Question 1
What is your evaluation of Michael Dell’s performance in his roles as CEO and Chairman? How well has he performed each of the five tasks of crafting strategy and executing strategy?
Stage 1: Strategic Vision:
Michael Dell’s strategic vision for the company is that “personal computers can be built to order and sold directly to the customers”. He believed his approach had two advantages. 1) Bypassing distributors and retail dealers eliminated the mark-ups of resellers and, 2) Building to order greatly reduced the costs and risks associated with carrying large stocks of parts, components and finished goods. Michael Dell’s and company executives have come to believe that the there are four key strategies for the company in delivering superior customer value; 1. Selling direct to the customer is the most efficient way to market the company’s products cause it eliminates wholesale and retail dealers that impede Dell’s understanding of customer needs and expectations and that add unnecessary time and cost. 2. Allowing customers to purchase custom-built products and custom-tailored services is the most effective way to meet customers’ needs. 3. A highly efficient supply chain and manufacturing organization, grounded in the use of standardized technologies and selling direct, paves the way for a low-cost structure where cost savings can be passed along to customers in the form of lower prices. 4. Dell can deliver added value to customers by (1) researching all the technological options, (2) trying to determine which ones are “optimal” in the sense of delivering the best combination of performance and efficiency, and (3) being accountable to customers for helping them obtain the highest return on their investment in IT products and services. In almost all cases, non-propriety, standardized technologies deliver the best value to customers.
As CEO Michael Dell has always maintained this strategic vision and the company has performed this task conscientiously. Between 1986 and 1993, Dell worked to clarify its strategy by building a sufficient framework to establish market credibility against rivals. In the mid to late 90’s, Dells strategy started to really gain momentum. “By 2003, Dell’s sell direct and build-to-order business model and strategy had provided the company with the most efficient procurement, manufacturing, and distributing capabilities in the global PC industry and given Dell a substantial cost and profit margin advantage over rival Pc vendors”.
Michael Dell’s vision was for Dell Computers to become one of the top three PC companies. Michael Dell did not stay true to his vision between 1990-93, when direct sales were not growing quick enough and the company began distributing its computers through stores. However, when the company revised its profit margins they withdrew from stores and continued with direct sales. By 1997 Dell had become a low cost leader among PC vendors because of its efficiency in direct sales and build to order business model and since then has concentrated its efforts in reducing costs by closely partnering with key suppliers to drive costs out of its supply chain and by incorporating e-commerce technology and the use of the internet into its everyday business practices.
Michael Dell’s strategic vision is an example of a well executed strategic vision as it is effectively communicated throughout the company and as a result this is broadcast clearly to customers. With top managers holding firmly to the company’s strategy they have come up with seven core elements to guide the Dell Inc into the future, their main aims are to reduce costs, to grow sales and market share in both the PC and server segments using their strong capabilities in Supply Chain Management, low cost manufacturing, and direct sales and expand into product categories where Dell could provide added value to its customers in the form of lower prices. It is vital for executives and managers to communicate a strategic vision throughout the business in order for it to work.
I feel that Michael Dell has developed a well communicated and effective strategic vision and he has stayed true to this vision because of his ability to reduce overheads.
Stage 2: Setting Objectives:
The managerial purpose of setting objectives is to convert the vision and mission of a business into specific performance targets. Well-stated objectives are specific, measurable and contain a deadline for achievement. There are two clear types of performance targets, Financial Objectives and Strategic Performance.
Financial Objectives: In 2008 the company’s main initiative was to reduce costs by $3 billion per year. Michael Dell was always keen to reduce costs and improve efficiency. When he resumed his role as CEO in 2007 he announced tighter controls over operating expenses would be implemented immediately to improve cost competitiveness and boosting profitability. This was to be achieved by reducing the workforce by 10 percent and by reigniting the company’s revenue growth in five focus areas: global consumer products, sales to large enterprise customers, laptop computers, sales to small and medium enterprises and sales in emerging countries. Despite the global recession crippling the economy from 2008 Dell still had some positive outcomes. In the third quarter of 2008, Dells Global Consumer business posted a 10 percent revenue gain on a 32 percent increase in unit shipments, making Dells revenue growth double the industry average and the profitability of this business was the highest in 13 quarters.
I feel that Michael Dell has performed well as a CEO when setting financial objectives. His objectives have been specific, measurable and contain a deadline for achievement. Although the case study does not state whether the company saved $3 billion per year since 2008 they have certainly begun the cost reduction process. His ability to increase margins while keeping the end price low has been made possible by cutting out the middle man and selling directly to the end user
Strategic Objectives: These objectives tend to include such aims as; * Winning a certain amount of market share: In 2007 Dell only had a 2% market share of the $1.2 trillion global market for IT products and services. However in 2008 Dell appeared to be catching up with HP but due to HPs new CEO and the global financial crisis this never happened. * Achieving lower overall costs than rivals: this is an area where Dell has excelled due to its aim to sell direct to the end user by cutting out the middle man. Most companies have tried to copy Dell’s strategy but they have had a head-start spanning many years and are always ahead of the competition when it comes to reducing costs and working with suppliers to ensure the customer gets the lowest price possible. * Overtaking key competitors on product performance or quality or customer service: Dell keeps in constant contact with customers by phone, fax and internet and keeps its fingers on the market pulse, quickly detecting shifts in sales trends, design problems and quality glitches. They strive to have problems fixed within a few days. Dells ability to respond quickly has given it an advantage over other PC users. Dells direct sales approach is a totally customer driven system. Dell organises their sales around customer groups as opposed to product lines which means the staff assigned to different customer groups can focus their efforts on specific sales and problem solving which makes Dells customer service more efficient. * Deriving revenues from the sale of new products introduced between the last 5 years: In recent years Dell has expanded its product offerings to include data storage hardware, switches, handheld PCs, printers and printer cartridges and software products in order to alter their revenue stream and use its competitive capabilities in PCs and servers to pursue growth opportunities. Senior Dell executives also saw external storage devices as a growth opportunity. By using their direct sales and knowledge in cost cutting they were able to undercut rivals and drive down costs for their customers by about 50%. * Having broader technological capabilities than rivals: Michael Dell believes that all areas of technology go through a process of standardisation and commoditisation and they have to anticipate what is happening and develop strategies to get into those markets. This shows that Michael Dell is constantly striving for his company to be the most technologically advanced. * Having stronger global sales and distribution capabilities than rivals: Dells just-in-time inventory emphasis has major cost advantages and shortens the time it takes for Dell to get new generations of computers into the marketplace. By working closely with suppliers and having factories worldwide, the orders are sent to the nearest factory and Dell could have 140,000 products shipped daily. The factories had the ability to process and build a customer’s order in 3-5 days.
Michael Dell has delivered on all these strategic objectives which shows again that he is performed well as CEO and Chairman of Dell Inc.
Stage 3: Crafting a Strategy:
The task of implementing a strategy involves addressing a series of hows: * How to grow the business * How to please customers * How to outcompete rivals * How to respond to the changing market conditions * How to manage each functional piece of the business * How to develop needed capabilities * How to achieve strategic and financial objectives.
It is vital that all levels of the business are involved in crafting the strategy. As CEO Michael Dell has been a valuable leader in crafting strategy. All strategies have been geared towards reducing costs and increasing margins so that these low-costs can then be passed on to the customer. If a new strategy did not coordinate with the company’s overall aim, the idea was rejected.
Stage 4: Executing the Strategy:
Executing the strategy of a business involves converting strategic plans into actions and results. Good strategy execution requires diligent pursuit of operating excellence. It has to be implemented by all levels of management. Dell has managed to stay ahead of their rivals by offering completely customised PCs which are built to customer’s specifications at a low-cost. They have also managed to branch out successfully into other areas such as printers, printer cartridges and software. They have also been involved in acquisitions which have allowed them to expand their offerings to customers.
Stage 5: Evaluating Performance and Initiating Corrective Adjustments:
This stage deals with monitoring new external developments, evaluating the company’s progress and making corrective adjustments. This is the point where companies need to decide whether to continue or change the vision and mission, objectives, strategy and/or strategy execution methods. Dells early adoption of the latest technology has meant that the company has always been ahead of the curve. Michael Dell is constantly striving to make sure that the company is technologically advanced. Their direct to sales approach has also worked for them from the beginning. However, they are also constantly striving to cut costs and in 2008 they started outsourcing part of the production of laptops to Asia as laptops are more complex to build than PCs, this has proven to be more expensive and they are considering outsourcing the full production of laptops to Asia.
Question 2
Identify and discuss the key elements of Dell’s strategy.
Michael Dell’s strategic vision for the company is that personal computers can be built to order and sold directly to the customers. This approach eliminates the added cost of resellers by bypassing distributors and retailers. In order to do this they need to unify manufacturing and the supply chain.
The core elements of this include: 1. Reducing the costs and risks of holding large inventory. This means that if a new piece of technology is introduced Dell can implement it in to their products sooner than their rivals as they do not hold large inventory. 2. Close partnership with suppliers has allowed Dell to operate with no more than two hours of inventory. It also means that they can build products quickly and have them shipped as soon as 1-3 days in America and 3-5 days worldwide due to their numerous factories worldwide and close relationships with suppliers worldwide 3. Dells direct sales strategy and marketing effort is another core element of Dells strategy. Their website was one of the world’s highest volume Internet sites, it shows the prospective buyer Dells entire product line in detail including price. The company also focuses around customer groups as opposed to product lines which will ensure that when a customer has a query they are contacting the right people. Also by setting up kiosks prospective customers could sample and place orders in shopping malls which was an innovative way of reaching new customers. 4. Expansion into new products has been another key element of Dells strategy, Dell has expanded its product offerings to include data storage hardware, switches, handheld PCs, printers etc. Dell has expanded its products so that they complement their existing products with the view of boosting sales and revenue. 5. Customer service and technical support has become a key feature of Dells strategy. In 2008 the company had 25 customer service centres worldwide which were mostly involved in handling technical support, requests for repairs and other issues and inquiries. After a mistake made by the company of moving customer service stations to low labour countries they made the move back to countries where they have a high customer rate and were aiming to have 90% satisfaction rate. They achieved this in 2008. 6. The continuous pursuit of cost reduction initiatives is another core element of Dells strategy. This has been achieved by their ambition to reduce the workforce by 10%. The company has also drawn up cost reduction strategies to save the company $3billion annually.
Question 3
Which of the five generic strategies is Dell employing? How well do the different pieces of Dells strategy fit together? 1. Dell is employing a low cost provider strategy by dealing directly with the customer and cutting out the middle man. This strategy attracts a broad spectrum of customers which can be seen by the differentiation of customers Dell has from Government agencies to family PCs. This also helps in having a higher profit margin than rivals. 2. Dell is also employing a best cost provider strategy, giving customers more value for money by offering a high brand name at a lower cost to customers. This is all due to the company’s low cost strategy of direct to end user sales and its cost reduction initiatives.
Everything Dell has worked on so far has fit their strategic objective of producing the best possible product at the lowest cost. The company is constantly evolving and producing technological advances to meet consumer demands.
Question 4
Does Dells expansion into other IT products and services make good strategic sense?
Dells expansion into other IT products and services does make good strategic sense because; * Of their increased market share in notebooks and desktops and the fact that customers started to discover that Dell make high value products at a low cost and provide great support. This has caused the brand to gain popular acceptance. * When Dell introduced their own brand of printers and printer cartridges they quickly gained a vast market share and these products generated over 75% of Dells operating profits. Dell managed to break into this market by keeping their products at a low-cost. The move into the printer market also put pressure on competitors such as Hewlett Packard.
Question 5
What is your assessment of the financial performance that Dell’s strategy has delivered during the period 2000-2008?
Gross Profit Margin
This is a ratio used to assess a firm’s financial health by showing the amount of money left over after accounting for the costs of goods sold.
Gross Profit Margin = Gross Profit Revenue
Year 000’s

2000 5218 = 21% 25265

2002 5507 = 18% 31168

2004 7563 = 18% 41327

2005 9018 = 18% 49121

2006 9891 = 18% 55788

2007 9516 = 17% 57420

2008 11671 =19% 61133

These numbers are very good and have been sustained throughout the years although they are not as high as they were previously.

Long term Debt to Equity Ratio
This ratio demonstrates the company’s ability to retain additional capital, if necessary.

Long term Debt x 100
Total Shareholder Equity
2000 508 = 9.6% 5308
2002 520 = 11% 4694
2004 505 = 8% 6280
2005 505 = 7.8% 6485
2006 625 = 15.4% 4047
2007 569 = 13% 4328
2008 362 = 9.7% 3735
For the most part Dells debt to equity ratio has been low which is a good position to be in.

Current Ratio
Current Ratio = Current Assets Current Liabilities
2000 6853 = 1.75:1 3926
2002 8287 = 2.18:1 3797
2004 11922 = 3.24:1 3670
2005 9807 = 1.68:1 5821
2006 9070 = 1.9:1 4751
2007 10298 = 2.6:1 3969
2008 7972 = 2:1 3949
A healthy current ratio is 2:1 or over. Current Assets must be enough to cover Current Liabilities. This figure has been up and down throughout the years but is mostly healthy as it does not go too far under 2.
Net Profit Margin

This is a ratio used to measure a company’s pricing strategy and operating efficiency. It is a measurement of what proportion of a company’s revenue is left over after paying for variable costs such as wages, raw materials etc. A healthy operating margin is required for a company to be able to pay for its fixed costs such as interest on debt.
Net Profit Margin = Operating Income Net Sales
2000 2263 = 8.9% 25265
2002 1789 = 5.7% 31168
2004 3525 = 8.5% 41121
2005 4206 = 8.6% 49121
2006 4382 = 7.9% 55788
2007 3070 = 5.3% 57420
2008 3440 = 5.6% 61133

This figure has dropped significantly since 2000. However, with Dell Inc outsourcing production in Asia plus the decrease in prices to the consumer this is to be expected.

Question 6
What does a SWOT analysis reveal about Dells situation in 2008?
Strengths:
* One of Dells main strengths is their direct sales approach which eliminates the cost of wholesalers and retailers which makes the end product less expensive for the consumer * The Dell brand has become recognised as an affordable and good quality product due to Dells marketing initiatives and after sales support. * Dells expansion into new products has given customers the opportunity to purchase complimentary products at a lower price than Dells rivals. * Dells Just-In-Time inventory practices have made the company extremely efficient and the company can custom make products and ship them to customer in a matter of days
Weaknesses:
* Although the company are constantly updating the technology they put into products, they are not very innovative when it comes to new products and tend to play it safe, unlike companies like Apple who have created products such as the iPad, iPod and iPhone. The company needs to focus more time and money in being creative. * Dell can be too quick to cut costs without thinking of the consequences, a good example of this is when they moved sales support to low wage countries and angered many of their customers by doing so and the company suffered bad ratings. * Dells main strength of direct sales has now become a weakness as people want a PC or laptop quickly and will go in to a shop and purchase straight away as they have a better knowledge of what product they want. Also the IT market is more inexpensive than ever and extremely competitive.
Opportunities:
* Technology is constantly being updated so Dell has an opportunity to become innovative and create exciting new products. * With a world population of 6 billion some markets are just emerging as potential markets that are home to over half the population. There is an opportunity for growth especially in Russia, China, India, several other Asian countries and parts of Latin America. * Customers are looking for PCs that are not complex and that provide instant access to content. This is an opportunity for Dell to meet customer’s demands. * Due to the rapid expansion of search engine activity such as Facebook, Websites and blogs there is more of a demand for IT products for consumers and businesses. Dell need to take advantage of this and develop products aimed at these sectors.
Threats
* There is an industry wide decrease in IT products which is making it difficult for companies like Dell to retain high profit margins. * The global recession has had an effect on all businesses and has had an impact on sales. * Most company’s products are available online for customers, so Dell has to be a lot more competitive if they are to remain leaders in direct sales. * Companies like Apple are constantly creating innovative products Dell needs to put more funds in to R&D if they want to retain their market share in technology.

Question 7
Which company is competitively stronger – Dell or HP?
I feel that Dell is competitively stronger than HP due to its strengths in key areas such as low-costs from direct sales that are always passed on to the customer. They are also market leaders in custom built computers, where the customer can pick and choose what components they want in their PC. Dells after sales support service has a 92% satisfaction rate with customers and the customer care team are constantly keeping track of customers inquiries and tracking problems so they can be resolved quickly and efficiently. Dells supply management is also a competitive advantage for the company as they have very little inventory. Dell can also build a custom made product in 3-5 working days due to their numerous factories located around the world. All these factors make Dell competitively stronger in my opinion.
Question 8
In what respects if any, is HPs strategy in PCs more appealing or better than Dells? * HP like Dell is a strong brand name and if a customer is looking for a computer and need to purchase quickly they can walk into most retail store and buy a computer on that day. This is very appealing for customers today as they are not interested in waiting weeks for a computer unless they need it for specific tasks where more specialised hardware is needed for jobs such as architecture. For the average consumer they do not need any special components for computers and want to purchase and receive their product quickly. * Much of HPs global market influence comes from having the world’s biggest and most diverse network of distribution partners. The percentage of PCs and servers sold by its direct sales force and by its many channel partners varied greatly by geographic region and country making it easier for the company to adapt its sales, marketing and distribution accordingly.
Question 9
What actions and strategy changes would you recommend to Michael Dell to boost the company’s performance and its prospects for overtaking HP in global sales of PCs? * Due to the decrease in cost of IT, Dell needs to move into more innovative markets. Selling PC is not acceptable anymore as people want products that are mobile such as laptops, tablets and Smartphone’s. These products can also be sold at a higher price than PCs which would increase profit margins. * Dell should begin to standardize their products more, which would allow them to sell in retail stores. This would attract more domestic customers as the average person uses their computer for the social networking, internet based activities and office programmes. * In recent years there has been less advertising of Dell products. When the Dell ‘Inspiron’ was introduced in 2008 there were constant advertisements on the television and newspapers which led to Dell winning 41 awards and the profitability of the business was at its highest in 13 quarters. The company should focus its advertising campaigns on students and domestic customer markets. * Dell should also continue to expand their IT products into businesses and Government agencies as they have a highly reliable product with great support services aimed at consumer groups as opposed to product lines. They are already the market leader in this industry and by developing new hardware they could continue to grow in this sector and keep competitors out.