Dell Computer: Competitive Advantages and Strategies, Innovation,

Dell Computer:

Competitive advantages and strategies, innovation, sustainability and strategy effectiveness

When evaluating the competitive advantage of Dell Computers in relation to its competitors, virtually every market analyst emphasizes its mastery of its supply chain. Dell is not known as a particularly innovative company in terms of its product line -- unlike Apple, it has no signature iMac or iPod that is uniquely 'Dell.' R&D occupies only 1.3% of Dell's revenues compared with 15% for its competitors Intel and Microsoft. Unlike Apple, Dell does not nurture potentially profitable long-term research projects. It practices a "ruthless form of corporate Darwinism" within its organization, "killing off its own straggling product lines with savage speed" (Schrage 2002:1).

At Dell, the goal has always been "to offer computers at irresistible prices -- and to leave the cost and the risks of innovating to others" (Jones 2003). Its careful micromanagement of its inventories has been the cornerstone of its success. The Dell Direct business model involves dealing directly with customers and building the customer's computer to order, thus reducing the costs of inventory storage. In 2003, during the height of its profitability, "operating costs soaked up just 10% of Dell's $35 billion in revenue...compared with 21% of revenue at Hewlett-Packard, 25% at Gateway, and 46% at Cisco" (Jones 2003).

Inventories are a notorious drain on any technology industry, given how quickly they can become obsolete. By giving the customer precisely what he or she desired and eliminating retailing middlemen, Dell could slash costs when and where its rivals could not. The Internet made direct-to-consumer advertising even easier for Dell. Dell also tried to make its products as attractive to customers because of their flexibility: "Dell machines stick with the de facto industry standards, like Intel microprocessors and Windows or Linux operating systems, which don't lock users into any particular hardware," versus the proprietary technology favored by Intel (Jones 2003). Dell fused customer service, the use of new technology (including communication technology between distribution hubs as well as between consumers and sellers) and paired it with the concepts of 'just in time' manufacturing to create a radical and profitable business model. It was so profitable, that even when PC sales were declining for its competitors after the dot.com bubble burst, Hewlett-Packard, Gateway, and Intel, Dell's sales were climbing (Schrage 2002:1). Dell was called the 'Wal-Mart' of the PC world, given that the world's largest retailer similarly relied upon a low-inventory model and used technology to carefully match consumer demand patterns to supply.