Strategy Practice Assignment Dell Recommend
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Background: Dell, Inc was founded by Michael Dell with $1,000 in his University of Texas dorm room. Today, Dell has global revenues of $60 Billion and employs more than 105,000 employees. The majority of Dell’s revenues come from the mature markets in US, Europe and Japan. We will explore the strategic position of Dell Inc to gain an understanding of how the strategic misalignment developed. A recent Wall Street Journal article noted this point: “Dell said profit dropped 4.8% in its fiscal fourth quarter even as a surge in holiday computer demand lifted revenue 11% from a year earlier. Th e decline can be traced to the steep discounts that Dell is offering customers. In particular, Dell's consumer division—which accounts for about a quarter of the company's revenue—saw sales increase by 11% from a year ago to $3.5 billion, but its profit dropped more than 80% to $9 million.” The chief impediment to Dell’s strategic change has been its inertia over time, as it continued to focus on optimizing the efficiency of its operating model. This is referred to as “inside-out hubris” in a new book by Wharton Marketing professor George Day & Christine Moorman of Fuqua School of business. They write that Dell’s plight is typical of a company which becomes so good at what it does, in Dell case every process, every incentive; every cultural norm was optimized to deliver efficiently , bypassing the retail channel. Dell missed the cues from its market and when its strategy changed the organization continued along the old inertial path and failed to steer its competencies to adapt to the changing business environment. Dell’s Strategy:- Dell has refocused its strategy to rejuvenate growth by providing solutions that meet the customer needs. This change was to shift their portfolio to higher margins enterprise business and maintain a balance between liquidity , profitability and growth. The Strategy is built around:- 1) Efficient Enterprise Solution & Services: - Focused on expanding the Enterprise Solution & Services which includes storage, servers, networking and services. 2) Flex ible Value Chain: - Profitably grow the deskt op and mobility business and enhance the buying experience of customers online. 3) Profitabi lity and Growth: - Shift portfol io focus more to enterpri se solutions and services to improve profitability, financial flexibility. The above strategy shifts it towards becoming a diversified IT company and focuses on the higher margin segment of the computing industry. Customer expectations in the industry have created a growing demand for low-priced, differentiated products. As a result, Dell needs to be able to perform value chain activities that simultaneously yield low costs and differenti ated features, or an integrated cost leadership/diff erentiation strategy . Analysis of Dell’s internal & External environments :- The sources of a firm’s success can be understood by identifying the full set of alignments between its strategy and its environment (internal & external) which complement each other and enable the firm to achieve its goals. Conversely, understanding the sources of disappointing performance is a matter of identifying critical misalignments. Some misalignments are internal to the firm (for example, between goals and resources) or b etween any of the firm’s internal elements and its environment. The next step in a strategic analysis, therefore, involves asking two questions about alignment, the first focusing on internal alignment among firm elements, and the second b etween firm elements and features of its
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Background:
Dell, Inc was founded by Michael Dell with $1,000 in his University of Texas dorm room. Today, Dell hasglobal revenues of $60 Billion and employs more than 105,000 employees. The majority of Dell’srevenues come from the mature markets in US, Europe and Japan. We will explore the strategic position
of Dell Inc to gain an understanding of how the strategic misalignment developed.
A recent Wall Street Journal article noted this point:
“Dell said profit dropped 4.8% in its fiscal fourth quarter even as a surge in holiday computer demandlifted revenue 11% from a year earlier. The decline can be traced to the steep discounts that Dell isoffering customers. In particular, Dell's consumer division—which accounts for about a quarter of thecompany's revenue—saw sales increase by 11% from a year ago to $3.5 billion, but its profit droppedmore than 80% to $9 million.”
The chief impediment to Dell’s strategic change has been its inertia over time, as it continued to focuson optimizing the efficiency of its operating model. This is referred to as “inside-out hubris” in a newbook by Wharton Marketing professor George Day & Christine
Moorman of Fuqua School of business. They write that Dell’s plight is typical of a company whichbecomes so good at what it does, in Dell case every process, every incentive; every cultural normwas optimized to deliver efficiently, bypassing the retail channel. Dell missed the cues from itsmarket and when its strategy changed the organization continued along the old inertial path andfailed to steer its competencies to adapt to the changing business environment.
Dell’s Strategy:-
Dell has refocused its strategy to rejuvenate growth by providing solutions that meet the customer needs.This change was to shift their portfolio to higher margins enterprise business and maintain a balancebetween liquidity, profitability and growth. The Strategy is built around:-
1) Efficient Enterprise Solution & Services: - Focused on expanding the Enterprise Solution & Serviceswhich includes storage, servers, networking and services.
2) Flexible Value Chain: - Profitably grow the desktop and mobility business and enhance the buyingexperience of customers online.
3) Profitability and Growth: - Shift portfolio focus more to enterprise solutions and services to improveprofitability, financial flexibility.
The above strategy shifts it towards becoming a diversified IT company and focuses on the higher margin segment of the computing industry. Customer expectations in the industry have created agrowing demand for low-priced, differentiated products. As a result, Dell needs to be able to performvalue chain activities that simultaneously yield low costs and differentiated features, or an integratedcost leadership/differentiation strategy.
Analysis of Dell’s internal & External environments:-
The sources of a firm’s success can be understood by identifying the full set of alignments between itsstrategy and its environment (internal & external) which complement each other and enable the firm toachieve its goals. Conversely, understanding the sources of disappointing performance is a matter of identifying critical misalignments. Some misalignments are internal to the firm (for example, betweengoals and resources) or between any of the firm’s internal elements and its environment. The next step ina strategic analysis, therefore, involves asking two questions about alignment, the first focusing oninternal alignment among firm elements, and the second between firm elements and features of its
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environment.
SWOT Analysis: The SWOT Analysis of Dell indicates that its traditional strength of direct sales is beingchallenged by its traditional rivals as well as online retailers. The competitors have also adopted direct salesmodel and affected the growth of Dell. Although Dell has been able to keep its costs down through
outsourcing parts to its supplier’s and effectively managing its Supply chain this has reduced its differentiationas the same part are available to its competitors. This has created a challenge to its Enterprise Server marketwhich is dependent on on-site service and customization.
Strengths Weaknesses
1.Dell’s diverse product and serviceslineup 1. Reliance on Corporate andand large PC and server installed base
Institutional Salescreate opportunities to up sell
professional services 2.
Dell’s lack of profitability in
consumer PCs takes a toll on its grossmargin.
2.Leverage traction in servers, coupledwith
3. No presence among key studentimproving service and softwareportfolios,to meet growing demand for datacenter market.infrastructure build outs and boost
4. Weak presence in Retail Segmentcorporate top-line growth.
5. Heavy reliance on shrinking PC3. Supply Chain management
market which accounts for 20% of 4. Latest Technology
revenue5. Customization
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OpportunitiesThre
ats
1 Adopt onoftabl ets andsmar tph on es1 Fuel proftexpa nsion byever aging
forc omputng
acquisi tonsto shi fttheprodu ctm xfrom PCstoe nterpr sesouton s 2 HP andBM aso area soseeking
2 Expan sonne mergi ngmarke tss uchnor ga ncrevenu ea ndmargin
asCh na&ndi aby nvestng togrowth byever aging acqusi ton s to
expan dpresenc edevelop souton s.
3 Busine ssDversi fcat on3 ncr ea senChine se andTaiwa nes e
4 nn ova tonand ent ry ntotablet s andcompe ttorsn PC market
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Smar tph onem arket swthwind ows
OS.
St rat egicMi sal ign me nts:
Del hasal rea dy dversi fednto addi ton aprodu ct catego resna gnme nt wthtsbus nes sst rat egybut ts tgen erat es more tha n50% of ts reve nuefrom ts PC rel atedbus nes s.T hssas egme ntwhch has been mportant for Del to propery sca ei ts agngbus nes ses to thesize of the replac emen tm arketDel hadachiev ed succ essnthe PC segment bynt egr atngts tan gibl e,nt angbe res ou rces andorgan zaton acapa btes .D emantai ned comp ettvea dvantag e bystrengt heningi ts vauecha n whchtach eve dby mpemen tng 1) E-Commerce2 )nve ntory& Suppl ycha nmanag eme nt
The PCsegm ent has facednten se compet tona sow costman ufac turer sfrome mergi ng marketse ntered the market ted tothec ommo di tza tonof theP Cma rketAs these com panes aso hadaccess to the samesupp er base asDela nds mar suppyc han system sths erode dthecom pet tve advantage of De andedto adec nen thereve nue.
The rseof notebo oks, tny“net book s”and smar tph one ssuch asAp pe’s Phones forci ng PCmakers to ret hink the ver ydef ntonof a“per son acomput er ”At the same tme, Del hasost ts l ow -costedg eto ts Asanrval st hasni tatedc ostc utsn tsthn- prof tPC busness andnv estn new areas suchas “ent er prse servces ”
This duaaim of cut tng costp rmary asts ashes mor ethan$ 2bioni n costsove rthe nex tthreey ears, prmary from the suppyc han and saesgroup wh einv estngin new high margn enterpr seservice s aren confct
Dels transfor mat on maybein manu facturng, whi ch wastaored to ts o rgnadi rec ts aes strategy. The company esche wed nventory, and ts effcent fact or es quckyass emb ed bud-to-o rder PCsPlant sw ere oftenocatedi n ocal markets to speed updever ytme s. ButDel stuck tothat approa ch too ong, openingn ewpants nthe US wherval ss uch asAppe and HPshfted to Asa.
Sec ondy,D ehas bee nfocused on ncreasing the reve nueoutsidei ts dom nantPC busi ness through rel ated dversi fcat ons trategy.T hefoc uss tocreat ee conom esofs cope thr oug hsharng of ts resource s and capabtes (Ope raton s)and trans fer rng oneor more corpo rate-eve
core competen cies that wered evelop ednone of ts b usnesses tothe new busnes ses. How everthis requres nves tmen tofR&D exp enseto bud new dversfed of fer ngs. Dehas theow es tR&De xpens ein thendust ry andmted capa btes andwo ud pose achaeng eto the executon of ts busness st rat egy Whe Delh asb eenosng market sharenthe PC segm entt has notbeen abe to mak eanyinr oads nto theaternat e comp utngdev ces.
Al ternative sand Re com mendat ions :-
Wh eDeoo ks to reinv gorate growt hstrateg es, tsho udagn ts b usnes sstrateg es to eve ragets exist ngorgani zaton al res ources and capab testo devel op aceardi ffer ent aton advantag e. Wewook at aset ofrecom men daton swhch Del can adoptwi tho ut any drastcope raton achang es to mini mzedisr uptont o tssucce ssful corpo ratecul tur e and structure.
1. Dversfynt o Tablet sandmo be devces
Dels drect busine ss modewas a successin the PCnd ustrya ndthe grow thwas obtaine d thr oughinn ovat ngthe Supply cha nmanage men tfor acostea dershi p strategy. tw asa betotake mar ketshare from BM, Compa qa ndHP andposi ton tsel fasamar ketea der Demight beabeto repl ca te thi ssucce ss byeve ragngthe sec ond movers trateg yfor theeme rging markets. t can pggyback onthe suc cessof the Wndo wsOS phone and provde adue replac ement for ts agngP Cma rket Thsst rat egy how evercar res adepe ndency onthe suc cessof the Wndows pat for m. Dehas ast ron grel atonship wi th Micr osofton the PCenvronm en tand tcanlev erag etha treatons hip toe ntrenchi tse fn this segment
2. FurtherS egme nt andBud Reaton shps wthin the LargeCorpor at eAc counts(LC A) Segm ent
The LCAseg men ts whereDel s seengsom et ract on Trust and confde ncearemp or tant toLCA custom ersCur renty,t hi ssegmen th asbee naccoun tng for the revenu egrowt h ofDe Byfur the rsegm entngt he rmarke tsthe y wbeable to bud rea andm eaningf ul reatonsh ps drectywi th thei rc ustomers and prese nteven more taior edofferng s. Dels acqusi ton st rat egyhas add ed newofferng s ntoi ts fodand tc anutze theres ourcei nt angbty as source ofvaue crea tonthroug h corpor atereated nes snt angbe res our ces aredffcul tfor com pettors to u nderstand andmi tate. Delc anlev erag etsexpe renc ef rom thed rect saesand nteg rate tsacquisi tons to provdea super or experence for ts E nterprse custom ersn this way thereated dive rsi fca tonst rat egy whi chDel has embar kedon canh epc reatevalue
3. TakeDel Prva te to restructur e the compa ny for ma kngtc ompet tve.
Del hasto aggres svel yookat maki ngchange sto com peten theS mar tph oneand al ter nate computngt ec hnoogies wi th App eandS amsu ng. Thsw req ui re a tran sformat on ofthe rexstng bus nesswhi ch cannot bedone easiy bei ngapublc com pan ywhere shareh olde rshave asho rtterm vew.
4. Leverage the patent sportfolo of Deforlce nsingt he product to other manufactur ers :T hswould enabl eDeto creat ean addtonal reve nue stream for cen sing tsprodu ct to othe rmanufact ur ersand capi tal ze ontsasse tb ase.
