Case Dell Inc.

in 2008 :

Can It Overtake Hewlett Packard as the Worldwide Leader in Personal Computers?

Oleh: Agus Hermawan Chrisna Julia Wildan Sulistyo

BIZTEL 8 IMT 2011

Company History
1986 1993 : Dell refine strategy, build an adequate infrastructure, and establish market credibility against better-known rivals Mid-to-late 1990 : Dells strategy started to click into full gear 2003 : Dells sell-direct and build-to-order business model and strategy most efficient procurement, manufacturing, and distribution capabilities in the global PC industry and given Dell a substantial cost & profit margin advantage over rival PC vendors.

Company History (cont.)

2004-2005 : Dell overtook Hewlett-Packard (HP) to become the global market leader in PCs. 2007 : Dell products received > 400 awards relating to design, quality, and innovation 2008 : Dell posted revenues of $61.1 billion and profits of nearly $3.0 billion. (ranked 34 largests U.S. corporations). 2008 : +/- 88,200 employees worldwide, up from 16,000 at year-end 1997; > 66% located in countries outside U.S Michael Dell : a very accesible CEO and a role model for young executive : an aggressive personality, an extremely competitive risk taker.

Vision and Business Concept

PC could be built to order and sold directly to customer Two advantage :
1. Bypassing distributors and retail dealers eliminated the markups of resellers 2. Building to order greatly reduces the costs and risks associated with carrying large stocks of parts, components and finished goods.

The Dells Strategy & Business Model

Four tenets to delivering superior customer value : 1. Selling direct to customers is the most efficient way to market because it eliminates wholesale and retail dealers that impede Dells understanding of costumer needs and expectations and that add unnecessary time and cost 2. Allowing customer to purchase custombuilt products and custom-tailored services is the most effective way to meet costumer needs.

The Dells Strategy & Business Model (cont.)

3. A highly efficient supply chain and manufacturing organization, grounded in the use of of standardized technologies and selling direct, paves the way for a low-cost structure where cost savings can be passed along to costumers I the form of lower prices Dell can deliver added value to costumer by:

4.

Researching all the technological options, Trying to determinate which ones are optimal in the sense of delivering the best combination of performance of efficiency,and Being accountable to costumers for helping them obtain the highest return of their investment in IT product and services. In almost all cases,non proprietary, standardized technologies deliver the best value to costumers.

The Dells Strategy & Business Model (cont.)

Dells strategy have 7 core elements : 1. Making build to order manufacturing progressively more efficient 2. Partnering closely with suppliers to squeeze cost saving out of the supply chain 3. Using direct sales techniques to gain costumers 4. Expanding into additional product and services to capture a bigger share of costumers IT spending 5. Providing good costumer service and technical support 6. Keeping R&D and engineering activities focussed squarely on better meeting the needs of costumers 7. Using standardized technologies in all product offering

The Dells Strategy & Business Model (cont.)

Continuosly search for ways to reduce costs (2008 reduce costs by $3 billion) The standard patterns for entering new products categories :
identify an IT product with good margins; Figure out how to build it or else have it built by others) cheaply enough to be able to significantly underprice competitive products; Market the new products to Dells steadily growing customer base Watch the market share points, incremental revenues and incremental profits pile up.

Comparative Value Chain models of PC Vendors

Traditional Build-to-stock value chain used by HP,IBM,Apple,Sony,Toshiba and most others Manufature and delivery of PC parts and component by suppliers Assembly of PC as needed to fill orders from distributors and retailers Sales and marketing activities of PC vendors to build a brand image and establish a network of resellers Services and support activities provided to PC users by resellers (and some PC vendors)

Sales and marketin g activities of resellers

Purchase s by users

Dells Build-to-order, Sell-Direct Value chain Manufature and delivery of PC parts and component by supply partner Custom assembly of PCs as orders are received are from PC buyers Sales and marketing activities of PC vendors to build a brand image and secure orders from PC buyers Services and support activities provided to PC users by Dell or contract providers

Purchases by PC users

US Market Share PC Vendor

Worldwide Market Share PC Vendor

Others Others

enovo/IBM

Gateway

Lenovo/IBM

Toshiba

1998 2000

Toshiba

1998 2000 2002

2002
Acer 2004 2005 Apple 2006 2007 Compaq Compaq HP Acer

2004 2005 2006

2007

HP

Dell

Dell

0%

10%

20%

30%

40%

50%

0%

10%

20%

30%

40%

50%

60%

Dell Revenue 2006

Consulting Storage & Enhanced Products Service 3% Servers and 7% Network 10% Desktop PC 39%

Storage Products Consulting 4% & Enhanced Service 9% Servers and Network 10% Software and Peripherals 16%

Dell Revenue 2007

Desktop PC 34%

Mobility Product 26% Software and Peripherals 15% Consulting & Enhanced Service 9% Servers and Network 11% Software and Peripherals 16%

Mobility Product 27%

Dell Revenue 2008

Storage Products 4% Desktop PC 32%

Mobility Product 28%

THE INFORMATION TECHNOLOGY MARKETPLACE IN 2008

PC Shipped
450

426
400 350 300 250 200 150 100 50 0 1 11 24 58 139 133 136 153 208 177 269 235 PC Shipped 302 368 335 398

How Dells Strategy Put Competitive Pressure on Rivals

Because of Dells success in using its business model and strategy to become the low-cost leader, most others PC makers had tried to emulate various aspects of Dells strategy, but with only limited success Nearly all vendors were trying to cut days of inventory out of the supply, reduce cost and operating expenses and begun outsourcing assembly to contract manufacturers and refocussing their internal efforts on product design and marketing. While most PC vendors would heve liked to adopt Dells sell-direct strategy, the confront confict problems:if they started to push direct sales hard, they certainly alienated independent dealer whom they depended for bulk sales and service to costumers During 2003-2007 several Dells rival were selling 15 to 25% of their product direct

Dells Future Prospects

Dell have a pretty simple system The most important : to satisfy the customers. The second : to be profitable Dell wasnt concerned about the efforts of competitors to copy many aspects of Dells build-to-order, selldirect strategy. Dell continue to : Expand the array of products that Dell sell Expand the array of services Expand on a geographic basis Build a business system that takes technological ingredients, translates into products & services, and gets then to the customer more efficiently than any company around

Dells Future Prospects (cont.)

A great portion of Dells growth from key market outside U.S (only 10 %). Dells grow in the enterprise with servers,storage and services. There is unrivaled the opportunity for the companys business given : number of people online globally (via PCs, cell phone, and other devices with Internet connectivity) increase from 1 billion in 2008 to over 2 billion by 2011. Connected Era

Dells Future Prospects (cont.)

By late Fall 2008 Global recessionary Dell was trying to sell its worldwide network of computer factories to reduce production costs. Dell had fallen behind contract manufacturers in producing notebook PCs cost efficiently. Dell referred as a two-two system but more costly than simply contract manufacturer in Asia entire assembly. But Dell had found no buyers. Dell outsourcing the full assembly of some laptop model to contract manufacturers to eliminate the extra costs of two-touch system significant progress in cutting operating expenses.

Product Category

Dell's Principal Competitors

Estimated Size of Worldwide Dell's Estimated Worldwide Market Share 2007

PC

Servers Data storage devices Network switches and related equipment Printer and printer cartridges

Hewlett-Packard (makers of both Compaq and HP brands); Lenovo, Apple, Acer, Toshiba, Sony, Fujitsu-Siemens (in Europe and Japan) $375 Billion Hewlett-Packard, IBM, Sun Microsystem, Fujitsu $60 Billion Hellwett-Packard, IBM, EMC, Hitachi Cisco System, Broadcom, Entrasys, Nortel, 3Com, Airespace, Proxim Hellwett-Packard, Lexmark, Canon, Epson Accenture, IBM, Hewlett-Packard, Fujitsu, EDS, many others $48 Billion

~15%

~11% ~5%

~$65 Billion

~2%

~$50 Billion

~5%

Services

~$748 Billion

<1%

Worldwide Market Share Q4 2007

HP 19% All Others 49% Acer* 7% Dell 15%

Lenovo 6%

Toshiba 4%

Worldwide Market Share Q1 2008

HP 19% All Others 44% Dell 16% Acer* 10%

Lenovo 7%

Toshiba 4%

Recommendation
Internal organization assessment and training is vital to maintain the high spirit of employees and increase their productivity. Organizations should decentralize and enable expansion through global technique. Building internal enterprise information systems is the most effective methodology for information and knowledge sharing. Establishing multiple touch points with customers, strengthen the relationship and increases satisfaction levels. Management support and strategic funding play a important role in online business The product have to meet global quality standards to get an advantage in a global competitive arena.

Thank You