Dell Dan McLindon Kyle McDaniel Jeremy Smiley Tom Anderson Ray Moorman

Key Question for Dell What is Dell? A computer manufacturer? A consumer electronics company? An online retailer? An IT service partner? What is their focus?

Secondary Questions What contributed to Dell’s success and rapid growth in the late 1990’s? Is Dell’s build to order model still an advantage? Why is Dell choosing to become more like HP and HP more like Dell? What does Dell do well and where does it struggle? Can Dell ever be successful in B2C market in developing countries with Direct to Consumer distribution? What is Dell? A computer manufacturer? A consumer electronics company? An IT service partner? What is their focus? What is Dell doing today to set itself apart from the competition in the highly competitive and rapidly evolving computer hardware industry?

Dell Inc. Product Timeline YearProductCurrent Position In MarketSuccess of Failure? 1984PCs2 nd behind HP (15% market share) Success 1995WebsiteRevenues greater than Yahoo, Google, eBay and Amazon combined Success Late 1990’sX86 Servers1 st domestically, 2 nd behind HP globally (11% global market share) Success 2001Data-routing switches and Data storage devices Storage – 5% market share Routing – 2% market share TBD 2002Large Enterprise IT services<1% market shareSuccess, rapidly growing revenues 2002White label PCN/ATBD, forecast to achieve $380 million in sales (2003) 2003Printers20% market share in US, 5% global TBD 2003Consumer ElectronicsN/ATBD 2003Retail POS systemsN/ATBD Conclusion – Expanding product set into several highly competitive markets with well established players. Strategy is be the low cost leader.

Build to Order AdvantagesDisadvantages Selling direct to customers cuts out the middleman, which increases Dell’s margins. Customers not able to touch and feel the product, which is a large ticket purchase Mass customization using standard parts allows Dell to control their costs and enables them to pass savings to customer. Build to order requires innovation and investment in manufacturing technologies and facilities. Build to order allows for JIT, reducing costly inventories of components, which may quickly become obsolete. Competitors have been able to outsource to third party manufactures, pushing the burden of component inventory costs onto suppliers. Conclusion – Dell has spent its time and money on innovation to become an efficient manufacturer of computer hardware. Was that an effective use of their resources?

Is Build to Order still an advantage? Enabled success in late 1990’s Dell low cost leader Improved reputation for quality. Allowed Dell to control quality and be first to market with new products Competitors tried to copy, but with limited success. Long learning curve Still works well in B2B Businesses like to customize a solution that fits exactly what they need BTO gives Dell the ability to control quality and the opportunity to sell additional value adds to enterprise customers Struggling in B2C Difficulty with distribution in emerging BRIC countries, especially China Competitors have closed the gap on price and product offerings by outsourcing manufacturing Dell even starting to in laptops

PEST Analysis for Dell

Industry Overview (Supply) Porter’s five forces: Rivalry among existing competitors High Threat of substitute products High Bargaining power of buyers High Threat of new entrants High Bargaining power of suppliers Low

Porter’s Five Forces FactorAnalysisImpact Threat of substitute productsGrowing popularity and sophistication of mobile and smart phones. Servers need to run the networks behind phones. Bargaining power of suppliers Several suppliers of PC components. Technology has become standardized. Dell has decided to form long term partnerships with key suppliers to take advantage of volume-based discounts Relationship with suppliers may suffer as Dell shifts to outsourcing laptop manufacturing. Bargaining power of buyers Many options in terms of what type of computer hardware and software to use. B2B customers can also negotiate prices on hardware, software, and service contracts. With standardization comes commoditization. Competitive rivalry Lots of well established players in all markets that Dell competes in. Majority competing on cost in a race to the bottom Compression of profit margins. As price decreases sole focus is cutting costs. Threat of new entrants Growth of white-label PC makers and resellers, especially in Asian market, shows how easy it is to enter market, as industry moves to standardized technologies. PC companies need to find a way to differentiate themselves

Industry Overview (Supply) FactorRanking (1-5) Threat of substitute products Bargaining power of suppliers Bargaining power of buyers

Industry Overview (Supply) FactorRanking (1-5) Rivalry among existing competitors Threat of new entrants

HPDell Operating philosophy Build to Stock, outsource manufacturing, large distribution network of retailers and resellers around the world Build to Order, control manufacturing, direct to customer sales on own website Key products Global leader in PCs, servers, and printers. 67% sales outside USA. US leader in PCs and servers, 2 nd behind HP globally. 39% of sales outside USA. Market Share in PC Sales 18.8% Globally 23.9% in USA 14.9% Globally 28% in USA Financials $104.3 billion revenue, $7.3 billion profit (2007) $61.1 billion revenue, $3 billion profit (2008) Key Acquisitions 2002 – Compaq 2008 – EDS $7 billion on other software, tech, and service companies spent $2 billion on software capabilities for value-added services Dell Versus HP

Is Dell’s Build to Order model still a competitive advantage or has it become a liability?

Internal Analysis – Markets Served Conclusion – Dell is strong in the US B2B market, but that strategy does not translate to success in B2C. Only 39% of sales generated outside US, compared to 67% global sales by HP.

Internal Analysis – Core Competencies Core Competency Description Build to order Build to order business model allows for JIT, keeping inventory costs down. Keeping manufacturing in-house enables control of quality and faster new product releases. Direct to Customer Sales Cuts out retail markup. Allows Dell to maintain higher profit margins and charge lower price. B2B value added services Services like asset tagging and software downloading differentiate Dell from competitors. Enabled by in- house manufacturing. Build to order Direct to Customer Sales B2B value- adds Red – Easy for competitors to develop Yellow – Possible for competitors to develop Green – Very difficult for competitors to develop

Internal Analysis - Manufacturing Build to Order/D2C Sales Heavily invested in facilities and technology Enables value- adds for B2B No longer low cost leader due to outsourcing Already starting to outsource laptops Hampering growth in emerging BRIC markets Conclusion – Dell already starting to outsource its competitive advantage. Can it still compete with HP in the B2C market? Will outsourcing manufacturing impact their advantage in B2B market?

SWOT Analysis for Dell StrengthsWeaknesses OpportunitiesThreats

Recommendations  Develop a more focused strategy. Examine where the company is creating the most value for customers and invest in that business line  Focus on growth in B2B channel and the continued development of value-added IT services  Everyone competing on price, need to find new ways to create value