1.
DELL STRATEGY
GROUP NO. 8

2.
About the Company
• Dell Computer is arguably the most successful business
among those established within the last thirty years
• A classic example : principles of strategic management have
been used to translate an innovative vision into a successful
and sustainable enterprise
• IT has been used not only to create competitive advantages at
the operational level, but also for strategic information
management.
• Dell also appears well positioned to extend its brand name
beyond mainstream computer products by leveraging its
reputation as an e-commerce leader.

3.
Heritage 1991
First notebook model
High focus on marketing
Forayed into retail marketing-
1985 abandoned in 1993
Advertised in national
computer magazines –
implemented the direct
selling strategy for an Late 1990’s
upgraded version of Dell’s Global expansion and high
PC growth
1988 Opened online superstore
9% market share
Changed name to “DELL Computer Forayed into servers
Corp”. Expanded globally
Dominant player in mail-order market
Focus on sales force and value added
1984 resellers
Started by Micheal Dell,
under the name “PC’s
Limited”

4.
Competitors
HP Compaq IBM Gateway
• Founded in 1939 • Founded in 1982 • Founded in • Founded in 1985
• Ranked 4th in • Ranked 1st in • Ranked 2nd in • Not in the top 5
global PC market global PC market global PC market (1997)
share(1997) share(1997) share(1997) • Built to order and
• Strong reputation • Sold through • Main strength sold direct
with corporate resellers, PC laptops, • Market leader in
clients retailer and corporate clients, education
• Partnered with distributors software segment
Intel for product • Had large application and • Went global in
innovations inventories service early 90’s
• Sold through • Used M&As to • Commanded
resellers grow in the late premium prices
1990’s • Allowed resellers
to custom build
PC

5.
Need for strategy
• Competing in a narrow margin segment of the computer industry—
hardware manufacturing
• Dell has been leading the pack with execution and innovation unmatched
by its competitors.
• Business expanded rapidly from 1989 to 1993,followed by a loss.
• Loss of focus: Dell had neglected its most profitable customer segments
and placed too much emphasis on the retail channel.
• Dell then redirected its attention to the most profitable segments -
corporations, and pulled out of its retail channel.

6.
Strategy
• To Achieve market leadership through Virtual
Integration of Dell's business with its supply partners
and customers & focusing on delivering the best
possible customer experience.
• Blue ocean created from within a red ocean
• Direct selling, from manufacturer to consumer, was a
key component of this strategy

7.
Strategy
• To Collapse margins through out the PC Market
• Build & strengthen customer intimacy & loyalty
• Low cost to company & differentiated product for customer
This need was fulfilled by
Direct to Customer business model approach
DELL DIRECT

8.
Supporting Trends
• Corporate customers were becoming sophisticated -
personal selling by salespeople was no longer required
• Individuals had become savvy and experienced technology
users
• Monitor, keyboard, memory, disk drive, software became
standard modules, permitting mass customization in PC
system configuration.

9.
Dell’s Direct Selling
• New Value Chain: Dell had no in-house stock of finished
goods inventories unlike competitors using the traditional
value chain model
• Pull Mechanism: It did not have to wait for resellers to clear
out their own inventories before it could push new models
into the marketplace (typically operated with 60-70 days
stock)
• Personalization: Customers got the satisfaction of having their
computers customized to their particular liking

10.
Traditional “build to stock value
chain”
Product Product
Component PC
Component Distributor Corporate
Manufactu
Manuf. /Reseller customer
rer
Order
Forecast
MicroAge,
CompuComp
Components

11.
DELL Direct Model
Product
Components
Component DELL Comp Final
manufacturer Corp customer
Order
Distributor

12.
Dell Direct
• Dell Computer’s direct model departed from the industry’s historical rules on
several fronts:
 The company outsourced all components but performed assembly.
 It eliminated retailers and shipped directly from its factories to end
customers.
 It took customized orders for hardware and software over the phone or via
the Internet.
 It designed an integrated supply chain linking Dell’s suppliers very closely to
its assembly factories and order-intake system

13.
EXECUTION

14.
Build-to-Order Manufacturing and
Mass Customization
• Workstations, servers were made to order  No Inventory
• Dell customers could order custom-built servers and
workstations based on the needs of their applications
• “Cell manufacturing" techniques reduced assembly time by
75 percent and doubled productivity per square foot of
assembly space.
• Assembled computers were tested, loaded with desired
software, shipped and delivered within five to six business
days of the initial order.

15.
Partnerships with Suppliers
• To partner with few outside vendors and stay with them as
long as they maintained their leadership.
• Dell committed to purchase a specified percentage of its
requirements from each of its long-term suppliers
• Dell shared its daily production schedules, sales forecasts,
and new-model introduction plans with vendors.to help
suppliers meet JIT delivery expectations
• Some of the vendors had plants or distribution centres within
a few miles of Dell's assembly plants and could deliver daily or
even hourly if needed.

16.
JIT
• Suppliers allowed Dell to operate with only a few days of
inventory for some components and a few hours of inventory
for others.
• Dell supplied data on inventories and replenishment needs to
its suppliers at least once a day—hourly in the case of
components being delivered several times daily from nearby
sources.
• In a couple of instances, Dell's close partnership with vendors
allowed it to operate with no inventories.

17.
SONY Monitors
• Supplier of monitors was Sony.
• The monitors Sony supplied with Dell name already imprinted
were of dependably high quality which required no testing or
separate shipment
• Shippers picked up computers from its Austin plant, then pick
up the accompanying monitors from the Sony plant in Mexico,
match the customer's computer order with the customer's
monitor order, and deliver both to the customer
simultaneously.

18.
Direct Sales
• Customer-driven system allowed quick transitions to new
generations of components and PC models.
• Quickly detected shifts in sales trends and getting prompt
feedback on any problems with its products.
• If similar complaints, the information was relayed
immediately to design engineers.
• When design flaws or components defects were found, the
factory was notified and the problem corrected within days

19.
Segmentation
Dell had made more homogeneous categories to serve every
customer well
• In 1998, 90% sales were business or government institutions
and of those 70% were to large corporate customers
• Sales representatives called on large corporate and
institutional accounts
• Sales to individuals and small businesses were made by
telephone, fax, and the Internet.

20.
Segmentation Chart

21.
Segmentation
• 1 call centre in the United States with toll-free lines
• Internationally, Dell had set up six call centres in Europe and
Asia that customers could dial toll free.
• The call centres were equipped with technology that routed
calls from a particular country to a particular call centre.
• Internet sales were equally divided between sales to
individuals and sales to business customers.

22.
Customer Service
• Service became a feature of Dell's strategy in 1986
• It provided free on-site service for a year after sale
• Contracted with local service providers to handle customer requests for
repairs
• On-site service was provided on a next-day basis
• Technical support via a toll-free number, fax, and e-mail.
• If a customer preferred to work with his or her own service provider,
training & spare parts were provided

23.
Customer Service
• Corporate support and service was charged
• Contracts with third-party providers to make the service calls
• When a customer with PC problems called Dell, the call triggered two
electronic dispatches—one to ship the needed parts from Dell's factory to
the customer sites and one to notify the contract service providers to
prepare to make the needed repairs as soon as the parts arrived.
• The service providers sent the bad parts back to Dell.
• Problems relating to faulty components or design were passed along to
the relevant supplier to improve quality control procedures or redesign

24.
Virtual Integration and Information-Sharing
• On-line communications were used to communicate inventory levels and
replenishment needs to vendors daily or even hourly.
• Dedicated on-site teams of Dell employees for corporate accounts
• Regional forums were used to stimulate the flow of information back and forth
with customers.
• Platinum Councils composed of its largest customers in the United States, Europe,
Japan, and the Asia-Pacific region.
• Customized intranet sites called Premier Pages were developed for its 3,000
largest global customers
• Gave customer personnel immediate on-line access to purchasing and technical
information about the specific configurations of products

25.
Virtual Integration and Information-Sharing
• The Premier Pages contained all of the elements of Dell's
relationship with the customer.
• The company also gave its large customers access to Dell's
own on-line internal technical support tools, allowing them
to go to www.dell.com and gain immediate access to the
database and problem-solving information that Dell's support
personnel used to assist call-in customers.

26.
Demand Forecasting
• Forecasting was viewed as a critical sales skill.
• Sales-account managers were trained on on how to lead large customers
through a discussion of their future needs for PCs, workstations, servers,
and peripheral equipment.
• Distinctions were made between purchases that were virtually certain
and those that were contingent on some event.
• Salespeople made note of the contingent events so they could follow up at
the appropriate time.
• With smaller customers, direct telephone sales personnel's would steer
customers toward configurations that were immediately available

27.
R&D
• Talked to customers frequently about "relevant technology,"
needs and problems to identify the most cost-effective
solutions.
• About 1,600 engineers worked on product development to
improve users' experience with its products—including
incorporating the latest and best technologies, making its
products easy to use and devising ways to keep costs low.
• Quality control and streamlining the assembly process was
of prime importance.
• Tracking all the new developments in components and
software to ascertain their usefulness to computer users.

28.
CRITICAL SUCCESS FACTORS

29.
Direct Sales
• No wholesalers or retailers to support, dealer mark ups were avoided. Channel
cost was 2% in comparison to 13-15% for indirect sales
• Also ,the company did not have to compete for valuable shelf space.
• Dell's overhead costs (selling, general and administrative expenses) in both 1999 &
2000 were less than 10% of its total revenues versus industry norms of 15-17 %.
• Dell is able to channels its resources into its increasingly efficient procurement,
manufacturing and distribution network, thereby minimizing product
obsolescence.
• A totally customer-driven system that allowed quick transitions to new
generations of components and PC models.
• The company is also able to maintain and support a customer relationship
database that provides immediate feedback from clients and helps to shape
product offerings.

30.
Direct Sales Model

31.
Minimum Inventory
DELL So Dell Has
HP Carries Inventory That’s 1 % a
Carries 11 A 10 % Cost
80 Days Depreciates week
Days Advantage
Inventory at 50 % roughly
Inventory On HP

32.
Minimum Inventory
• Each computer chip carries a 4 digit code eg 97-23 means this chip was
made in the 23rd week of 1997
• Obsolescence rate in components is very high.
• Dell Carries 11 days inventory as compared to Compaq with 80 days
inventory
• Hence, Dell can launch any new product 69 days faster than Compaq
• Shelf stock loses 50 % the moment a new computer is launched
• If components lose 50 % a year i.e. 1 % per week and Dell carries 11
days inventory compared to 80 of a competitor, this is a cost
advantage of 10 %

33.
Flexible Manufacturing
• By customizing orders - product tailored to customer’s desires while Dell
saved money and time on manufacturing.
• Allowed Dell to integrate production schedules with sales flows, assemble
all parts of the PC on site, and install the specific software that the
customer requested.
• These manufacturing interactions sped up the final products completion
time to thirty-six hours.
• Assembly times reduced by 75 % and productivity per square foot of
assembly space doubled.
• Assembled computers were tested, then loaded with the desired
software, shipped, and typically delivered within five to six business days
of the initial order.

34.
Flexible Manufacturing
• Quickening the delivery time.
• Suppliers preferred Dell because there inventory levels rarely
pilled up as inventory turnover was 60 times per year.
• Chain of integrations added value to the customer’s product,
while also adding value to Dell as a corporation.
• Reduced its working capital requirements by operating on
negative cash conversion cycle - receiving payment from its
customers before it pays its suppliers for components.

35.
Role of Internet
• Dell Computer could extend the reach and scope of the direct sales model
at a relatively low marginal cost.
• Ideally positioned to take advantage of the Internet because of its
distinctive supply chain.
• Unlike its major rivals, Dell did not face any channel conflict with resellers
or distributors by going online.
• With a build-to-order manufacturing process already in place, customers
could easily configure their own products online, just like they were
already doing over the telephone.
• Nearly 1.5 million people visited Dell's Web site weekly to view
information and place orders, about 20 times more than called to talk with
sales representatives over the telephone.

36.
Targeting & Segmenting
• Strategically targeted only the customers they wanted.
• Their customers did not need to go to a retail store to gain
knowledge about their product.
• Customers were categorized into Relationship buyers, large
businesses and institutions, and Transaction buyers, small business
and home PC users.
• Corporate customers tended to buy the most expensive computers,
Dell commanded the highest average selling prices in the
industry—over $1,600 versus an industry average under $1,400.

37.
Segmenting Customers
• On site teams - customer could focus their time and energy
on the core business rather than PC purchasing and servicing
issues. Eg Boeing
• Integration of Relational and Transaction buyers into
business system helped
– Quick repeat purchases
– purchasing history could be consulted,
– Follow up customer service was able to be more effective.

38.
Evading Price War
• Dell combated failing into the trap of a price battle by making a PC that
was a better product than the competitors, yet near their competitor’s
price.
• There costs were able to stay competitive while delivering an exceptional
product because their business kept internal costs low, thus showing the
effectiveness of “virtual integration.”
• The average selling price of a Dell business PC was close to $100 more
than the average price of an HP business PC which was its closest
competitor.
• Dell was able to evade a price war because its customers were aware of
the technological value in a Dell PC.

39.
Quick response
• Respond quickly to emerging problems and avoid costly
refunds and service calls.
• Dell responded rapidly when Intel shipped faulty Pentium
chips to PC makers in the mid 1990s.
• Dell knew exactly where the problem chips were and could
easily help customers to replace them.
• Rivals had to stop their production and ask their channel
partners to find the problem chips that had already been
sold or distributed.
• Dell's quick and efficient response attracted many new
customers.

40.
Financial indicators
• Since 1995, Dell had been gaining market share quickly
growing about three times the 16% average annual rate of
global PC sales.
• Dell overtook Compaq as the U.S. sales leader in the third
quarter of 1999 & IBM during 1998
• In 2001, Dell Computer was the PC market leader in the
United States, with a nearly 18 % share, Compaq 15%,
Gateway 9%, Hewlett-Packard with 8% and IBM with 7%.
• Year ending January 31, 2002, Dell Computer posted
revenues of over $31 billion, up from $ 3 billion in 1994 -- a
compound average growth rate of about 50 %.

41.
Financial Performance
Working Capital Turnover Ratio = (Net Revenue/Working Capital)*100
= (1215/12327)*100 = 9.8%
This means that for every $1 of working capital, $10 of revenue is
generated. This best exemplifies Dell’s successful business strategy.

42.
Activity Map
Sales
force suppliers Supplier
logistic R&D
centers
Market-
Demand
ing
pulling
Strategic
alliances
Low
Sales JIT inventory
pattern
Recogni-
tion
Forecast
-ing
Mass
Custom-
Direct Customer ization
Low
selling service
prices
Low
margins

43.
RECOMMENDATIONS

44.
Recommendations
• Foray into consultancy services
• Invest more into R & D activities
– A more focused approach towards the portable device market (ex: handhelds,
tabs, Mobile phones)
– Conduct surveys and then build desired models
• Consider offering online data back-up capabilities
• Follow a hybrid approach of direct and In-Direct selling in developing markets
– Virtual model apt for developed countries which had a 2nd or 3rd purchase on
hand
– Introduce intermediaries between market and Dell (retailers) for developing
markets
– Some customers need to touch and feel the product
• Reduce dependence on Intel by adding more suppliers in the processor domain
– Ex: AMD

45.
THANK YOU
Adhiraj Singh
Akshay Anand
Dipika Misra
Nalini Jain
Nikhil Singh
Ramit Gulati