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Dell strategic management

Strategic Turnaround

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Dell strategic management

  1. 1. DELL STRATEGIC MANAGEMENTOVERVIEWDELL Computers, a leading PC supplier to corporate and government customers, todayis now among the first companies to provide its customers with the next level ofindustry-standard Pentium processor power, while many vendors are still struggling tobroaden their processor-based product lines. Dells unique ability to take a marketstrategy position during important technology transitions because of its build-to-ordermanufacturing process. This build-to-order approach allows the company to maintainlow inventory levels and integrate emerging technologies into systems. Todayscustomers are reducing their supplier bases, providing the opportunity for the mostcapable suppliers to seize huge market share gains as Dell needs to redefine itsstrategy to make business capabilities within the core of the business model as itrequires creating a new strategy and bringing the companys core activities intoalignment with its business model in customer operations strategy, core operationscapabilities and organization structure. In 1994, Dell was a struggling second-tier PCmaker, 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 abuild-to-order process, eliminated its inventories through a just-in-time system, and soldits products directly to consumers putting these new supply chain capabilities at thecore 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 makea series of very difficult strategic tradeoffs to bring its functional activities into alignmentwith its new business model.DISCUSSIONSDell carefully targeted corporate relationship customers that had predictable, budgetedneeds and that wanted a predetermined set of product models. The company alsoselected individual customers who were high-end, repeat purchasers with a preferencefor early technology adoption. Both account segments had the stable, predictablepurchase patterns that Dell needed to make its joint build-product-to-order/buy-component-to-plan system work. Effective in-customer operations require powerfultechnical capabilities, crucial customer knowledge, and the ability to fit into thecustomers organization and work processes their unique customer knowledge andcustomer 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 incustomer market share as internet becomes a more pervasive and powerful element ofcompany business models, it offers companies the ability to differentiate them based ontheir in-customer operations. These enhanced capabilities make customer intimacy bothmore feasible and more efficient. Dell differentiated itself in the corporate market bydeveloping a set of extremely effective customer-specific intranet Web sites. Each Website was highly tailored to the customers individual situation. Dell worked with eachcustomer to specify a particular set of product configurations that would work best in the
  3. 3. customers network. Tailored offerings were specified and developed for each customer.At the same time, Dell used its direct links with both corporate and individual customersto get immediate, real-time insights about latent customer needs and to identify newgenerations of products and services.THE CHANNEL STRATEGY: RESOURCE PERSPECTIVESAn effective channel strategy which is a necessary element of supply chain mastery, theprocess of choosing a channel strategy, the supply chain master can create a powerfulnew channel that reduces its competitors access to important target accounts andmarket segments. In many industries, a battle looms between producers anddistributors and among horizontal competitors over customer ownership through inter-company supply chain relationships. Most successful supply chain-based strategiesoffer significant advantage that is either explicit and the ability to control pricing throughdirect customer relations is another key element of channel strategy. As it does with in-customer operations, the Web opens both new channel opportunities and newdimensions of customer service. However, this newly created channel must maintainthe fit between a companys account set and its business model. All too manycompanies lose sight of this critical factor as they indiscriminately pursue incrementalrevenues. Dells direct-to-customer channel strategy certainly is a breakthrough in theindustry. In the early stages of a technology products lifecycle, distributors areimportant for supporting new adopters. Dell has discerned a lucrative set of high-endcustomers that were ready for direct distribution with arms length customer supportfrom help lines.
  4. 4. An innovative direct channel strategy gave Dell these crucial elements of its powerfulbusiness 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 companys core business processes, many ofwhich focused on supply management. The new supply chain masters consolidatedtheir supplier bases in order to form more effective partnerships. The masterfulsuppliers that they kept realized large market share gains. Insightful suppliers also canhelp supply chain managers accelerate their supply chain mastery. Dell developed a setof 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 businessmodel. Dell worked at length to build an effective supplier management function in orderto shorten component lead times and maintain the absolute quality standards requiredby 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 raisedesperately needed cash. Yet even when faced with impending bankruptcy, Dells topmarketing and manufacturing executives still fought the establishment of the no-inventory make-to-order system. Only when they truly had no choice did thesemanagers embrace the new business model and begin to recast the organization tomake it work. The heart of Dells model is the critical weekly supply-demand matchingsession in which the top managers from sales, marketing, manufacturing, andpurchasing collaboratively decide the companys activities. This gives Dell theorganizational fluidity and cohesiveness to respond instantly to emerging customerneeds and market trends. Supply chain masters employ a powerful set of strategycreation and change-management skills to successfully lead their companies. We havedistilled the following five key elements of a supply chain mastery program from ourobservations of and work with successful companies: develop a fact base, engage yourcounterparts, sell the new business model, drive change in the other functions, andcreate a rollout game plan.The key to successful implementation of the new business model is to utilize a teamapproach with explicit behavioral drivers. The key functional counterparts mustcoordinate with each other--both in creating and implementing the business model--toachieve a joint result. They must share common performance objectives that span theirfunctional areas and be organized in a way (e.g. periodic meetings) that forces them tofocus systematically and often on their joint progress. These managers should be givendetailed information that enables them to identify the causes of poor or goodperformance 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 comewith the complex task of specifying and implementing the new business model. Dell hasused the team approach very effectively not only in creating its masterful strategy butalso in ensuring business model alignment on an ongoing basis. Dell makes computersin three hours but has a 60-day lead time for components. In order to balance thesystem, Dells top manufacturing and marketing executives meet weekly as a team todetermine which products are "makable" that week. Dell manages demand by usingday-to-day price changes and sales rep incentives to steer customer orders to themakable product set (this is the "sell what you have" system). These executives share acommon set of performance objectives and compensation measures, meet regularly tofocus on their common problems, and jointly analyze the information needed to developa common course of action.Dell maximizes its flexible-response capabilities by outsourcing component-partmanufacturing. Dell doesnt have substantial resources tied up in physical facilitiesdedicated to winning the first-to-market battle for each successive generation oftechnology but Dell invests in the information technology infrastructure that supportsreal time communication among its customers, its own manufacturing facilities,component suppliers, and airfreight carriers. Dell streamlines its operations and relieson its computer monitor suppliers to ship directly to the customer. As long as a supplierretains its strategic position, Dell will collaborate with it to achieve mutual success, but ifa particular supplier loses its edge, Dell has the flexibility to respond quickly andcustomer focused to ensure Dell continued competitiveness. In addition, customers areimportant 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 themselvesfrom end consumers. Dell, on the other hand, sells directly to consumers and iscontinuously communicating with them and benefiting, especially in two areas: seeingsales trends and learning about unmet customer needs. The sales trend data helps Dellmatch supply with demand, and information related to unmet customer needs translatesinto opportunities for innovation of products and services. The company also relies oncustomers knowledge of what they want to purchase and when they want to completethe transaction to drive the direct business model.To build customer intimacy and loyalty, Dell leverages its customers knowledge of theirown unmet needs. Dells brand image was and is shaped by customer feedback.Identifying the linked set of assets enables Dell to select strategy-focused, asset-basedbalanced scorecard measures that support the customer intimacy value propositioninclude:  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 Dells leaders to stay abreast of technology threats and opportunities that may alter the competitive landscape in the future.STRATEGIC FRAMEWORK: MARKET PERSPECTIVESAn Internet strategy must be considered within the context of the companys overallbusiness plan. The framework starts from the premise that supply chain decisions mustbe evaluated in a strategic context. The goal is to create a fit between the desiredstrategic position and the supply chain capabilities and processes used to satisfycustomer needs and priorities. A company defines its desired strategic position by firstranking its customers top priorities and then articulating how it plans to respond tothese needs. Typical customer needs include timeliness, accessibility, availability,customizability, quality of service, and price. At the same time, the company mustconsider the trade-off between how it would like to respond to customer needs and thesupply chain costs incurred to meet those needs. The efficient frontier represents thelowest cost of meeting a given level of customer need using the best available supplychain processes. Each point on the frontier corresponds to a particular supply chainstructure, employing the best available technologies, managerial policies, and inputs tomeet the desired level of a customer need at the lowest cost. As such, the efficientfrontier constitutes the state of best practices at a given point in time. It also shows theinherent trade-offs that a company must consider when selecting its strategic positiongiven limitations in process technology and policies. Companies can use such acharacterization 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 PCmanufacturers that must share some margin with retailers.Clearly, retailers are in a weaker position to exploit this e-business opportunity than areother members of the supply chain. For example, going online would benefit an airlinemore than a travel agent. Making online product and other information accessible to allmembers of the supply chain allows flexibility on price, product portfolio, andpromotions. The Internet makes information located at a central source (the sellersWeb server) available to anyone with Internet access, so that a change in price, productportfolio, or promotions only requires one database entry. Dell uses the Internet tochange prices and delivery times for different PC configurations regularly, based ondemand and component availability. Online product information allows a much fastertime to market because a product can be "introduced" as soon as the first unit isavailable. Speed is particularly valuable to industries with short product life cycles,where e-business provides an advantage over a "physical" product information model. Anew-product introduction in a traditional model requires a substantial volume of newproduct to be manufactured and transported to fill the physical channels. Negotiatingprices and contracts with customers and suppliers online allows price and servicecustomization. By accommodating individual requests, the e-business may customizeand price its product/service accordingly. Keeping customer profiles and having clients"log in" facilitates such price and service discrimination by allowing subsequentcustomer-specific routing.STRATEGIC PROCESS
  10. 10. DELL’s strategy is collapsing profit margins throughout the PC market, a diredevelopment for rivals who cant keep up. DELL is pricing its machines not so muchsuch 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. Socialfactors also affect the business environment of DELL. Computer companies have toacknowledge that in the Chinese culture, people are still unsure about credit card salesbecause of the huge expense of computers in China. Companies, then have to invest indoor-to-door or face-to-face operations to gain consumers’ faith and consumers trust inthe company and its product. DELL also has achieved the ISO 14001 EnvironmentalManagement 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 thegoal is to improve internal business environment performance in a continuousimprovement processes which are used to share successes throughout the company.DELL has positioned to extend its brand name beyond mainstream computer productsby leveraging its reputation as an e-commerce leader. In the year 2000, Dell began toredefine itself as the company that knows how e-business works. It has shared itsonline 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 theEDI tool gives very effective opportunities in reducing costs and it can establish the tightlinkage between DELL with its suppliers and DELL with its customer. DELL startedselling its own brand of handheld computers, called the Axim, at low price which can beconsidered 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 someapplications that are currently being used by DELL and they are critical to the coreoperations of DELL business and the DELL direct which are its operational factors forsuccess. Some applications that are currently being used by DELL that are valuable butare not considered for certain critical success.DELL TOWS ANALYSISIt is not surprising for Dell to determine where it wants to go in the future, it must assesswhere 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, acritical phase in the general planning process as it helps determine exactly where theorganization is and what resources it may or may not have. Strength assessmentidentifies what the department tends to do well and can include a skilled, professionalstaff and a modern, well-equipped facility. Weaknesses denote what the company maynot do so well or what diminishes its effectiveness. Inadequate financial resources mayfit into this category. Opportunities reflect what the organization might seize upon to dobetter. This area could include increasing community interactions and taking advantageof particular grants. Finally, threats are environmental factors that may hinderperformance as it could include a rising demand for service or increased legislativemandates that can impact resources. Managers should consider "SWOT" analysis forissues both external to the organization, such as population growth and increasedindustrialization 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 mostimportant aspects in the strategic management processTHREATSDELL’s threats are technological changes that are expected since technology can onlyget better. Global economy and increased competition in which DELL’s financial ratiosidentifies that they are no match for their competitors.OPPORTUNITYDELL has many opportunities such as potential growth in overseas markets, theindustry is still in a growth phase and the entering to the new product markets.WEAKNESSDELL’s weaknesses are single sourcing, new product market and reliance on corporateclients.STRENGTHSStrengths are internal resources and capabilities that have the potential to be corecompetencies. DELL’s core competencies are their cost strategy. In consistent to beingan integrated cost leader, DELL also produce high quality PCs by using their DirectBusiness Model approach and sells them directly to the customers. With this innovativeprocess, 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 effectivecomputing solutions to meet those needs.CRITICAL SUCCESS FACTORSDELL’s direct-to-customer business model is the key to the company’s dramatic growthand success and has focused on selling directly to customers. This helps eliminate themiddleman and offers customers more powerful configured systems than mostcompetitors. The direct model enables DELL to develop a thorough understanding ofcustomer expectationswhich strengthens customer relationships and increasescustomer satisfaction and loyalty. One of the characteristics that distinguishes DELLfrom its other competitors is that DELL provides the mode to custom the computers ofthe customers’ choice and taste and deliver the system to the customer as it is the mostcrucial and critical success factor behind DELL Computers. Therefore, DELL must beaware of the benefits they wish to realize, how it will be realized and ensure onlyinvestments of appropriate amounts of resources to obtain benefits. DELL relies onreputation in the US market of award-winning service and a high-quality product.Customer satisfaction and consumer awareness surveys should be conducted quarterlyto ensure the image that DELL creates for itself within a culture has not existed beforethere is a positive one. Market timing and speed are critical to many industries, such astechnology, pharmaceuticals, and some consumer goods.DELL’s competencies are their cost/ strategy. In consistent to being an integrated costleader, DELL produces high quality PCs by using their Direct Business Model approachand 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 potentialgrowth in overseas markets as the industry is still in growth phase and the entering ofthe new product markets. Henceforth, the threats are technological changes that areexpected since technology can only get better. Global economy and increasedcompetition in which DELL’s financial ratios identifies that the company is no match fortheir competitors. DELL’s most competitive force is the Direct-Model concept whichhelped them to reach above-average returns and remains in business today. Customershave developed a brand-name loyalty to Dell because of their low cost differentiationstrategy. The huge threat faced by DELL is the fierce competition in the industry. IfDELL enters into a merge it would not have to spend so much money and time trying todevelop 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 moneyfor product development if it is already developed. Furthermore, there will be plenty ofjoint financial support. If there is synergy between the two companies, their marketpenetration will be that much easier to achieve. DELL initiated ways to overcome itsweaknesses and use its strengths to gain advantages over its competitors- by carefulanalyzing of the factors that contribute to the company’s success in business strategiesthat had implemented created the path for the company’s continued success. fromAPPENDICESToday, in fast-moving areas such as wireless and hybrid cars, you can see how marketwindows open and close relatively quickly. The economic rents accrue to those who canthoughtfully scan the market environment and quickly spot profitable opportunities. Oneof 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 stayone step ahead of the competition. One way to analyze a competitors strategic intentand migration path is to assess its expansion plans into new market segments andoffering sets for example, think of Dell moving into printers or Microsoft moving into theCRM space.Although time-to-market is important, it doesnt mean doing things haphazardly orwithout some analysis. Often, companies do get stuck in an "analysis-paralysis" loopand dont take action until its too late. In companies, strategy means nothing more thana plan based largely on todays markets, todays product set and todays competitorsand emphasizing the financial forecast and such a strategy may successfully identifyopportunities to capture the upside of the current business over the next few years butcan rarely anticipate extreme competition, much less show how to reposition a businessto face it. Effective strategy should steer companies toward where an industry isheading and where it is today.BEST COMPETITIVE STRATEGYThe best competitive strategy is not to directly engage in a fight. Just as in legaldisputes, 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 andcompetition, has become quite popular in recent years. Many companies understandthe vicious cycle of "trading" customers at lower and lower margins in order to gainmarket share or win on price. In terms of designing a competitive intelligence system, itdoesnt 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 someoneaccountable for monitoring each area. Third, determine the best sources to collect infocompetitor Web sites, trade journals, press releases, financial reports, etc. Finally,create a few pro forma competitive intelligence reports that you can use to evaluate andtrack trends and material changes. Dells ability to change prices and delivery times onthe fly has been leveraged effectively to manage demand based on componentavailability over the common components.