them to be more than an average performer in the market and allowing them to control the prices.
The Value Chain
The value chain is the entire series of organisational work activities that add value to each step, beginning with the processing of raw materials and ending with the finishing products in hand of the end user. This theory was invented by Michael Porter, according to him; he wanted manager to understand the sequences of the activities which created value to the customers. He wants the manager to understand how value was fitted into an organisation and how each step of the product was valued.
The above diagram has being divided into two parts:
(a) Primary Activities
(b) Support Activities
There is different section like the inbound logistics, operations, outbound logistics, marketing and sales and service, which leads to Margin. It all starts from the inbound logistics where raw material are being delivered by the suppliers and have been stored, until further goes to operation where the goods are being manufactured and assembled altogether. The next step comes where the goods have to be sent to the consumer from the outbound logistics.
The crucial parts start here where the marketing and the sales department have to analyse and to focus the targeted customers. This procedure occurs through the marketing mix and marketing communication. The service department usually deals with the installation, customer service, customers' feedback and complaints, etc.
The support activity has being sub-divided into Procurement, technology development, human resource management and firm infrastructure.
Procurement deals with the purchase of all the raw materials at the lost prices and the highest possible quality. They will also be responsible for outsourcing and e-purchasing. The second steps comes is the technology department this is one of the most important area of the business, the best of technology mean, it will reduces lot of cost for the firm. This can include product technology, internet marketing, etc. It will give company a competitive advantage in the market.
The Human Recourse management (HRM) deal with the employee which is the vital resource for the company. The selection, recruitment, and training of the employees are managed by this department. The HRM strategy can be the driving force for the mission and objective of the firm.
Firm infrastructure provide with the Management Information System (MIS) which includes the corporate or strategic planning of the company. There are other department such as the Accounts Department for planning and control.
According to the Dell Case Study, they have set up a very good value chain management because; every step in their business model followed the value chain management. From the time the order has being placed to the time it has being finished. Each part plays a very important part. Hence they didn't forget Cost, keeping the lowest cost in the market at 10% of revenue compared to 21% of their rival Hewlett-Packard (HP), which in turn became the leader in the market during 2002; they have sold 5.22 million computers. They had a very highly efficient factory line and the suppliers were located close by. Every department contributed equally and hence making the product more valued to the customers. Even customers may review, configure and price systems within Dell's entire product line, order systems online, and tracks orders from manufacturing through shipping at waluechain.dell.com. Dell has realised the efficiencies of the internet based value chain.
Dell stated “innovate products and services that deliver great value and our people are doing that with the exceptional skill and efficiency” this statement differentiates Dell from other company. They ambition was to get revenue of $60 Billion in 2007. In regards to this ambition, the company has planned to extend in printers, handheld devices and unbranded- white box Personal Computer.
Dell Sales performance was immense; around 1500 new customer did business with Dell in quarter of 2002 in United States. The company has improved it worldwide market share from 13.5 % to 16% in the third quarter of 2002. In the third quarter of the year 2002, Dell has a significant growth throughout the world - Americas 72%, Europe/Middle East/ Africa 19% and Asia Pacific - Japan 9% in shares.
Dell launched its website in 1994, and added e-commerce capability in 1996. In the following year, Dell became the first company to touch the sales online of $1 Million. Their website had 920 million hits on their page in the third quarter of 2002. They website was accessible in 80 countries with 27 languages/dialects and business was done in 40 currencies.
Dell has a massive growth in different part of the world, there was a 28% unit growth in Asia- Pacific and Japan was more than three time the rate of the rest of the industry. Total company shipment rose up to 42% in China and 35% in Japan.
Q2. What Strategic alliances has Dell formed and in what way do these assist and complement Dell's growth and development?
A Joint venture or a Strategic Alliances is a partnership between two or more parties. In international joint ventures these parties will be based in different countries, and this obviously complicates the management of such an arrangement. There are many reasons for a strategic alliance, such as:
* Complimentary technology or management skill by both companies can lead to new opportunities in their existing sectors.
* It increased the speed of market entry in a new country.
* Global operations and production are expensive, hence alliances give competitive advantages.
* Reducing manufacturing cost, developing and diffusing new technologies rapidly.
* It can also be used to accelerate product introduction and overcome legal and trade barriers expeditiously.
* It is often the fastest, most effective method of achieving objectives.
There are four types of strategic alliances: joint venture, equity strategic alliance, non-equity strategic alliance, and global strategic alliances.
There are different steps in Joint venture such as:
* Its main objectives
* Cost/ benefits analysis
* Selecting partners
* Develop business plan
* Negotiation of joint- venture agreement
* Performance evaluation
The Advantages of Joint Venture are:
* Access to expertise and contacts n local markets. Each partner agrees to a joint venture to gain access to the other partner's skills and resources. The international partner contributes financial resources, technology or products. The local partner provides the skills knowledge required for managing a business in its country. Each partner then concentrates on their Value chain where the firm has it core competence.
* It reduces market and political risk
* Since knowledge and resources are being shared. Less management and lesser capital are required.
* It also overcome government restrictions
* It also avoid non-tariff barriers and local traffics
* Build good relation with the government through having a local partner.
The Disadvantages of Joint Venture are:
* There might be conflict due to the incompatible objective of each partner.
* It may lead to disproportionate
* It may also loss control over foreign operations.
* Partners may be locked into long term investments from which it is difficult to withdraw
* The importance of the joint venture to each partner may change over time
* There would be loss of flexibility and confidentiality
* Cultural differences may result in possible differences in management culture among participating firms
After analysing the Strategic Alliances concept, Dell has come a long way of alliance. It all started in the year 2002 where they have built relationship with EMC which resulted in more than 1500 Dell/EMC installations by their partnership's first anniversary. According to the International Data Corp (IDC), Dell was the leading provider of Linux-based severs by the first half of the year about 40% of the global market.
The partnership between Dell and EMC has bought revenue of more than $1 billion. In their first year of their operations more than 1500 customers purchased Dell/EMC storage systems. Hence there was a growth in their Precision work station which increased by 27% worldwide and 37% in the United States.
Dell has proved the concept of strategic alliance true by collaborating with EDS in 2002, where they were selected to be its global provider of Intel-based server, notebook and desktop computers to standardise computing hardware and software for more than 100,000 employees in 60 countries worldwide.
Dell has announced that Cox Communication the leading provider of broadband communication companies serving 6.3 million customers. Cox communication has expanded its relationship with Dell by installing eight Dell/EMC storage area network (SANs) in data across the country.
Dell system has moved into many different law firms like Paul, Hasting, Janofsky & Walker LLP and Dorsey Whitney LLP. They have merge with retails chain like Sears, Roebuck and Co. And Select Comfort. In the entertainment and sport business, Dell has played a very important role in IMAX digital re-mastering of Universal Pictures and Image entertainment's Apollo 13. Dell has become the official desktop for NBA and WNBA in October 2002.
IDC has estimated that Dell has installed more than 22,000 oracle database in 2002. Dell has completed more than 200 high performance computing cluster installation at business and institution around the world. These evidence prove how dell has utilise to its maximum limit of strategic alliance with different companies and have came out flying colour in the business world of computing and becoming the leader in the market.
Q3) Comment on the rationale behind the HP/Compaq merger and consider the likely impact on Dell's position in the future?
Management feels that bigger is better, then it may choose a growth strategy. This strategy is where an organisation attempts to increase the level of the organisation's operations. Growth can take the form of more sale revenues, more employees, or even more market share. The organisation archives this by new product development, quality improvement o by diversifying, which mean merging with or acquiring other firms.
Companies may also grow by merging with other companies or acquiring similar firm. A Merger occurs when two companies usually the same size; combine their resources to form new companies. An Acquisition which is similar to a merger usually happens when a larger company buy a smaller one for a set of amount of money or stock or even both. And incorporate the acquired company's operations into its own, these acquisition demonstrate a growth strategy where by companies expand through diversification.
In May 2002, both companies Hewlett Packard and Compaq Computer agreed to combined together to become number one in the service computing sector, beating their rivalry IBM.
According to the HP officials, that they were expected to complete the integration of Compaq by the end of 2003 and save $3 Billion in their operating expense which was about $500 Million more than it had projected before completing the $18.5 Billion acquisition. This is one of the main motives behind the merging.
Other main reason for this merger was to improve the customer base and improving employee morale, and reduce employee turnover, building CRM (customer relationship management). Compaq was taking a huge risk because the merging will take at least 3 to 4 years where as the product life cycle usually last that long. According to the survey 80% of acquisition fails and keeping the shareholder at risk.
Before the deal was even announced, both the companies have decided which manager would lead which market. According to the Peter Blackmore (head of HP's enterprise systems group) this merger was very much designed to show their customer and employees that they were ready. By insuring each steps like merging both companies email, putting the logo of HP on the employee pay check. Expanding HP's services division is also a big priority, and the company sees outsourcing as another potential investment.
The other main reasons were to capture the market and have a bigger part of the market. The merger bought HP to number three positions from number eight in the service market. There is an increase in employee touching a number of 65,000. The merging of both the companies was to be a powerful company to withstand any downfall of the economy or in other words to survive in the market. Only big companies can survive when the economy squeezes.
After the merger of Hewlett Packard and Compaq computer, impact on Dell's position in the future might be affected. There are options available for Dell and preparing for the future business. Looking at Dell position in the year 2002 where they have made an impressive growth in term of the product and capturing new customers.
Firstly they can either leave and doesn't bother about the merger of HP and Compaq. Secondly improving its own position in the market and does not take any mergers with some companies. Dell can adopt different strategies like price discount, producing cheaper goods, bring new innovative products. They can enter new market or expand the existing market by targeting new users, new uses, etc.
The merger between HP and Compaq will affect Dell position. To save it existing market share Dell can take different strategic approach:
There can implement different defences such as position defences, flank position, counter position and mobile position. In regards to the impact on Dell's future, they can opt for Mobile Defence because mobile defence involves constantly shifting resources and bring new strategies and tactics to survive in the market. This defence is to create a moving target and is very hard to attack. While preparing the defender with a flexible response mechanism and when the attack will occur. In the above case of Dell, they should introduce new product, technology and replacing the existing product or modifying the existing product. By changing they segment and targeting new market, improving their service which is e-commerce, reposition themselves and bring out different promotional focus. Hence this defence require a very flexible organisation with strong marketing skills.