The purpose of this report is to analyse the Dell’s strategy over the period of case, which directly affects its competitive advantage, market growth and development. Further it explains that how Dell is forming its strategic alliances for further development and growth. The report also deals with the impact of HP/Compaq merger on Dell. Dell’s main competitive advantage in the PC manufacturing market is of its supply chain shortened cycle which reduces its cost and maximizes its revenues.
The absence of wholesaler and distributor in the supply chain of Dell has generated unique competitive advantage for its vendors as well which has resulted in economies of scale and has developed a continuous stream of profits for its suppliers as well. The integration of HP and Compaq faces many obstacles in the initial phases of the merger but it yield to success by the end of year 2004. This merger affected all the big giants of PC manufacturers and especially Dell which was leading the market from the top.
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Dell is one of the leading manufacturers of computer products and services in USA. The organization was founded by Michael Dell in 1984 based on the simply concept of direct selling model i. e. the products are being sold to customers without any intermediaries. Dell has made a strong portfolio of its computer products over the period of time and achieved top position in the computer market by the end of year 2002, in the presence of close rivals HP and Gateway.
The products of Dell are not only confined to desktop computers, notebook, computer peripherals but have extended to other field of businesses as well, which include servers, storage products, switches and workstations. Indeed, it is a US based company but presently its operations have been oriented in the global market and are being manufactured in six different locations worldwide.
2. Dell’s Strategy
In the market of IT and computer science every organization is continuing its effort to promote their strategies in such way that not only capture higher profits from the market but can also yield such competitive advantage that gives dignified worth to the organization. Dell is the organization which is known worldwide for its strategy of direct selling to the consumers and business customers due to which it has acquired greater revenues and has grabbed big market share from its competitors.
As the organization grows with the period of time its overall enterprise strategy is becoming stronger, complicated and mature.
2. 1 Dell’s Strategic Business Model
Build to order is a business model that Dell follows. In this model there is no confusion of wholesaler and distributor. Customers directly contact the manufacturer and place the customized order according to their desires, requirements and affordability. Manufacturer takes the order online or through telephone and place the order for raw material to suppliers at the same time (Bhatt, website).
The suppliers are located near the manufacturing firm so that in the less transportation cost, high effectiveness with respect to response time is achieved. As soon as the material is provided to the operation department, they start manufacturing the product and after complete production process, the finished good product is then shipped directly to customer having no finished goods inventory cost. This is how Dell maintains its business operation due to which it has achieved a unique competitive advantage over its competitors.
This type of business model is based upon “Pull Marketing” on which manufacturing firms produce according to the customer actual demand rather than customer anticipated demand. Due to this pull marketing strategy Dell has achieved a strong marketplace in the presence of big rival companies like IBM, HP, and Gateway.
2. 2 Dell’s Value Chain Creation
In the 21st century, marketers have soon recognized the fact that just understanding the customer need and then creating the demand for that is not only the way to captivate market leadership.
Just creating value at the customer end is not going to enhance the company’s business. Hence, strategy of the business is to create value at the end of each stage of the chain to maximize the surplus of overall supply chain, which directly or indirectly gives benefits to the customer at the end (Spulber, 2009). Dell has created a value at each stage of its chain starting from the customer to the supplier. Dell online storefront website is the place where customer customizes its order online through different available options of software and hardware.
This gives value to the customer that instead of going into the market searching the product in the hectic environment and then buying a product is such a long, time wasting and tiring process of shopping. But Dell has created value for the customer in the sense that just click on the screen will make you buy a product and will be shipped directly to its home instead of undergoing above mentioned shopping process. Dell also defines the visibility of the product through Customer Relationship Management software by means of which customer is able to know that in which stage its product is undergoing.
This sort of value creation creates a competitive advantage for Dell over its competitors. As soon as the order is placed online on the Dell’s website, the same order is placed to the supplier and by getting the demand from the customer, it directly transmits it material flow. It has created a value to the supplier that without involvement and demand draft from manufacturer, it is receiving demand directly from the customer which makes the supplier cost efficient and in this stage, the value is being created by Dell.
Hence, value creation of Dell is the main source of competitive advantage through which it has achieved higher profits and market growth.
2. 3 Cost Efficient
Reduced inventory made the Dell cost efficient in the market. Since, the business model of the Dell is such that it manages lowest possible finished goods inventory and other operating expenses due to which its overall cost is reduced which resulted in low cost of the computer products and services (Dell deck V. 5, website).
The customers are more likely to inclined towards Dell products who are price conscious and it specially give competitive advantage in the business customers market. Indeed the transportation cost tends to become high in order to become responsive but Dell has managed in a very efficient way that it keeps the supplier close to the vicinity of its manufacturing site. The transportation cost to ship the product is high due to package delivery but it is not as high as compared to the cost of including retailers and wholesalers.
Since, Dell is located in six different locations worldwide, it appears that its cost will tends to rise but strategically this facility cost is less than the transportation cost to deliver the products of worldwide customers from single location. Similarly, outsourcing is also done to reduce the overall cost because in some regions the labour and manufacturing cost is less than the existing facility location. Same is the case with Dell because when they decided to go beyond their geographical boundaries of USA, it was necessary to bear facility cost by outsourcing their manufacturing operations.
China is one the best country in which the manufacturing cost is low with efficient labour. Many organizations are outsourcing their operations to China to become cost efficient, so same was the decision taken by the Dell management in order to fulfil their diversified customers in a cost efficient manner. Hence, cost efficiency was the main source of competitive advantage for Dell which not only ignites its performance to the optimum level but also shoots up its strategic growth in the market.
2.4 Strategic Growth and Performance
Dell has made significant growth in the field of computer products and services due to its stated strategies which become its sources of competitive advantage over its competitors. It is magnified by its progress in 18 year that in the presence of big well established rivals, it was able to get number 1 position in the market. The failure of dot com in the beginning of 2002 indeed affects Dell Inc. But not to the great extent, they were still managed to obtain high market share.
3. Strategic Alliances of Dell
A long-term relationship in the mask of partnership is an agreement between two or more companies to work on a strategic goal while remaining independent in their other organizational goals and objectives. (www. scribd. com, website) But before making an agreement of strategic alliance, the goals are well defined by the strategic partners that how they are going to fulfil each other’s requirements with respect to tackiness, specificity, and complexity resources (Parise and Henderson, 2001).
Dell has shaken hands with many organizations as its alliances like it becomes the worldwide providers of Intel-based servers, desktop computers, and notebooks, of EDS in October 2002, as per given case study of Dell. EDS has selected Dell as its strategic partner because Dell was well equipped with standardized products of computer hardware and software at low cost in order to meet the requirement of hundred thousand employees in 60 countries worldwide. Similarly, in the same period of time according to the given case study Dell has made strategic alliances with Cox Communication Inc., and that agreement leads Dell to serve 6. 3 million customers indirectly by installing eight Dell/EMC storage area networks all over the country. In the same way Dell extended its relationship with Paul, Hastings, Janofsky & Walker LLP and Dorsey & Whitney LLP, NBA, WNBA, etc. These were the appliances that Dell has made over that period of time.
3. 1 Dell’s Growth and Development
Due to these strategic alliances, Dell has made a tremendous success in the market. It was a wide variety of business customers starting from broad brand communication to super stores.
It had opened the new dimensions for the company to enter because it diversified its operation from typical desktop manufacturing to EMC storage area networks. With this new diversified business operations, the dot com failure did not affects the Dell business operations badly. The performance of the employees was increased due to company’s progress in every field of computer. Indeed the companies like IBM and Apple did exist in the market on that time but the Dell performance were highly remarkable from all its directions due to its partnership with diversified computer field.
The business customer’s reliability was increased due to its flexible and visible system. The rapid usage of Dell components and services generated elevated revenue which is crystal defined that Dell, performance was admired in the market of year 2002 and then onwards as well. Even now Dell is significantly improving its operations to captivate more and more consumers as well as business customers. The relationship management with the business customers is highlighting the very fact that marketing management is highly focused in the corporation due to which Dell is able to make a tremendous growth in the market.
Dell’s continuous improvement and efficiency lead the facts that it is going to hold top position in the enterprise customers leaving behind IBM, HP, EMC and Sun. (Madden, 2005). Since, Dell has already acquired small and medium businesses from HP. So, the expectation of growth and performance of Dell can be well imagined. Indeed, Dell was emerging in that era as an enterprise business but now it has really captured the market to the great extent.
Becoming the official notebook, desktop, servers’ provider of NBA and WNBA can considered as an amazing achievement for Dell to become their alliance partners and it is due to its high performance and market credibility of its growth.
4. HP/Compaq Mergers
In September 2001, the world’s largest merger of two corporate organizations in the realm of IT was occurred. The merger was of U. S. companies, Hewlett Packard and Compaq, when HP announced that it would take over Compaq with all of its stocks in U. S. 25 billion dollars. This merger brought revenue of 90 billion U.S. dollars to HP which was in comparison with IBM and operating income of almost 4 billion U. S dollars. HP and Compaq were not having a strong market position in the market of information and technology before merger. This seems merger was seemed to be highly risky on that time because IT acquisitions were not expected to be successful based on the past experiences. The critics enlisted a long list of problems that were going to be expected from that merger as many say that the merger will not result in a big company but will yield a company with lot of problems.
So, the merger was critical and challenging for both of the companies. The main regions of the management which were highly affected was the human resource layoff that was around 15000 employees as per indicated in the case study. The traditions, working environment, culture and management was typically different of both the companies so their integration was the hard part to resolve. But in spite of all these critical problems, the new management of HP was quite sure that this merger will support them to compete against their biggest rivals, IBM and Dell.
The leading month after the announcement was very critical for new HP because industry analyst predicted it as a failed acquisition due to which its market share fell considerably down. But the CEO of new HP, Carly Fiorina was quite confident about the success of this merger because she thought that, this merger will be the most efficient step to lead rather than struggling on its own. But she worked hard on its believe and travelled all around the country to convince the stakeholders of the organization about its success. Eventually, her decision was proved to be true when this merger of both companies generated sales revenue equal to IBM. Also learn Dell human resources management
4. 1 Impact on Dell
Indeed the merger was expected to be failure in the beginning but gradually it start appearing that the decision of going into one company was quite successful which gives a big threat to Dell, which was its traditional rival. No doubt Dell has captured a vast market area of IT market but the generation of a big company can cause considerable loss of customers due to the emerging competition in the market. The future impact of Dell could be such that it has to restrain its market strategies in such manner that its unique competitive advantage would not be diminished by market offering and strategies of new HP.
As far as small medium businesses are concerned, Dell was doing well but HP is standing parallel to its quality and efficiency. 5. Conclusions In a nutshell can say that Dell Inc. is one of the leading examples of unique competitive strategies due to which it is ruling the market in its own way. Its performance and growth are well reflected by its successful strategic alliances. The merger in the IT industry is not considered as successful but HP/COMPAQ merger proved it wrong because of their efficient marketing decisions and operation management that the sinking ship reached the shore with flying colours.
This merger was having a great impact on Dell Inc. as well and has generated revenue comparable with IBM.
Bhatt, Vasanthkumar, (n. d), ‘What makes Dell Business model superior? ’ Available from <http://www. pace. edu/emplibrary/Bhat_Dell. doc> [Accessed 10 August,2010]
Dell deck v15, 2002, ‘HP/Compaq/Dell’s Business model’, Hindustan Times, Available from <http://www. hindustantimes. com/news/specials/hpcompaq/Dells_Business_Model. pdf> [Accessed 10 August, 2010]
Madden, John, 2005, ‘Can Professional Services Drives Dell’s Scalable Enterprise Vision?’ (n. d), Available from <www. dell. com/downloads/global/corporate/iar/20050301_summit. pdf> [Accessed 9 August,2010]
Parise, S. and Henderson, 2001, ‘Knowledge resource exchange in strategic alliances’, IBM System Journals, Vol. 40(4), [Online], Available from <http://www. studies. hec. fr/object/SEC/file/A/... /KMalliances. pdf > [Accessed 9 August 2010]
Spulber, Daniel, 2009, ‘Competitive Advantage and Value Creation’, Economics and Management of Competitive Strategy, Northwestern University, USA, Imperial College Press
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