Dell inc. Business model
Submitted by Mobiot yves-andre
Course name PPN
• what is a business model?
• what are the various component of a business
• Brief history about dell
• what is the dell business model?
• how dell is competing with his competitor (exp
• SWOT analysis of dell
what is a business model?
• A business model describes the rationale of how an
organization creates, delivers, and captures value
(economic, social, or other forms of value). The process of
business model construction is part of business strategy.
• A business model includes nine basic building blocks
what are the various component of a
A business model represents how a company makes or intends to make
money by turning its innovation into profit. Since 2000, theorists have created
dozens of lists of business model components, all differing slightly from one
another. Three Swiss business professors, Alexander Ostenwalder, Yves
Pigneur, and Christopher L. Tucci, analyzed various models and found that the
components fell into nine major categories. A 10th component, outside the
nine categories, is the producer.
• Each model includes the entity that offers a product or service. In most
models, the company itself fills this position and is the producer of the
product. Sometimes, for example, the company delivers, rather than
makes, the product. That company, then, is the producer of the delivery
Offer or Value Proposition
• The value proposition is the perceived value your products provide as the
solution to the consumer's problem or need. Typically this is a physical
product, but services, digital products, intellectual property and ideas are
all value propositions. Often, companies will offer a product and a related
service together, such as a car and its maintenance.
Target Market Segment
• The targeted market is the group of consumers your plan to offer the value
of your product to. Since different markets use the same or similar
products, adding multiple segments can increase the potential gain for
Distribution or Movement Channel
• Getting your product to its target market, from advertising to retail
outlet, is the distribution, or movement, channel. This establishes the
means by which your business relates to your customers.
• How you establish relationships with your various customer segments is
your consumer relationship. It defines how you gain their trust and deliver
your product. Brand recognition falls under this area, as does customer
Value and Resource Configuration
• How you utilize the activities, personnel, and resources necessary to
produce your product are your value and resource configuration or value
chain. This configuration is the basis for your cost and revenue structures.
• The basic knowledge, skill set, abilities, and expertise required to produce
your product is your core competency. Initially, it rests in the owner-
innovator and the team she surrounds herself with to bring the product to
market. (See References 5)
Network or Affiliation Partners
• The partner network represents agreements between your business and
other companies necessary to produce and market your product. They
include materials and parts suppliers, retail outlets, shippers, advertising
agencies, and media outlets. Commercializing the value of your product
relies on your partnerships. (See References 5)
• The expense required to manufacture a product or provide a service is the
cost structure. This includes fixed costs such as leases or mortgage
payments, and variable costs, such as research and
development, marketing, shipping, and payroll. The ratio of fixed costs to
variable costs represents the cost structure. (See References 5)
• The ways a company makes income are its revenue streams. Most often
this is income due to sales. However, it can refer to bartered goods and
value-added returns from consumers, partners or third parties such as
unsolicited viral or social marketing. (See References 1, 2 and 5)
Brief history about dell
• Founded by Michael Dell in 1984 and was initially named as
• Initially sold IBM PC-compatible computers built from stock
• In 1985, the company produced the first computer of its own
design, the "Turbo PC“
• Changed its name to "Dell Computer Corporation" in 1988
and began expanding globally.
• Listed in Fortune 500 largest companies in 1992.
1983-- Michael Dell starts business of pre-formatting IBM PC HD’s on
1985-- $6 million sales, upgrading IBM compatibles for local businesses
1986-- $70 million sales; focus on assembling own line of PC’s
1990-- $500 million sales; with an extensive line of products
1996-- Dell goes online; $1 million per day in online sales; $5.3B in annual sales
1997-- Dell online sales at $3 million per day; 50% growth rate for 3rd
consecutive year, $7.8B in total annual sales.
2005-- $49.2B in sales
what is the dell business model?
• Demand Forecasting: Accurate sales forecasts are key to keeping costs
down and minimizing inventories, given the complexity and diversity of
the company’s product line.
• Research and Development: To sort out all the new technology coming
into the marketplace and help steer customers to options and solutions
most relevant to their needs.
• Advertising: Dell firmly believes in the power of advertising and frequently
espouses its importance in the company’s strategy. Dell’s competitive zeal
resulted in the company’s being the first to use comparative ads, throwing
barbs at Compaq’s higher prices.
• Increased Emphasis on Servers and Storage Devices: Extending the Dell
brand beyond strong desktop and notebook franchises is driven by the fact
that the use of servers by corporate customers has been growing rapidly.
The margins on servers are large. Moreover, purchase price is not as
significant a factor in selecting which brand of server to buy because
servers required far more in the way of service, support, and software.
• Dell’s Introduction of a WebPC: In December 1999, Dell unveiled a new
line of PCs stripped of fancy features and equipped for easy, quick Internet
access by novices. Dell believed the new line would help broaden the
market for its products and give it a growing presence in the consumer
and small-business segments.
how dell is competing with his
competitor (exp HP)?
Above Data shows DELL is a perfect example of a Lean
Enterprise System: servers, workstations, storage, network products
Client Systems: notebooks, PC, printing, imaging systems, software and
Dell Financial Services (DFS) – joint venture with Citi group
• Internet coupled with Direct Business Model
- sell directly to end customers instead of intermediate distributors,
• Virtual Integration
- using sophisticated CRM, SCM systems at respective ends as well their
- already integrated with 38 procurement and ERP systems across all its
- vendors – Ariba, SAP, PeopleSoft, J.D. Edwards – Dell integrated with
their ERP (Source: Rob Rosenthal, Dell’s B2B web site strategy, October
2003, IDC #30202)
• Selling Points
- Internet, B2B (Premier Pages), Phone-calls, Mass catalog mailings
• Do not Just sell Products – sell Values
- client asked to put tags on their computers
- proactive in solving clients pain points – preloaded software
• Dell was much less mature compare to IBM and HP at time when
Internet took off
– required much less effort to adapt its systems to Internet technologies.
• IBM and HP’s core competency was product innovation and
development, Dell’s expertise was in assembling and catering to business
• Web Penetration rate
- What percentage of users contacted Dell based on information on given
• Web failure rate
- What percentage of users contacted Dell because users failed to find
their information on web pages
• Outstanding Question: what will matter most to customers moving
In IDC opinion:
Introduce solution packages that focus on overall business goals instead of
Introduce configurators for high-end server and storage products
Source: Rob Rosenthal, Dell’s B2B web site strategy, October 2003, IDC #30202
SWOT analysis of dell
• Dell is one of the worlds best and most known
brands. So is it all a rosy picture for dell. This
swot analysis of Dell points out chinks in
Armour of dell’s fortress.
• Dell is the World's largest PC maker. Profits for the 3 months to July 2005
were in excess of $1 billion US, representing a growth of around 28%. For
the last couple of years it has held its position as market leader (it took it
from rivals Hewlett-Packard). The Dell brand is one of the best known and
renowned computer brands in the World.
• Dell cuts out the retailer and supplies directly to the customers. It uses
information technology, and Customer Relationship Management (CRM)
approaches to capture data on its loyal consumers. So a customer selects
a generic PC model, and then adds items and upgrades until the PC is
kitted out to the customer's own specification. Components are made by
suppliers, never by Dell. PC's are assembled using relatively cheap labour.
You can even keep track of your delivery by contacting customer services,
based in India. The finished goods are then dropped off with the customer
by courier. Dell has total command of the supply chain.
• The company has such a huge range of products and components from
many suppliers from a plethora of countries, that there is the occasional
product recall that can cause Dell some embarrassment. In 2004 Dell had
to recall 4.4 million laptop adapters because of a fear that they could
overheat, causing electric shocks or fires.
• Dell is a computer maker, not a compute manufacturer. It buys from a
group of concentrated hi-tech component manufacturers. Whilst this is a
tremendous advantage in terms of business operations, allowing Dell to
focus on marketing and logistics, the company is reliant on a few large
suppliers, and to an extent is locked in for periods of time (i.e. unable to
switch supply dues to the lack of large suppliers in the World).
• Kevin Rollins replaced Michael Dell in 2004 as Dell's Chief Executive
Officer. Dell remained the company's Chairman. Despite founder Dell's
massive success, new blood and a change in management thinking could
lead the company into a new, even more profitable period. Dell was born
in 1965, and founded Dell in 1984 with $1000 whilst studying at the
University of Texas. He became the youngest Fortune 500 CEO in
1992, and will be a tough act to follow.
• Dell is pursuing a diversification strategy by introducing many new
products to its range. This initially has meant good such as peripherals
including printers and toners, but now also included LCD televisions and
other non-computing goods. So Dell compete against iPod and other
consumer electronics brands.
• Dell is making and selling low-cost, low-price computers to PC retailers in
the United States. The PC's are unbranded and should not be recognised
as being Dell when the consumer makes a purchase. Rebranding and
rebadging for retailers, although a departure for Dell, gives the company
new market segments to attack with the associated marketing costs.
• The single biggest problem for Dell is the competitive rivalry that exists in
the PC market globally. As with all profitable brands, retaliation from
competitors and new entrants to the market pose potential threats. Dell
sources from Far Eastern nations where labour costs remain low, but there
is nothing stopping competitors doing the same - even sourcing the same
or similar components from the same or similar suppliers. Remember, Dell
is a PC maker, not a PC manufacturer.
• Dell, being global in its marketing and operations, is exposed to
fluctuations in the World currency markets. Although it is a very lean
organization, orders do have to be placed some time ahead due to their
size or value. Changes in exchange rates could leave the company exposed
to potential loses in parts of its supply chain.
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