Dell Is in a Strong Research Proposal

Excerpt from Research Proposal :

Thus far, Dell has largely ignored the consumer market since the company views the margins in this market to be insufficient. Yet, if Dell can develop an effective route to market for consumers and/or streamlines its ordering process, Dell can expand its customer base substantially. It is already finding that consumers are coming to it after buying their first computer elsewhere, so the market is clearly ready for Dell computers.

The third potential market is in mobile devices. Personal digital assistants are becoming popular at this point. They have fairly limited computing ability but as chips shrink or become more powerful, the potential functionality of these devices is likely to increase. If Dell wishes to enter this market, it could build market share while the market remains relatively young and the majority of competitors are fairly weak.

As strong as Dell's market position is, they still have significant threats. The computer business is in its growth stage. As such, it is highly volatile. Changes can come seemingly from nowhere and rule a company's computer business untenable. This is essentially what Dell proposes to do to the big, established PC manufacturers. Somebody could, however, do that to Dell as well, should the company stray from the cutting edge. As the barriers to entry for computer manufacturing decrease, this threat increases.

Rapid technology change also threatens Dell. The business is subject to constant innovation. While many of these innovations go nowhere, every once in a while a company develops a game-changing product or process. Dell has done this in the past few years. However, they are at a high level of risk for having this done to them. This is in part because Dell is not vertically integrated. Its concept of virtual integration is strong, but a vertically integrated firm such as Apple can develop a proprietary product or technology that can render all previous technologies obsolete, putting makers of those products on the defensive. Dell must remain on the cutting edge, despite its lack of manufacturing and research capabilities, in order to guard against this threat.

Competitiveness Profile

The first step in developing a competitive profile is to review the business. Dell designs computers, but it does not make them. It merely assembles parts in three facilities and then ships them to customers. Dell makes their computers to order. The main customer groups - 90% - are institutions and businesses. Dell forges strong relationships with these customers. Dell often has service agents on site and can link its ordering-taking system to their purchasing departments for faster processing of orders. Dell is equally linked to its suppliers. The smaller component of Dell's market is the consumer market. Dell sells direct to this market as well, having abandoned retail channels as being unviable for its business model, in particular with respect to the buildup of inventory.

The second step in competitiveness profiling is to identify the market requirements for performance within these groups. The majority of Dell's business is selling computers to large business and institutional customers. The company tracks the needs and tendencies of each of these customers independently. Dell does not treat them all as one or two segments, but hundreds of small segments. The characteristics of each therefore will differ. Where it is possible to generalize, Dell knows that stability is important to businesses, as for them the costs associated with computer downtime are higher than the costs associated with slightly inferior performance. The consumer market, by contrast, is more oriented to performance measures. For each, strong service is important as is the customizability of Dell computers and their relatively low price compared to the major manufacturers.

Thus, price can be seen as a 4 for importance, since most customers are ordering high volumes, where small per computer savings will be noticed. Quality, as measured by product stability, is a 5 for most of Dell's customers, save perhaps the home user where it would be a 3 or a 4. Fast delivery is only somewhat important for Dell. The company strives to have low lead times, but is inherently slower than walking out of a store with a computer. Thus, fast delivery is likely a 3. Delivery reliability is probably a 4, as businesses do have deadlines by which they need their machines. Small lots and customization are important for consumers. This is evidenced by the popularity of the asset tags, which were once a custom feature. Thus, customization is probably a 4. Design is less important for the bulk of Dell's customers, perhaps a 2. Frequent products changes in the computer industry are important. However, they take a backseat to stability so would also be a four, except for home users when frequent product changes would be a 5.

The next step is to measure the performance of the firm vs. The performance expected by the market. Dell is a 4 on price; a 5 on quality. Fast delivery Dell may be a 3, but scores a 5 for delivery reliability by using couriers. Dell is a 5 for customization, maybe a 2 for design. Frequent product changes, Dell would be a 3 or 4, since they generally screen changes and new products in the industry in order to determine whether or not those changes are worth incorporating. For the most part, these performance scores measure up well with market expectations. This is evident in Dell's financial performance, but it derives from the close relationships that Dell has with its key customers and its willingness to listen to their concerns and act on those concerns.

Overall, then, Dell is very competitive. It is able to meet the expectations of its customers. Dell may not be able to meet at present the customer's expectations for fast delivery. The customers understand Dell's business model and are therefore forgiving. The fast delivery aspect is a disadvantage, though, for Dell in the home computing market. Online shopping is in its infancy, and consumers are wary of spending a couple of thousand dollars on a computer that they cannot test out first. Dell's route to market reveals this disadvantage in getting to the consumer market. Moreover, Dell needs to address the unique needs of this market, but thankfully through its customizability it is able to do that.

Product Life Cycle Analysis

Dell's computers are in the growth cycle of the market. There is reason to believe that Dell is lagging the industry in the life cycle. Dell's revenues are on a growth trajectory, and it has improving margins. The computer industry in general is seeing increased sales, but margins are beginning to tighten. Per computer revenue is declining for most computer makers, but for Dell this figure is still increasing.

The ramification of this is that Dell can observe the computer industry in general to gauge its next move through the life cycle. The industry is not likely at maturity yet, or any time soon. This holds true for Dell as well, as the company has really only been in the major growth phase of the life cycle for a handful of years and the market for personal computers is far from saturated.

Boston Matrix Analysis

The Boston matrix can help the firm to assess its position relative to other companies in the same industry. The two axes on the matrix are market share and market growth. Dell's PCs have fairly strong market growth, as evidenced by total revenue improvements over the past several years. The market itself is also growing fairly rapidly. This means that Dell's computers are stars. The company can expect that as long as its products continue to build market share, Dell will improve profitability rapidly and grow quickly. Dell needs to be wary of a slowdown in either market growth or market share growth. If the company's market share growth slows, this could indicate that their products have become problem children. In that scenario, the market is still growing but the product is losing ground. If the market growth stops, but Dell still has a high market share, the products will become cash cows. Dell should work to position itself to either remain a star or transition to cash cow status should the computer market begin to mature.

Additional Information

When the case was written, Dell had revenues of $5.2 billion. Fourteen years later, Dell's sales sit at $61 billion. The company has seen a slowdown in sales growth over the past year or two, but the five-year growth figures are strong. Dell remains a firm with healthy financials. Its balance sheet is almost as strong as it was at the time of the case. The liquidity ratios are less strong, but the debt level is lower (MSN Moneycentral, 2009).

Dell has wavered on its commitment to the consumer market. The company made a significant entry into the consumer market in the late 1990s and by 2005 was the world's largest seller of PCs (Kathawala & Aich, 2006). By that point, however, the…

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