DELL Strategic Analysis

FIVE FORCES ANALYSIS of  DELL INC.:

Bargaining Power of Suppliers:

Bargaining power of Dell suppliers is low. Its is because most suppliers are small in size and do not hold significant financial clout. Apart from few large brands most of them are small in size and scattered throughout the world.  Other factors which have led to higher clout of Dell compared to its suppliers include its brand image and financial position. Overall, suppliers hold low bargaining power against Dell. The company sets rules and standards for its suppliers to follow. An important factor that gives Dell higher bargaining power is that it is a major customer for its suppliers holding significant financial strength . None of the suppliers would want to lose a major customer.

Bargaining Power of Customers:

Customers’ bargaining power in the 21st century has grown much higher. It is due to several factors including higher availability of information as well as increased competition in the PC industry. Every customer in the 21st century is a well informed customer who makes informed choices. Apart from that the number of options before customers have grown. HP to Acer, Lenovo, Apple, Asus and several other brands, make laptops and peripherals. Customers check reviews before purchasing any product.  The level of competition is so high in the PC industry that each brand is spending a lot on advertising and promotions. They are also focusing on being customer centric and retaining their existing customers. So, due to these several factors, the customers’ bargaining power has grown very high. Some of the factors that moderate their bargaining power include Dell’s brand image, financial strength and marketing.

Threat of Substitutes:

The threat of substitutes in the PC industry has grown. Most of the threat comes from the existing PC and cloud brands that offer similar products and services. The main competitors of Dell include HP, Lenovo, Apple, Acer and Asus that sell a large range of PCs, laptops, peripherals and other computing related products. The overall threat is moderate. Some of the factors that moderate the threat from substitutes  include brand image and financial strength. Overall threat from substitute products is moderately high.

Threat of New Entrants:

The threat of new players entering the market has grown minimal. This is due to several reasons including high cost barriers. There is very high financial investment in manufacturing supply chain management as well as marketing and research and innovation. Apart from that human resource management and other areas also require very high level of investment. For any new player it would be very difficult to  enter the market with a small investment. The level of competition is also very high in the industry. The existing players are investing heavily in innovation and to remain competitive. All these factors make it difficult for new players to enter the market and build a new brand.

Competitive Rivalry Between Existing Players:

The level of competitive rivalry between the existing players in the PC industry is very high. There are several players in the market. the largest ones include HP, Acer, Asus, Apple and Dell. These are the five biggest ones with the largest market share. All of these invest aggressively in  marketing, promotions as well as research and innovation. Every brand is fighting for market share and to expand its customer base. the overall level of competitive rivalry in the PC industry is very high.

VALUE CHAIN ANALYSIS OF DELL INC :-

Michael E. Porter of Harvard gave the concept of value chain. The Value Chain includes all activities from product conception to marketing, sales and after sales service. It is a useful model allowing managers to understand how each activity described in the model adds value to the product or service. Optimizing the value chain helps at cost reduction as well as waste minimization. In this way, it helps increase overall efficiency of the entire production and sales process. Here is an analysis and description of the value chain of Dell technologies.

Primary Activities:

Inbound logistics:

Dell’s supply chain network is spread globally. The company has managed its supply chain very well through a chain of warehouses. These warehouses serve its manufacturing facilities and retail operations. It owns manufacturing facilities located in United States, Malaysia, China, Brazil, India, Poland, and Ireland. Dell sources raw materials from suppliers located around the world. The company has hired external logistics partners to optimize its inbound logistics and uses a mix of several channels including sea route and air to source and stock raw material. Dell uses the Just in Time (JiT) model for supply chain and inventory management. Sourcing is easier with the help of logistics partners like DHL, UPS and others.

Outbound logistics:

Just as in case of its inbound logistics, Dell has managed its outbound logistics with help from external logistics providers. Third party vendors and logistics providers play a central role in delivering products and solutions to customers. Dell uses its network of distribution centers and retail partners for making deliveries to the end customer from a location close to them. In Europe it has extended its fulfilment network and changed the way it used to deliver accessories. Dell is now using a multi channel transportation strategy for deliveries. Using a balanced mix of several channels has helped it reduce wastage and cut emissions. Whether in terms of inbound or outbound logistics, the focus of Dell remains on minimizing the environmental footprint. Apart from the selection of the best route for delivery, using the right transportation channels also ensures that time and other resources are not wasted.

Operations:

Dell is a global brand with a global supply and distribution network. It has continued to optimize its network to gain highest efficiency and productivity. Dell has its global corporate headquarters in Round Rock, Texas, United States. The brand has operations and conducts its business in several countries located in the Americas, Europe, Middle East, Asia and other geographic regions. Apart from that to increase its global presence Dell has continued to focus upon the emerging markets outside US, Canada, Japan and Western Europe. Its manufacturing facilities are located in United States, Malaysia, China, Brazil, India, Poland, and Ireland. Dell has also implemented Lean Six Sigma methodology for continuous quality improvement.

Sales and Marketing:

Dell has a global sales and distribution network apart from its direct to customer sales channel. Apart from its own retail network, it has focused upon increasing the number of its retail partners in the recent years. Dell also uses a multichannel strategy for marketing and promotions of its brand and products. Apart from tis own website, the brand uses social media and more traditional and digital channels for marketing and promotions. However, considering the size of the brand, its advertising expense is still very small. Last year, the brand spent a little above a billion (1045 million dollars) on paid advertising.

Support Activities:

Technology :

Dell is a technology brand and focuses on technological innovation to bring better products and services as well as to expand its business. Apart from its cloud computing business, the brand depends heavily on its IT infrastructure for successfully operating its business. It also uses innovative technological solutions for efficient business, supply chain and sales network management.

Infrastructure :

Dell’s global operations are supported by strong infrastructure. Its business is supported by a large and interlinked IT and manufacturing infrastructure. Michael Dell leads the brand and is its main decision maker. Dell has regional offices all over the world.Its total assets were worth 122.3 Billion dollars in 2018 rising from 118.2 Billion dollars the previous year.

HRM :

Dell has also maintained heavy focus on HR management. Strategic HR management has become critical in this era to the operation and management of a successful business. Dell employs around 145000 full time employees ( as of 2018) of which 22000 are VMware’s employees. 39% of its all employees are located in United States whereas around 61% are located in the other countries.

Procurement:

Dell has coordinated its global procurement process very well. Its global procurement team works in close coordination to manage an efficient supply chain and source raw materials efficiently from suppliers located in all corners of the world. Moreover, this team works in coordination with the Dell Supply Chain Sustainability team to ensure that suppliers perform as per the environmental standards.

BUSINESS STRATEGIES OF DELL INC:

Direct Sales :-

Dell was also among the first ones to introduce the direct sales model under which it sells directly to the customers. Customers can chat with an expert and select the best model for themselves or customize existing models as per their taste. The model is then shipped to their address directly.

International expansion :-

Dell is also focusing on international expansion and while Americas are its main market, its products sell all over the world from United States to Europe, Asia Pacific and Middle East. Due to the fast growth in the Asia Pacific economies, it is focusing on increasing its market share in India and China.

Product quality and competitive pricing :-

Dell has brought  a large range of computing related products. The company follows a varied pricing strategy in order to cater to the various customer segments. Some of its products like the Alienware series of laptops is made for the higher end market. However, it has also brought affordably priced models made for the lower end market. The Product portfolio of Dell is also quite large and apart from laptops, PCs and peripherals, the brand also offers cyber security and cloud based services.

VRIO ANALYSIS OF DELL INC:

Dell VRIO Analysis

DELL CORE COMPETENCIES:

Product quality:

Dell’s focus has remained on providing great quality products to its customers. Quality has always been its priority and  is a major reason behind its popularity. Its string brand image is due to its string focus on innovation and bringing good quality products to the market. While it offers a large and varied range of PCs and Laptops, its innovative technology and greta product design have resulted in higher popularity.

Customer loyalty:

Dell caters to diverse segments of customers. Good products quality and after sales service have resulted in higher popularity and customer loyalty. higher customer loyalty means better sales and revenue.

Supply chain management:

Supply chain management has become a critical source of competitive advantage for pC brands. It helps st reducing costs as well as ensuring higher quality and better availability f raw materials in the supply chain. Efficient supply chain management also leads to faster growth.

Competitive pricing:

Dell has priced its products and services competitively so as to generate higher sales and revenue. Its products cater to diverse customer segments from the lower end to the higher end of the market. Gaming laptops like Alienware are meant for the higher end whereas the brand also offers lower priced laptops for the lower end customers. In a highly competitive PC industry, pricing strategy affects demand directly.

Global presence:

Dell is a global brand that has smartly managed its global and interconnected business operations. Americas are its biggest market. Apart from that Japan, western Europe and Canada are also its major markets and Dell is trying to penetrate deeper in the emerging Asian markets. it has also managed a global supply chain and distribution network very well. Global presence means a larger customer base and higher sales. It is also a source of sustainable competitive advantage.

FINANCIAL ANALYSIS OF DELL INC:

In fiscal 2018 (compared to 2017) Dell saw and net growth of 28% and 27% in its net revenue and Non GAAP net revenue. the growth in net revenues was mainly due to incremental revenue from the EMC businesses. However, operating expenses from the EMC acquired businesses also rose leading to growth in operating expenses. operating loss increased by 2%. Product net revenue of the brand increased 21% in 2018 and service net revenue 54% (compared to 2017). Operating loss of Dell includes the impact of purchase accounting associated with the EMC merger transaction and to a smaller extent the impact of going private transaction. Dell is once again going public after having gone private in 2013. The ISG group of Dell saw slower growth in 2018. Particularly, it was the storage business that experienced a 11% decline in revenue in last quarter of 2018.

SUGGESTIONS:

  • Dell has failed to diversify profitably into some of the most important areas while its rivals did. Entering smartphone and tablet businesses would have opened new channels of revenue for the brand.
  • Dell must focus more on marketing and promotions as most of its rivals play very aggressively in this area. From Apple to HP and Lenovo all invest aggressively in promotion of their brands and products.
  • Controlling operating expenses must be an important focus area for Dell. Better resource allocation and alignment of its new product portfolio will help control operating expenses and grow profitably.
  • Markets in Asia Pacific are growing faster than the other areas. Investing in these markets will help generate higher revenue as well as grow customer base faster. Apart from strengthening its supply ad distribution network in these markets, the brand must also invest in marketing of its brand so as to penetrate these markets deeper.
  • Dell must invest in AI and other technologies to improve its customer experiences. Improved customer experience will lead to higher customer loyalty and retention. Customer and supplier engagement must be made special focus areas for higher growth.
  • The brand must also use digital technology for higher staff engagement which will improve their performance and productivity.

SOURCES:

Dell Annual Report 2017

https://www.dell.com/learn/us/en/uscorp1/dell-environment
https://www.managementstudyguide.com/logistics-operations-in-supply-chain-network.htm
https://hbswk.hbs.edu/archive/dell-manages-profitability-not-inventory
https://www.dell.com/learn/us/en/uscorp1/corp-comm/earth-transportation-logistics
https://www.dell.com/learn/us/en/vn/corp-comm/supply-management
http://fortune.com/2018/07/02/how-dell-technologies-is-going-public-without-an-ipo/
https://www.theregister.co.uk/2018/03/08/dell_storage_results/
Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.