Dell, an American multinational computer technology company, was founded in 1984 by Michael Dell. Established on a build-to-order and direct sales business model, the company rapidly established its position in the rigorously competitive global computer technology industry to become the largest personal computer (PC) and server vendor by 2003. In addition to PCs and servers, the company is involved in the development and retailing of computer-related products such as network switches, software, data storage devices, computer peripherals, as well as consumer electronics; all in which it commands a substantial share of the global market. Despite its robust position in the industry, the company has over the years faced significant competitive pressure, with the future presenting even more aggressive rivalry. This case study provides a strategic analysis of the company. First, a SWOT analysis of the company is provided. Second, attention is paid to the organization’s corporate-level and business-level strategies. Third, the analysis identifies the structure and control systems the organization uses to implement its strategy. Finally, recommendations for strategic improvement are provided.
A major strength of Dell stems from its build-to-order business model, which enables the company to reduce supply chain costs by eliminating distributors and retail dealers. This customer-driven model has seen the company lauded as one of the most efficient in the industry in terms of procurement, manufacturing, and distribution. The company’s competitive advantage further stems from its strong brand presence worldwide, creative advertising, unparalleled e-commerce capabilities, an increasingly diversified product portfolio, and excellent customer-service. Other strengths include quality- and cost-driven partnerships with suppliers, strong financial performance, localized manufacturing, rigorous quality control systems, as well as visionary leadership under its founder Michael Dell.
Despite these strengths, a number of weaknesses cannot be ignored. For instance, the company has historically paid little attention to the consumer market — its sales are largely driven by business and institutional clients. This is unlike most of its major rivals such as HP, Lenovo, and Apple, whose major sales come from the consumer market. Little inattention to individual consumers has placed the company at a disadvantage given that most individual customers often prefer trying out a product prior to purchase. This disadvantage has particularly been true in emerging markets such as China, where the notion of online shopping is largely at its infancy. Overreliance on the U.S. market (which accounts for over 60% of its total revenues) and a relatively limited history of acquisitions also constitute significant weaknesses for the company.
In addition to these weaknesses, Dell faces stiff competition from its rivals in the PC category, especially HP, IBM/Lenovo, Apple, Acer, Sony, and Gateway. In fact, HP and Lenovo have already overtaken Dell as the number one PC vendor worldwide. The company also competes with companies like Toshiba, Hitachi, Casio, Accenture, Sun Microsystems, Cisco Systems, Canon, and Epson in other product categories. In spite of this, low-cost manufacturing and customer centeredness remain Dell’s major weapons for fighting competitive pressure. Other threats include increasing maturity of the PC market (especially in the U.S. and other developed countries), reduced corporate expenditure on information technology (IT) products due to sluggish economic growth, declining unit prices for most IT products (especially PCs and servers), as well as increased preference for cheaper, standardized hardware. These threats may significantly hamper Dell’s competitive advantage in the industry.
Nonetheless, emerging markets in Asia and Latin America present a huge growth opportunity for Dell, particularly given that developed markets are increasingly becoming saturated. These markets have a combined population of more than 1.5 billion people. In addition, against the backdrop of tremendous economic growth, these markets have ever experienced increased internet connectivity as well as greater spending on IT products both at the individual and corporate levels. In fact, given the company’s little focus on the consumer market, paying greater attention to this opportunity can significantly boost its competitive position in the global computer technology industry. The good news is that the company has the necessary resources (financial, human, and technical) to take advantage of these opportunities.
Corporate-Level and Business-Level Strategies
Dell is an ideal definition of a global enterprise. The company has manufacturing facilities in the U.S., China, Malaysia, and Brazil; with its products reaching customers in more than 170 countries around the globe. A major hallmark of the company’s corporate strategy is its build-to-order manufacturing model, which is characterized by a remarkably shorter supply chain. Instead of outsourcing contract manufacturers and relying on distributors and retailers, the company assembles its products in-house and delivers them directly to the consumer. This places the company in a better position to deliver customer-specific offerings. The company’s attention to customer preferences is further embodied by its customer-based sales and marketing strategy. This is unlike most other technology companies, which structure their sales and marketing efforts on the basis of product lines. Diversification is also an important aspect of the company’s corporate level strategy. Whereas the company’s focus was initially on PCs and servers, today it commands a significant market share in products like software, computers peripherals, network switches, and data storage devices.
A build-to-order manufacturing model has enabled Dell to successfully pursue a cost leadership strategy. The company has traditionally sought to appeal to cost conscious and price sensitive consumers, which has given it a significant price advantage in the stiffly competitive global computer technology industry. In essence, Dell’s unique corporate- and business-level strategies have been a crucial source of competitive advantage for the company.
Structure and Control Systems
Though Michael Dell was a terrible manager during the early days of the company, he had become a confident, influential, and charismatic executive by the early 1990s. He fostered a culture of accessibility, authority delegation, and shared decision-making. This culture was instrumental in motivating Dell employees and winning their loyalty and respect. It was also crucial for reinforcing and maintaining the company’s customer-centered strategy. Today, Dell remains one of the best companies in the industry in terms of customer service and response to market needs.
Whereas Dell remains a powerful brand in the global computer technology industry, it cannot afford to rest on its laurels. Its glorious position in the industry has increasingly been threatened by rivals, with HP and Lenovo overtaking it as the number one PC vendor worldwide. Without more aggressive strategies, Dell’s market share may further be overtaken by other equally competitive rivals such as Acer, Sony, Apple, and Gateway. To boost its competitive advantage, it is first important for the company to pay greater attention to the consumer market as well as emerging markets, which have historically contributed insignificantly to its revenues. More importantly, the company should relook its corporate-level strategy. The company has largely grown through organic strategies, particularly during its first two decades in operation. Going forward, it is imperative for the company to pay greater attention to inorganic strategies, especially mergers and acquisitions.
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