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Dell strategic management

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DELL STRATEGIC MANAGEMENT




OVERVIEW



DELL Computers, a leading PC supplier to corporate and government customers, tod...
simple pursuit of efficiency and asset productivity. However, the company had to make

a series of very difficult strategi...
customer's network. Tailored offerings were specified and developed for each customer.

At the same time, Dell used its di...
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Dell strategic management

  1. 1. DELL STRATEGIC MANAGEMENT OVERVIEW DELL Computers, a leading PC supplier to corporate and government customers, today is now among the first companies to provide its customers with the next level of industry-standard Pentium processor power, while many vendors are still struggling to broaden their processor-based product lines. Dell's unique ability to take a market strategy position during important technology transitions because of its build-to-order manufacturing process. This build-to-order approach allows the company to maintain low inventory levels and integrate emerging technologies into systems. Today's customers are reducing their supplier bases, providing the opportunity for the most capable suppliers to seize huge market share gains as Dell needs to redefine its strategy to make business capabilities within the core of the business model as it requires creating a new strategy and bringing the company's core activities into alignment with its business model in customer operations strategy, core operations capabilities and organization structure. In 1994, Dell was a struggling second-tier PC maker, the company ordered its components in advance and manufactured to inventory. Then Dell began to implement a new business model. It converted its operations to a build-to-order process, eliminated its inventories through a just-in-time system, and sold its products directly to consumers putting these new supply chain capabilities at the core of its strategy, Dell developed a supply chain mastery that went far beyond the
  2. 2. simple pursuit of efficiency and asset productivity. However, the company had to make a series of very difficult strategic tradeoffs to bring its functional activities into alignment with its new business model. DISCUSSIONS Dell carefully targeted corporate relationship customers that had predictable, budgeted needs and that wanted a predetermined set of product models. The company also selected individual customers who were high-end, repeat purchasers with a preference for early technology adoption. Both account segments had the stable, predictable purchase patterns that Dell needed to make its joint build-product-to-order/buy- component-to-plan system work. Effective in-customer operations require powerful technical capabilities, crucial customer knowledge, and the ability to fit into the customer's organization and work processes their unique customer knowledge and customer relationships created a set of barriers to entry that others could not overcome. It was this capability at the grassroots level that drove companies' meteoric increase in customer market share as internet becomes a more pervasive and powerful element of company business models, it offers companies the ability to differentiate them based on their in-customer operations. These enhanced capabilities make customer intimacy both more feasible and more efficient. Dell differentiated itself in the corporate market by developing a set of extremely effective customer-specific intranet Web sites. Each Web site was highly tailored to the customer's individual situation. Dell worked with each customer to specify a particular set of product configurations that would work best in the
  3. 3. customer's network. Tailored offerings were specified and developed for each customer. At the same time, Dell used its direct links with both corporate and individual customers to get immediate, real-time insights about latent customer needs and to identify new generations of products and services. THE CHANNEL STRATEGY: RESOURCE PERSPECTIVES An effective channel strategy which is a necessary element of supply chain mastery, the process of choosing a channel strategy, the supply chain master can create a powerful new channel that reduces its competitors' access to important target accounts and market segments. In many industries, a battle looms between producers and distributors and among horizontal competitors over customer ownership through inter- company supply chain relationships. Most successful supply chain-based strategies offer significant advantage that is either explicit and the ability to control pricing through direct customer relations is another key element of channel strategy. As it does with in- customer operations, the Web opens both new channel opportunities and new dimensions of customer service. However, this newly created channel must maintain the fit between a company's account set and its business model. All too many companies lose sight of this critical factor as they indiscriminately pursue incremental revenues. Dell's direct-to-customer channel strategy certainly is a breakthrough in the industry. In the early stages of a technology product's lifecycle, distributors are important for supporting new adopters. Dell has discerned a lucrative set of high-end customers that were ready for direct distribution with arm's length customer support from help lines.
  4. 4. An innovative direct channel strategy gave Dell these crucial elements of its powerful business model:  Real-time customer feedback and market insights  The ability to "sell what you have"--that is, using day-to-day pricing and sales incentives to shift demand toward products that are currently makable  Extremely crisp product life cycle transitions  Elimination of the obsolete and excess dealer stock that plagues the non-direct competitors  The ability to control pricing on a real-time basis. The capabilities were rooted in each company's core business processes, many of which focused on supply management. The new supply chain masters consolidated their supplier bases in order to form more effective partnerships. The masterful suppliers that they kept realized large market share gains. Insightful suppliers also can help supply chain managers accelerate their supply chain mastery. Dell developed a set of new operations capabilities in five crucial areas as it created the flawless make-to- order system that has been widely noted (but in fact is only one part of its business model. Dell worked at length to build an effective supplier management function in order to shorten component lead times and maintain the absolute quality standards required by the just-in-time operation. IMPLEMENTATION WAYS
  5. 5. Dell had no choice: It had to find a way of operating with no inventories in order to raise desperately needed cash. Yet even when faced with impending bankruptcy, Dell's top marketing and manufacturing executives still fought the establishment of the no- inventory make-to-order system. Only when they truly had no choice did these managers embrace the new business model and begin to recast the organization to make it work. The heart of Dell's model is the critical weekly supply-demand matching session in which the top managers from sales, marketing, manufacturing, and purchasing collaboratively decide the company's activities. This gives Dell the organizational fluidity and cohesiveness to respond instantly to emerging customer needs and market trends. Supply chain masters employ a powerful set of strategy creation and change-management skills to successfully lead their companies. We have distilled the following five key elements of a supply chain mastery program from our observations of and work with successful companies: develop a fact base, engage your counterparts, sell the new business model, drive change in the other functions, and create a rollout game plan. The key to successful implementation of the new business model is to utilize a team approach with explicit behavioral drivers. The key functional counterparts must coordinate with each other--both in creating and implementing the business model--to achieve a joint result. They must share common performance objectives that span their functional areas and be organized in a way (e.g. periodic meetings) that forces them to focus systematically and often on their joint progress. These managers should be given detailed information that enables them to identify the causes of poor or good performance in their respective subunits. In this organizational structure, they will have
  6. 6. the coordination and flexibility to make the many tradeoffs and adjustments that come with the complex task of specifying and implementing the new business model. Dell has used the team approach very effectively not only in creating its masterful strategy but also in ensuring business model alignment on an ongoing basis. Dell makes computers in three hours but has a 60-day lead time for components. In order to balance the system, Dell's top manufacturing and marketing executives meet weekly as a team to determine which products are "makable" that week. Dell manages demand by using day-to-day price changes and sales rep incentives to steer customer orders to the makable product set (this is the "sell what you have" system). These executives share a common set of performance objectives and compensation measures, meet regularly to focus on their common problems, and jointly analyze the information needed to develop a common course of action. Dell maximizes its flexible-response capabilities by outsourcing component-part manufacturing. Dell doesn't have substantial resources tied up in physical facilities dedicated to winning the first-to-market battle for each successive generation of technology but Dell invests in the information technology infrastructure that supports real time communication among its customers, its own manufacturing facilities, component suppliers, and airfreight carriers. Dell streamlines its operations and relies on its computer monitor suppliers to ship directly to the customer. As long as a supplier retains its strategic position, Dell will collaborate with it to achieve mutual success, but if a particular supplier loses its edge, Dell has the flexibility to respond quickly and customer focused to ensure Dell continued competitiveness. In addition, customers are important assets to Dell as the company introduced the direct model of its competitors
  7. 7. were selling computers to end consumers via distributors and detaching themselves from end consumers. Dell, on the other hand, sells directly to consumers and is continuously communicating with them and benefiting, especially in two areas: seeing sales trends and learning about unmet customer needs. The sales trend data helps Dell match supply with demand, and information related to unmet customer needs translates into opportunities for innovation of products and services. The company also relies on customers' knowledge of what they want to purchase and when they want to complete the transaction to drive the direct business model. To build customer intimacy and loyalty, Dell leverages its customers' knowledge of their own unmet needs. Dell's brand image was and is shaped by customer feedback. Identifying the linked set of assets enables Dell to select strategy-focused, asset-based balanced scorecard measures that support the customer intimacy value proposition include:  Training dollars spent per full-time equivalent by customer segment to ensure that well-educated business segment managers provide state-of-the art advice to customers  Number of collaborative customer-solution teams that motivate Dell to collaborate with its customers and jointly create technology solutions that fulfill any unmet customer needs
  8. 8.  Number of emerging technologies evaluated inspires Dell's leaders to stay abreast of technology threats and opportunities that may alter the competitive landscape in the future. STRATEGIC FRAMEWORK: MARKET PERSPECTIVES An Internet strategy must be considered within the context of the company's overall business plan. The framework starts from the premise that supply chain decisions must be evaluated in a strategic context. The goal is to create a fit between the desired strategic position and the supply chain capabilities and processes used to satisfy customer needs and priorities. A company defines its desired strategic position by first ranking its customers' top priorities and then articulating how it plans to respond to these needs. Typical customer needs include timeliness, accessibility, availability, customizability, quality of service, and price. At the same time, the company must consider the trade-off between how it would like to respond to customer needs and the supply chain costs incurred to meet those needs. The efficient frontier represents the lowest cost of meeting a given level of customer need using the best available supply chain processes. Each point on the frontier corresponds to a particular supply chain structure, employing the best available technologies, managerial policies, and inputs to meet the desired level of a customer need at the lowest cost. As such, the efficient frontier constitutes the state of best practices at a given point in time. It also shows the inherent trade-offs that a company must consider when selecting its strategic position given limitations in process technology and policies. Companies can use such a characterization to decide how they can best use e-business initiatives to support their
  9. 9. strategic position. As a result, Dell enjoys higher margins than do traditional PC manufacturers that must share some margin with retailers. Clearly, retailers are in a weaker position to exploit this e-business opportunity than are other members of the supply chain. For example, going online would benefit an airline more than a travel agent. Making online product and other information accessible to all members of the supply chain allows flexibility on price, product portfolio, and promotions. The Internet makes information located at a central source (the seller's Web server) available to anyone with Internet access, so that a change in price, product portfolio, or promotions only requires one database entry. Dell uses the Internet to change prices and delivery times for different PC configurations regularly, based on demand and component availability. Online product information allows a much faster time to market because a product can be "introduced" as soon as the first unit is available. Speed is particularly valuable to industries with short product life cycles, where e-business provides an advantage over a "physical" product information model. A new-product introduction in a traditional model requires a substantial volume of new product to be manufactured and transported to fill the physical channels. Negotiating prices and contracts with customers and suppliers online allows price and service customization. By accommodating individual requests, the e-business may customize and price its product/service accordingly. Keeping customer profiles and having clients "log in" facilitates such price and service discrimination by allowing subsequent customer-specific routing. STRATEGIC PROCESS
  10. 10. DELL’s strategy is collapsing profit margins throughout the PC market, a dire development for rivals who cant keep up. DELL is pricing its machines not so much such as high-tech products but more like airline tickets and low margin commodities. DELL has tight competency with other big computer sellers like Compaq and HP. Social factors also affect the business environment of DELL. Computer companies have to acknowledge that in the Chinese culture, people are still unsure about credit card sales because of the huge expense of computers in China. Companies, then have to invest in door-to-door or face-to-face operations to gain consumers’ faith and consumers trust in the company and its product. DELL also has achieved the ISO 14001 Environmental Management System (EMS). DELL aims at product design, transportation and so on. As a part of DELL’s ISO 14001 EMS, the organization implemented goals where by the goal is to improve internal business environment performance in a continuous improvement processes which are used to share successes throughout the company. DELL has positioned to extend its brand name beyond mainstream computer products by leveraging its reputation as an e-commerce leader. In the year 2000, Dell began to redefine itself as the company that knows how e-business works. It has shared its online sales expertise with a few large customers as they developed their own e- commerce capabilities. DELL faces some forces from its competitors in terms of Information Technology as the EDI tool gives very effective opportunities in reducing costs and it can establish the tight linkage between DELL with its suppliers and DELL with its customer. DELL started selling its own brand of handheld computers, called the Axim, at low price which can be considered as high potential and CEO, Mr. Michael Dell stressed how DELL’s success
  11. 11. lay in making it as easy as possible for someone to buy a computer. There are some applications that are currently being used by DELL and they are critical to the core operations of DELL business and the DELL direct which are its operational factors for success. Some applications that are currently being used by DELL that are valuable but are not considered for certain critical success. DELL TOWS ANALYSIS It is not surprising for Dell to determine where it wants to go in the future, it must assess where it is now as a part of the strategic planning process managers can call on the "SWOT" team for assessing Dell strengths, weaknesses, opportunities and threats, a critical phase in the general planning process as it helps determine exactly where the organization is and what resources it may or may not have. Strength assessment identifies what the department tends to do well and can include a skilled, professional staff and a modern, well-equipped facility. Weaknesses denote what the company may not do so well or what diminishes its effectiveness. Inadequate financial resources may fit into this category. Opportunities reflect what the organization might seize upon to do better. This area could include increasing community interactions and taking advantage of particular grants. Finally, threats are environmental factors that may hinder performance as it could include a rising demand for service or increased legislative mandates that can impact resources. Managers should consider "SWOT" analysis for issues both external to the organization, such as population growth and increased industrialization and internal to it, such as an aging workforce that might result in
  12. 12. competing priorities for resources. "SWOT" analysis constitutes one of the most important aspects in the strategic management process THREATS DELL’s threats are technological changes that are expected since technology can only get better. Global economy and increased competition in which DELL’s financial ratios identifies that they are no match for their competitors. OPPORTUNITY DELL has many opportunities such as potential growth in overseas markets, the industry is still in a growth phase and the entering to the new product markets. WEAKNESS DELL’s weaknesses are single sourcing, new product market and reliance on corporate clients. STRENGTHS Strengths are internal resources and capabilities that have the potential to be core competencies. DELL’s core competencies are their cost strategy. In consistent to being an integrated cost leader, DELL also produce high quality PCs by using their Direct Business Model approach and sells them directly to the customers. With this innovative process, DELL cuts out the intermediary, excluding the associated cost as the company
  13. 13. can understand the customers’ needs better and can provide the most effective computing solutions to meet those needs. CRITICAL SUCCESS FACTORS DELL’s direct-to-customer business model is the key to the company’s dramatic growth and success and has focused on selling directly to customers. This helps eliminate the middleman and offers customers more powerful configured systems than most competitors. The direct model enables DELL to develop a thorough understanding of customer expectationswhich strengthens customer relationships and increases customer satisfaction and loyalty. One of the characteristics that distinguishes DELL from its other competitors is that DELL provides the mode to custom the computers of the customers’ choice and taste and deliver the system to the customer as it is the most crucial and critical success factor behind DELL Computers. Therefore, DELL must be aware of the benefits they wish to realize, how it will be realized and ensure only investments of appropriate amounts of resources to obtain benefits. DELL relies on reputation in the US market of award-winning service and a high-quality product. Customer satisfaction and consumer awareness surveys should be conducted quarterly to ensure the image that DELL creates for itself within a culture has not existed before there is a positive one. Market timing and speed are critical to many industries, such as technology, pharmaceuticals, and some consumer goods. DELL’s competencies are their cost/ strategy. In consistent to being an integrated cost leader, DELL produces high quality PCs by using their Direct Business Model approach and sells them directly to the customers. DELL’s weaknesses are single sourcing, new
  14. 14. product and reliance on corporate clients. DELL has opportunities like the potential growth in overseas markets as the industry is still in growth phase and the entering of the new product markets. Henceforth, the threats are technological changes that are expected since technology can only get better. Global economy and increased competition in which DELL’s financial ratios identifies that the company is no match for their competitors. DELL’s most competitive force is the Direct-Model concept which helped them to reach above-average returns and remains in business today. Customers have developed a brand-name loyalty to Dell because of their low cost differentiation strategy. The huge threat faced by DELL is the fierce competition in the industry. If DELL enters into a merge it would not have to spend so much money and time trying to develop a face-to-face communications, if the local business is already well known. According to cost saving benefits, the company will not have to spend any extra money for product development if it is already developed. Furthermore, there will be plenty of joint financial support. If there is synergy between the two companies, their market penetration will be that much easier to achieve. DELL initiated ways to overcome its weaknesses and use its strengths to gain advantages over its competitors- by careful analyzing of the factors that contribute to the company’s success in business strategies that had implemented created the path for the company’s continued success. from APPENDICES Today, in fast-moving areas such as wireless and hybrid cars, you can see how market windows open and close relatively quickly. The economic rents accrue to those who can thoughtfully scan the market environment and quickly spot profitable opportunities. One of the hottest areas in technology and business process today is around predictive
  15. 15. analytics, which is all about helping companies to determine their next move and stay one step ahead of the competition. One way to analyze a competitor's strategic intent and migration path is to assess its expansion plans into new market segments and offering sets for example, think of Dell moving into printers or Microsoft moving into the CRM space. Although time-to-market is important, it doesn't mean doing things haphazardly or without some analysis. Often, companies do get stuck in an "analysis-paralysis" loop and don't take action until it's too late. In companies, strategy means nothing more than a plan based largely on today's markets, today's product set and today's competitors and emphasizing the financial forecast and such a strategy may successfully identify opportunities to capture the upside of the current business over the next few years but can rarely anticipate extreme competition, much less show how to reposition a business to face it. Effective strategy should steer companies toward where an industry is heading and where it is today. BEST COMPETITIVE STRATEGY The best competitive strategy is not to directly engage in a fight. Just as in legal disputes, there is often a high risk-adjusted cost in waging price or market-share battles, the same as in litigation. Competition, a combination of the words cooperation and competition, has become quite popular in recent years. Many companies understand the vicious cycle of "trading" customers at lower and lower margins in order to gain market share or win on price. In terms of designing a competitive intelligence system, it doesn't have to be overly complex. You first need to define the competitive areas that
  16. 16. are important at an offering, market and company level. Second, make someone accountable for monitoring each area. Third, determine the best sources to collect info competitor Web sites, trade journals, press releases, financial reports, etc. Finally, create a few pro forma competitive intelligence reports that you can use to evaluate and track trends and material changes. Dell's ability to change prices and delivery times on the fly has been leveraged effectively to manage demand based on component availability over the common components.

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