The Dell Company - A Strategic Analysis

by: Natalie Schmid, Sabine Kelber, Sabine Behrend, Maresa Krasel

SS 2005

1. Introduction 4

2. Industry 4

2.1 PEST-analysis  4

a) Political 5
b) Economic  5
c) Social 5
d) Technological  6

2.2 Market structure  6
2.3 Porter’s five forces  7

a) Potential new entrants 7
b) The bargaining power of buyers 8
c) The bargaining power of suppliers 8
d) Substitute products and services  8
e) Intra-industry rivalry 8

(i) Hewlett Packard 9
(ii) IBM  9
(iii) Fujitsu Siemens 9

3. Dell’s history  10

4. Dell’s business model 10

4.1 Dell Direct Model 11
4.2 Elimination of inventory  12

a) Account selection  13
b) Demand management 13
c) Supplier management  13
d) Forecasting  14
e) Liquidity management  14
f) Real time information for suppliers  14

5. Internal analysis  15

5.1 Products 16
5.2 Customers 17
5.3 Suppliers  17

6. SWOT-Analysis  18

a) Strengths 18
b) Weaknesses 19
c) Opportunities  19
d) Threats  19

7. Forecast  20

8. Conclusion 21

Bibliography 22

Annex  25

1. Introduction

“No other technology company listens
to customers, collaborates with partners,
adds its own significant layer of innovation
and delivers relevant technology more
efficiently and effectively than Dell.”¹

These words from Michael Dell point out more than anything else how the Dell company managed to advance to the worldwide number one in the computer industry. From a little company founded by an undergraduate student at the University of Texas², Dell Inc., headquartered in Round Rock, Texas, has developed into a huge corporation with more than 55,200 employees today and an annual turnover of nearly $50 billion.³

This report aims to analyse how the Dell company performs in the competitive environment of the computer industry, which factors are essential for success and how Dell successfully takes advantage of its business structure. Furthermore, an internal analysis will be conducted and the resulting strengths and weaknesses will be presented. The future developments of the computer industry in general and of the Dell company in particular, will be examined at the end of this paper.

2. Industry

This chapter deals with the industry that the Dell company is working in. In order to understand this business environment, it is essential to examine and analyse the crucial factors that have an impact on Dell’s and its competitor’s business.

2.1 PEST-analysis

In the following, the analysis of the political, economic, social and technological factors leads to a description of the macro environment of the computer industry.

a) Political

Political factors include government regulations and legal issues determining the conditions under which companies have to operate. In this field, the computer industry has to face certain restraints. Problems can arise in countries where political stability is not guaranteed, no matter whether companies operate production facilities or if they do business with that country through exports. Many countries still have restrictive policies which are maintained to protect domestic manufacturers and production. Such policies often hinder foreign companies from entering into these markets. The only possibility to do business in those countries is to establish partnerships with local companies, where they are additionally forced to accept minority shares and to provide money and technological know-how. However, the computer industry sees great potential in those countries which loose their restrictions.⁴ This is especially true for China which has opened for many industries since its accession to the WTO in 2001. In the course of globalisation trade barriers decline and new markets emerge, allowing free trade to expand.

b) Economic

The computer industry expects a growth of approximately ten percent over the next years.⁵ This growth is influenced by the economic situation in a specific country, having an impact on the purchasing power of potential customers. Additionally, changing inflation rates and currency fluctuation also determine the profitability of a company.

c) Social

The national demand for computers is dependent on the educational level prevailing in a specific country. The higher the educational standard, the higher is the demand. Furthermore, computers get more and more involved in daily life. Today, children already get familiar with the use of computers at a very young age, representing a generation that will hardly live and work without a computer in the future. Additionally, the brand image of a computer and lifestyle trends get more and more decisive for the purchasing decision. The computer industry adapts to this trend, e. g. by offering a wider range of notebooks and by trying to create a strong brand name.

d) Technological

There is hardly any industry that is characterised by a faster technological development than the computer industry. Increased Research & Development have caused permanent innovation processes which lead to short product life cycles resulting in a faster depreciation of the products.⁶

2.2 Market structure

[...]

1 Dell (2005), p. 3

2 Hill (2005), p. 555, 556

3 Dell (2005), p. 20, 21

4 eTForecasts, Worldwide PC market (2004), p. 6

5 ebd.

6 Byrnes (2003)