Business Analysis - Dell Inc - Assignment Example

Business Analysis: Dell Inc. Student’s Name: Name of Institution: Instructor’s Name: Course Code: Date of Submission: Introduction Over the years, Dell has grown in both customer base and through the mergers and acquisitions it has made in recent years, most notably, Alienware in 2006 and Perot Systems in 2009. By 2009, Dell not only sold PCs, data storage devices, servers, software, network switches and computer peripherals, but also HDTVs, printers, MP3 players and cameras. Generally, Dell Inc. is praised for its innovative electronic commerce and innovative supply chain management (Wikinvest, 2012). However, most of these have only been what can be termed as ‘sideshows’. Otherwise, Michael Dell started and developed his company as a PC business. Still, nothing has been as simplistic as merely saying ‘PC producer’. For instance, in 2008, Dell announced it plans to sell a significant fraction of its logistics operations and factory network. This, at the time, was consistent with a global restructuring trend (Hagel, 2008). This really made headlines, especially considering that the logistics operations formed a key contributor to its initial success in the industry. However, it was seen largely as a move by the management to tackle the question on what exactly the company was dealing- or is supposed to deal- in. Moreover, in 2011, Michael announced was planning to move from PC business to data services, e.g. server computers, networking and storage equipment (Lohr, 2011). Indeed, these are decisions that are easy to arrive at, especially for a company the size of Dell. Such decisions rest on many factors that either directly or indirectly influence Dell’s business and daily operations. These factors include macro and micro environmental factors, which can provide certain opportunities but also pose certain threats at the same time. This paper will take an in-depth look at these factors. Macro-Environmental Factors Dell finds itself in an environment consisting of uncontrollable forces that either directly or indirectly influence its operations and ability to meet its short and long-term objectives. Kotler and Armstrong (2003) refer to these as forces and actors outside the marketing industry, but which can still affect an organization’s ability to start and maintain good relationship with its customers. These macro-environmental factors are famously summarized in the acronym PEST: Political, Economic, Socio-Cultural and technological factors. Political Factors: Indeed, the political environment in which a business finds itself is pivotal in an organization’s quest for specific strategic goals. Generally, political environment varies from context to context, e.g. regions, countries, etc. These include government regulations, legal issues, etc. As is the case in all other markets, Dell Inc. is naturally subject to the laws that govern all the aspects of its business, e.g. pollution, advertising, health safety, labeling standards, etc. Unfortunately, a number of countries today still have limiting policies, especially for foreign companies with the aim to protect domestic production. Dell generally sees better potential in countries with favorable laws and regulations. Economic Factors: This refers to the overall nature of a country’s economic system, including economy’s structural anatomy, an organization’s capital market, socioeconomic infrastructure, business cycles, etc. Equally, economic factors include trends in income levels of consumers, i.e. factors that influence consumer ability to buy and patterns of spending. In addition, a company’s profitability can be affected changing rates of inflation, currency fluctuation, home-currency and relative exchange rates. Social Environment: A country’s social environment determines a society’s value system, which also affects business operations. These include factors and trends to do with groups of people, e.g. numbers, behavior, characteristics and growth projections. Since specific pool of consumers have specific problems and needs, how the social environment can also affect the markets in a variety of ways, i.e. increase some markets’ sizes, while decreasing others, or create new markets. For instance, the potential for the growth of internet, for instance, is high in Asia, including China and India. This gives foreign computer companies even greater opportunities to expand and reach these new markets. Generally, the demand for Dell computers in specific countries has been linked to average educational level in them, i.e. countries with high educational standard display high demand. Equally, Dell is increasingly involved in people’s daily lives. Technological Environment: This generally involves other factors and trends in innovations that lead to the development of new and unique products or the adoption of new marketing processes. These trends in technological development can not only provide opportunities for developing new products, but also affect how marketing operations are carried out. Changes in communication and information technologies, for example, provide new marketing opportunities. Simply, using technologies products can facilitate higher productivities for marketers. When it comes to computer products, technologies are increasingly becoming smaller and faster. Indeed, facilitating access to the technologies developed by academic institutions has been a vital government resource. Equally, today the internet increasingly provides great opportunity for companies to reach their public domain and customize services in line with its customer segments. One notable threat to Dell’s business in China in the segment of technology is that internet access is costly. Micro-Environmental Factors Competitors Competitors do have great influence on the success of a company. There are several factors related to a company’s competition in the market. Figure 1 below shows Porter’s (2008) Five Force model in his examination of the factors that should inform a company’s competition strategies in the market. In this case, we use this figure to analyze potential competition that Dell faces in the computer market. As the figure shows, Porter (2008) 9quoted in David, 2005)views competition as a combination of five forces: competitive firms, potential new entrants, likely development of other substitute products, as well as suppliers’ and consumers’ bargaining powers. Below, we generally look at rivalry from the current competitors and how their production of substitute or alternative products can influence sales. However, the other factors will be discussed under ‘threats’ in the ‘SWOT Analysis’. Rivalry with Existing Competitors: The PC industry is generally drives towards consolidation. Besides Dell, other companies in the industry include Gateway, HP and Compaq, etc. Other non-US computer hardware producers include NEC Corporation, Fujitsu Ltd., Canon Inc., Seiko Epson Corporation, Acer Incorporated, etc. (Yahoo, 2012). While these competitions vary in Dell’s different market segments, its overall largest competitors are IBM, Hewlett-Packard and Lenovo group [LNVGY]. To make it even worse, Hewlett-Packard has recently acquired Electronic Data Systems (EDS). Many have predicted tat this will cause even more competitive problem to Dell, especially since Dell has a deal to sell its Hardware and PCs through EDS. Naturally, Hewlett-Packard will now not permit it (Wikinvest, 2012). Most notably, the presence of competitors provides alternative/substitute products and services. Substitute Products: Indeed, the presence of substitute or alternative products can significantly affect sales and profitability in the industry of PCs, including the various computer components. Dell is not free from this threat. Generally, most manufacturers produce relatively the same products, e.g. computer produced by two different products may have more or less the same features, such as RAM, Hard Disk capacity, and more importantly, run on the same processor. This is therefore one of the major threats to competitive advantage. Customers, i.e. Consumer Segmentation and Behavior In 2008, Dell announced its plans to broaden its customer base. While it was already a global company, its main customer segment, until then, was that of individual consumers. This announced plan would then see the inclusion of three other customer segments: government customers, business customers and small and medium-size businesses. This, according to the Dell website, followed a number of factors, especially some new strategies that they had recently adopted and its understanding of shifting consumer behaviors, envisaged in their taste and preferences. These factors included: its improved competitiveness in the preceding 24 months, its restructured/reengineered chain of supply, expansion of product portfolio and the introduction of Dell products to even more places and people; and the customers’ need for faster innovation, globally standardized services and products. Announcing the changes, the Dell CEO, Michael Dell (quoted in Shankland, 2008) said that, with the rising globalization, consumer behavior and requirements ‘are’ increasingly being defined, not by where they used technology, but how they utilized it. Company Internal Analysis Distinctive competencies in the form of superior product performance and low costs are some of the strengths of Dell. More than this, Dell has always had the culture of selling directly to consumers through its website. This has been seen as Dell’s ideal strength that many of its competitors have in the past found hard to imitate. Even above this is Dell’s policy of customization, which involves designing products based the tastes and preferences of its target markets, i.e. customer specification. This has enabled the company to earn superior brand loyalty and consumer value. Dell’s ability to coordinate its different functions, and earn a good proportion of competitive advantage lies on three basic dimensions: a) It earns value from its provision of superior technology, superior performance, aesthetic designs and technical support, which create enormous value for the company’s offerings. b) It charges competitive prices for its various products. Dell undertakes different pricing strategies based on specific market conditions. This strategic pricing is aimed at strike a good relationship with consumers. c) It is capable of performing products of superior performance at low costs. As such, the company offers products at a cost relatively lower than its competitors. d) It distinguishes its PCs and laptops at different levels, i.e. direct-to-customers computer models, current technological products and direct interaction with customers in the market place. SWOT Analysis SWOT is an acronym for strengths, weaknesses, opportunities and threats. These are considerations that a company must take in an attempt to interpret and understand its position in the market. Table 1 outlines Dell’s SWOT. Strengths Weaknesses 1. Direct approach to sales. 2. Price for performance 3. Market Leadership 4. A User-friendly website 5. Customization 6. Latest Technology 1. Has Neglected the College segments 2. Reliance on Institutional and Corporate Sales 3. Does not provide for the Retail Segment 4. Merger of Compaq and HP 5. Shifting Consumer needs Opportunities Threats 1. Rising demand for Laptop 2. Increasing Internet Usage 3. Untapped Market 4. Expanding into the International Market 5. Outsourcing 6. Diversified business 1. Dynamic Market trends 2. Global Economic recession 3. Slow Economic Growth 4. Technological innovation from competitors 5. Slow growth rate in the Industry 6. Emergence of Indian and China’s IT giants 7. Price Wars Summary: Vital Success Factors (Strengths) As already seen in Table 1 above, Dell’s strengths that give it a competitive advantage against others has depended on the factors mentioned in the table. In this summary, we take brief, but more in-depth understanding of these or some of these factors. Direct Sales Model: Dell’s adoption of direct approach to sales- minus intermediaries- has enhanced direct relationship between it and its business and organizational customers. The company markets directly to its customers through its website, as well as get direct customer preferences from the customers, which then inform Dell’s customization policy. Price for Performance: Dell has also over the years used an integrated system for process management, including procurement, distribution as well as technical support to its customers. This has helped the company to adopt standardized policy for different parts of the world and thus enjoy good market from various economies. As such, the advantages of the resultant saved costs are passed down to customers by way of valued products at competitive prices. Customization: As already alluded to, Dell also produces customized products depending on specific customer demands. Customization here means that a customer can select preferred features of computers for his/her computer (Cuizon, 2010). For example, is a customer so wishes, he/she can order a specific capacity for the Hard Disk, RAM, even preferred processor features. Reliability of Service and Support: Dell also distinguishes itself from its competitors by offering its customers fast and timely, reliable and trustworthy services to its customers around the world. For example, it attends to complaints within 48 hours. This has boosted its values in the customer’s eyes. Weaknesses Dell’s management, over the years, has come up with a number of effective strategies to lead its business towards its key objectives and goals. But with time, the company has shown a degree of inability to device a proactive strategy to capitalize on the opportunities offered by the macro-environmental circumstances in which it finds itself, as well as its relatively steady/sustained competitive advantage. For example, while internet usage has been increasing fast allover the world, Dell has not taken competitive steps to tap into the industry. Meanwhile, its competitors have been taking advantage of this trend, even employing Dell’s own model that eliminates the conventional system of distribution and mostly focus and make deals on e-business. As a result, Dell is starting to face marketing problems, i.e. it is slowly but increasingly losing its consumer share in the market to its competitors, e.g. IBM, HP and Compaq, etc (AJU, 2009). In order to increase its market share, Dell should focus on other unique means of providing competitive advantage, especially in line with its differentiation strategies, e.g. employ its R & D attempts to get patents. And the best way to do this, John (2008) suggests, the company should end its extreme strategies of outsourcing. Instead of imitating competitors, Cuizon (2009) suggests, Dell should pay more attention to the production of actual innovative products. Benjamin (2012) also expresses the same idea. Although he commends the fact that Dell produces that rate at the top of PC industry, even being the third largest manufacturer of PCs in the world, Benjamin (ibid) also bemoans that Dell fails in innovation. In other words, the company has failed to reinvent and redefine itself through the production of new products (Goldman, 2012). Equally, the company needs to re-consider its strategies for outsourcing. Initially, the company’s strategy to outsource various components from other companies so as to provide its customers with competitive prices was quite successful. However, Cuizon (2009) thinks that this nullifies the company’s differentiation, especially in view of the current market conditions. Outsourcing, Cuizon (ibid) says, provides the very same products/components to the other components. The company should consider producing its own proprietary software so as to reduce its dependence on the major software producers. Even better, the strategy would ensure the company’s coherent integration of its offerings as was the case in Apple (Cuizon, 2010). Threats Threats refer to the potential obstacles that a company is likely to face in its efforts to achieve its goals. These generally include: Consumer’s Bargaining Power: Since PC manufacturers produce relatively identical products, there is little brand loyalty. Most consumer choices are based on getting the best at the lowest cost- emphasis on ‘lowest cost’. As a result of this, buyer’s bargaining power in the industry is quite high. Besides brand loyalty, the industry’s switching cost low as most systems are based on the Intel Processor. And notably, most customers prefer backward integration as well as building their own preferred systems by selecting individual components from different manufacturers/producers. Supplier’s Bargaining Power: Just as is the case with buyers, suppliers in the computer market also display high bargaining power. Essentially, there are only a few suppliers of major computer components, e.g. Intel and AMD are the major microprocessor suppliers. Infact, they almost monopolize over the microprocessor market. Conclusion In this paper, we have looked at the different factors on which Dell’s business and operations depend. In addition, we have equally looked at the specific ways in which these factors have affected Dell and the ways that it can place itself at an advantage against these factors. Notably, these factors do not only apply to Dell, but also to other factors within the computer industry. Bibliography American Jewish University (AJU) 2009, Comparative Analysis of PC Market Leader, http://www.ajula.edu/Content/ContentUnit.asp?CID=1644&u=6148&t=0 (26 March, 2012) Cuizon, G 2009, ‘Strategic Options for Dell Computer: How Dell can Address Challenges and Threats’, Busieness Profiles, Suite 101. http://gwendolyncuizon.suite101.com/strategic-options-for-dell-a100551 (accessed 25 March, 2012). Cuizon, G 2010, ‘SWOT Analysis of Dell Computers’, Business Management, Suite 101. http://gwendolyncuizon.suite101.com/swot-analysis-of-dell-computers-a92597 (accessed 25 March, 2012). David, FR 2005, Strategic Management Eight Edition. 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