Dell Competitive Advantage.
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EAE - Escuela de Administracion de Empresas - INTERNATIONAL MBA Business Strategy Dell Competitive Advantage Liza Labrador Francisco Pérez Carlos Rangel Silvana Savino Marie Thepau Index Introduction 3 Dell Background PART I 4 History 5 Dell's Expanding Services 6 Using their Resources: 13 Customer Trust 14 Accountability 15 Wrapping It Up and Taking It Home 16 Financials overview 18 Market opportunities 20 Dell's Analysis. PART II 21 Porter 5 Forces 23 SWOT Analysis 26 Porter's Generic Strategies 29 Ghoshal's 32 Sources of Competitive Advantage 32 Value Chain 34 Dell's value created 38 Strategic Ladder 39 Adapted Ansoff Matrix 40 Dell trends 42 Dell's Competitive Advantage 43 Recommendations 44 Strategies contend that Dell must: 46 Conclusions 48 Introduction In 2001, Dell Computer became the world's largest personal computer vendor, continuing to gain market share and post profits in an industry struggling with slumping sales and billions of dollars in losses. Dell sells 90% of its PCs directly to the final customer, largely bypassing the reseller channel that accounts for most of the world's PC sales. This direct customer relation ships the key to Dell's business model, and provides distinct advantages over the indirect sales model. Dell's direct relationship with the customer allows it to tailor its offerings to customer needs, offer add-on products and services, and use the Internet to offer a variety of customer services. In addition, Dell's PCs are built to customers' specifications upon receipt of an order, giving Dell additional advantages over indirect PC vendors who must try to forecast demand and ship products based on those forecasts. Dell's direct sales and build-to-order model has achieved superior performance in the PC industry in terms of inventory turnover, reduced overhead, cash conversion, and return on investment (Kraemer, et al., 2000). Dell's business model is simple in concept, but very complex in execution. Building PCs to order means that Dell must have parts and components on hand to build a wide array of possible configurations with little advance notice.
It is more effective to deliver solutions working with one major outside party than two outside parties. Recent evidence of IBM reinforcing this direction was the acquisition of the Price Waterhouse consulting business and the selling of its storage business. HP has been working to boost its consulting/solutions revenues in its enterprise business for some years including its failed acquisition of the same PWC unit in 2000. With the merger of Compaq, HP has acquired significant assets in these areas, but it still is far less than what IBM offers. Future acquisitions in this area are likely with potential targets such as EDS and Unisys. In the software area, HP has not had good success in the past, with the exception of the Open View network management platform. It had good technologies but could not turn them into commercial successes due to a lack of effective software business management process. Has the Compaq merger brought new competence in this area? If not, HP must continue to work with multiple partners to deliver complete solutions, which can put it at a disadvantage vis-à-vis IBM, which has control over more pieces of a total solution. In the IT services outsourcing area, HP has made good progress with the recent high profile wins of customers such as CIBC, Procter and Gamble, Nokia, and others. The question is, at what cost? These are long-term contracts; therefore sacrifices made in margins today should carry forward for years to come. The good news is that HP has to be taken as a serious player in this growing business trend and will be given the opportunity to compete for future contracts. In this DELL Model chart we can see their distribution chain process, and what they can achieve becoming the owner of their core business by processing all their production, plants and other processes without the risk of sharing confidential knowledge, remember that Research and development is one of the key tools for their absolute advantage.
By tackling higher-end services projects and taking an advisory role with customers, Dell can expand its position as a thought leader and strategic advisor to customers; Be more responsive to customer needs. By developing a deeper understanding of its customers' strategic business objectives and by managing solution design and implementation, Dell can better anticipate and respond to customer needs; Reinforce Dell's close ties to its services partners. Dell's services strategy is still very much partner-centric; in contrast to some its rivals, many of which often walk a fine line between partnership and competition with their service partners. Dell's model also gives it the flexibility to source services from various third-parties to fulfill global and niche market needs; and Capitalize on industry-standard expertise and volume efficiencies. Dell's exclusive focus on Intel-based Microsoft-, Novell- and Linux based solutions enables it to concentrate services resources in these high volume markets and build expertise for them more rapidly. It also negates the need for Dell to invest services resources to build practices to support less pervasive platforms. But, the proof is in the pudding. No matter how comprehensive or well planned its offerings are, Dell will have to continue to raise its visibility as a services provider and refine and expand its services capabilities. Dell's leadership in delivering hardware could prove harder to translate into consulting services. Consulting is a high-touch, highly variable activity-not something that can easily be distilled into a standard set of processes and automated or commoditized, as Dell has done with its other offerings. Dell's competitors also have more visibility in the services market. Most provide heterogeneous operating-system and platform support, and some are establishing practices in emerging areas such as e-marketplaces, portals, wireless computing, e-services and Internet applications hosting. As Dell ramps up its own services capabilities in these areas, it will need to leverage the expertise of its partners effectively in order to boost its association with these cutting-edge trends. 2
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