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Dell Computers

Essay by   •  November 22, 2010  •  Case Study  •  1,694 Words (7 Pages)  •  1,325 Views

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In 1984 Michael Dell was a college student pursuing a degree in medicine. He also happened to have a hobby of building computers. He decided to sell the product of his hobby, and began the business in his dorm room. Business quickly took off, and he soon abandoned his dreams of practicing medicine to develop Dell Computers. From these humble beginnings the company rapidly grew to be a major competitor in the personal computer market. Dell's focus on efficiency of manufacturing, and a direct marketing approach, allowed him to continue gaining ground on the competition. In 1992, his company joined the Fortune 500 list as one of the largest companies in the world. In 1993 their growth placed them in the top five computer system manufacturers. Through this paper I can suggests that with a focus on maintaining a strong position in the core market and strategic involvement in related sectors, Dell can not only maintain its dominant position, but can extend it.

Findings: Many companies start out as very aggressive but get crashed either by its competitor or by poor strategic management. Dell Computer's entered the market with strong strategic vision and stronger strategic management. One of the biggest strengths that Dell has is its simple business concept which is building personal computers built to order and selling it directly to its customers. This simple notion gives Dell several competitive advantages over its competitor. One it is bypassing distributors and retail dealers which eliminated the markups of resellers, and two building or order greatly reduced the costs and risks associated with carry large stocks of unneeded inventory. For management to have a vision and enforcing it through the business plays a key factor in the company's success. One of the many attributes of Michael Dell to his company was noticing what customers want and broadening his product diversity. Since Dell's operating costs ran only about ten percent of revenues, compared to twenty one percent for HP, Dell was able to use his low-cost provider status to generate more profit for the company in other areas. Dell was very conglomerate in its industry, being the number one domestic seller of servers and workstations in 2002 Dell also created products that could potentially bring him more loyal customers. Such as, low-cost routing switches, handheld PCs, retail-store systems, electronic cash registers, specialized software, laptops, printers, scanners, monitors, digital cameras, modems, memory cards, zip drivers and speakers. By having variety of different products that interrelates to one another, Dell strengthens its customer satisfaction of getting inexpensive and good quality products all at the same place. This strategic key issue brought convenience and stronger relationship between Dell and its customers. A company that started generating most of its revenues through the selling of PCs, in 2002 it generated more than half of its profit through the sell of other products. This resulted in Dell's total revenues to exponentially grow (See Appendix Exhibit 3).

A company can have great products, but if its management does not know how to market it or change its business activities rapidly by the demands of consumers might not be as successful. However, in Dells case one can say that being on top of market changes and demands was what brought them success. The discounting strategy that Michael Dell started and maintained through out various years of the business attracted many price-conscious buyers which increased his profits. Companies make strategic decisions all the time, some fail but some are very successful. It is the management's responsibility to take actions on any unsuccessful decisions and create an alternative for it before it significantly hurts the company. Dell Computers had a status quo; the company was generating high revenues through its e-commerce. The daily revenue through internet sales was almost 50 million dollars in a day. However, trying to modify their business vision was not the best decision Dell made. Dell tried to sell their products through retail stores such as Best Buys, Wal-mart, and Staples wasn't a very good decision, because its profit margin was very low. Dell realized this weakness and attacked it right away and withdrew from selling to retailers and refocused on direct selling. This was a wise decision by Dell, because rather than hoping that in the long-run it will generate profits they withdrew immediately before it could hurt their profit margin in the short-run. Another successful decision that was undertaken by Dell was when it Kaizened (continuous improvement) its operating activities in 1997 by reorganizing its plant. They shifted to cell manufacturing which reduced the assembly time on each computer by 75 percent and doubled productivity. From their success of cell manufacturing they realized that this process can be enormously improved and boosted hourly production from 700 units to 1,000 units per hour. Dell generated $75,000 in operating income per employee, versus HP only $15,000 and IBM at $10,000. Dell's unit worldwide market share had risen to 158 percent which is well above their competitor in 2002 and 2003. (See Appendix Exhibit 2)

Michael Dell started his business through selling personal desktops to individuals, however when the business skyrocketed his main target was big corporations and government sectors. He did a great job of perfecting his products for those market groups, but he failed to recognize individual users and creating something exciting for them. For example, the use of laptops emerged significantly in 1993. It was more convenient for individuals to use it such as students, teachers, and others that work from home but need to have their data with them all the time. Lacking in addressing the demands and wants of consumers who were primarily interested in laptops caused Dell a loss of 38 million dollars, because buyers were turned off by the company's laptop models. Dell did not pursue the consumer market aggressively, because it did not generate enough profit for Dell. He forgot that those individual consumers what brought up the company in the first place. As total revenue grew over the years, so did the cost of goods sold from 1997 to 2003 it almost tripled (See appendix, Exhibit 4). Dell should focus on those causes



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