REVITALIZING DELL
Problem Statement
After Michael Dell left the CEO’s designation in July 2004, Dell got surrounded by many problems at once. Despite of the fact that the management followed the traditional strategy, the growth stalled at Dell. Net margins declined and HP snatched a major portion of international market share in PCs. Dell’s common stock value declined by 40 percent. Dell’s customer service was criticized. So the problem presented in the case is how to make Dell to get at its traditional growth rate and regain its lost market share.
Symptoms of the Problem:
Dell faced problems with its laptops and had to call back 4 million laptops due to problems in its batteries which were procured by Sony.
Some of the irregularities were also found in its accounts balances and government led an investigation on its accounting practices.
The pricing also became one of the symptoms of problems in the Dell. They cut down prices on business PCs to gain share, but volume did not shift.
The next symptoms that can be found is that Dell had been slower in adapting to faster and cheaper AMD chips over Intel chips.
Their products were especially profiled as boring. Marketing was done only on the basis of technical specification of the products.
The surveys in the company depicted that confidence in leadership was declining.
External Analysis
The external analysis of the industry in which Dell operates has been done by conducting a PEST Analysis;
General Environment Analysis
| PESTL Analysis |
Positive |
Negative |
|
| Factors | Considerations |
(Opportunity) |
(Threat) |
| Political / Legal | There were no extensive political pressures on the companies operating in the IT industry. However, many legal issues can be observed regarding the development and patenting of innovative products and solutions. |
|
✓ |
| Economic | The demand of PC and related products double every decade. Demand for PCs declined before 1990 and surged again in late 1990s. Internet bubble which burst in 2001 also reduced the demand. It then grew and fell after 2008-09 economic crises. |
✓ |
|
| Socio-cultural | People are generally tech-savvy in US and inclination towards technology is also growing all over the world. |
✓ |
|
| Technology | Rapid development of products and services in this market can let Dell to expand easily. |
✓ |
|
| Demographics | Consumers are divided into 4 categories; giant businesses and government, small businesses, individuals and educational institutions. All of these present an opportunity for Dell. |
✓ |
|
| Global | Dell has recognition all over the world. There are many countries that are not targeted directly by Dell so they present an opportunity for Dell. |
✓ |
|
| Environmental | NIL |
|
|
Conclusions:
In the analysis of the general environment above, it is observed that more opportunities exist than threats in the market. The general environment is still attractive for Dell.
Porter’s five forces:
Porter’s five forces to analyze the PC industry are as follow;
| Threat of New Entrants |
HIGH |
LOW |
Reason(s) – Support facts |
| Economies of scale are: |
✓ |
|
Dell makes customized machines for users so it does not have production of standardized machines. |
| Product differentiation is: |
✓ |
The new entrants cannot differentiate the product as customized configuration is not working in the industry now. | |
| Capital requirements are: |
✓ |
Any new entrant will be required to build manufacturing plants as Dell has in China, Brazil and Texas. | |
| Switching costs are: |
|
✓ |
There is high switching cost because it is a capital intensive industry. |
| Sub-Conclusions:
Threat of New Entrants is Low because high level of capital is to be invested and it is difficult to create differentiation. |
|||
| Bargaining Power of Buyer |
HIGH |
LOW |
Reason(s) |
| Concentration of buyers relative to suppliers is: |
✓ |
Dell almost sells 50000 PCs per day. | |
| Switching costs are: |
✓ |
Buyers can switch because there are many suppliers. | |
| Product differentiation of suppliers is: |
✓ |
As Dell uses customization strategy; it can provide greater product differentiation. | |
| Threat of backward integration by buyers is: |
|
✓ |
A customer cannot integrate with a PC’s producer because extensive skills are required. |
| Sub-Conclusions:
Bargaining Power of Buyer is Low because there are millions of buyers; hence Dell can target any class of customer and make profit. |
|||
........................
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Dell Inc, with its vaunted direct model of success in the personal computer industry for more than ten years. Since the mid-2000s, however, the company fell on hard times. In 2009, Michael Dell and his management team have to figure out why Direct model faltered and what they can do to revive the company. "Hide
by Jan W. Rivkin Source: HBS 27 pages. Publication Date: February 14, 2010. Prod. #: 710442-PDF-ENG
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