History of the company
Dell is a Multinational Corporation which is headquartered in the United States of America. The company deals with computer technology devices where it designs, manufactures and distributes personal computers and other complimentary products and services. The company was formed in 1984 by Michael Dell and was initially referred to as PCs Limited. When the company was formed, they built the computers they sold from stock components but made sure that the computers were compatible with the IBM framework. However, this was changed in 1985 when they started selling their own computer designs. The first computer model that the company designed and sold in 1985 was called Turbo PC. These first models were custom assembled according to customer requests. In order to market their computers, the company advertised them in computer magazines that had a national outlook. The company was however rebranded to Dell Inc. in the year 2003 in order to recognise the fact that the company had expanded beyond their initial computer sales business (Dell n.pag.).
General environment analysis
The general environment that the company operates in can be discussed in terms of the internal environment of the company and the eternal business environment. The analysis will be carried out using PEST analysis where the political, economic, social and technological aspects of the environment will be analysed.
These are factors related to the political pronouncements made by a country’s leaders and the general political climate of the country that the company has business operations in. The US business set up is characterised by a lot of freedom to the private sector which promotes the operations of business to a very great extent. Most economic decisions in that affect the operations of the private sector are left to the key stakeholders and therefore the government or the political system does not interfere with how businesses are run. This is as a result of the relatively few regulations on business activities and the non intervention on the activities of the private business sector. The only way the political system affects the operations of businesses is through the court system which normally enforces contracts between business parties and also provides legal protection of intellectual property belonging to companies (Jensen 1049). This is very important for a company like Dell which deals with a lot of innovations that can be stolen by competitors easily. This freedom from political intervention has contributed to the growth of businesses in the US and this is the reason Dell has been able to grow in business and even expand internationally (Porter Competitive Strategy 24).
Economic factors are basically the economic policies and indicators that affect the economy of a country and therefore the operations of business entities in that country. These include fluctuations in interest rates, foreign currency fluctuations, inflation rates, fluctuations in the level of consumer spending and government policies. The financial crisis that was experienced in 2008 is one of the major economic factors that have affected the performance of companies all over the world. This has led to most companies reducing their scale of operations or experiencing slower growth rates and returns as a result of reduced purchasing power of consumers. The high level of unemployment in the US and in the world at large has also contributed to the poor performance of most businesses as consumers reduce their purchases to accommodate the lower income levels. All these factors have therefore impacted on the operations of Dell as their global sales have been affected negatively by the economic crisis. The economy is on a recovery process and positive growth is now being experienced by most companies (Porter Competitive Strategy 24).
Globalization is another economic factor that has affected the operations of most companies because it has driven the integration of most governments thereby opening up the international community. This has therefore increased the number of consumers accessible to multinational corporations like Dell. Globalization leads to a situation where there are no restrictions on the movement of capital and other factors of production from one country to another. This leads to lower production and operational costs for companies and therefore increased profitability. The opening up of new parts or countries of the world has increased consumers choices in terms of providing more choices and has also provided a larger market for corporations which results to economies of scale and therefore better performance (Porter Competitive Strategy 25).
The diverse cultural background of both the consumers and the employees is one of the social factors that affect the environment in which corporations operate in. This is because different cultures require different ways of treating people and therefore multinational corporations like Dell should understand the various cultures of their employees. The social standards of customers also influence their purchase decisions and therefore this will have an impact on the operations of a company in terms of deciding which customers to target with their products (Porter Competitive Strategy 26).
The technological world is a fast changing world and therefore requires firs to concentrate on continuously developing new innovative products. Keeping up with the fast pace of technological advancement is expensive and difficult for most corporations. Today, customers all over the world are increasingly demanding for new devices that are more technologically advanced. Companies are continuously developing new advanced products and consumers continue to search products with improved functionalities and capabilities to meet the challenging needs of the modern world. This is therefore a major factor affecting all multinational corporations in business operations today (Porter Competitive Strategy 27).
Industry environment analysis (Porter’s Five Model Analysis)
Competitive Rivalry from within the Industry
The computer and information technology industry is a mature industry and there are several major firms that drive the general competition in the industry. Pricing is therefore a major strategy for competition in this industry in order to consolidate the efforts of most companies and therefore reduce development costs of most computers and other devices. As a result of the standardisation evidenced among personal computers that run on Microsoft Windows operating system, the switching costs from one model to another are low. This means that competition in the industry is driven by the pricing strategies that different companies use rather than from differentiation of products. It should however be noted that only one company in the industry (Apple) has been able to use product differentiation by developing high quality products (“The Five Competitive Forces That Shape Strategy” 77).
Bargaining Power of Customers
Generally, consumers command more bargaining power than manufactures due to the fact that a significant percentage of global computer sales are made up of purchases made by other corporate entities. Customers also influence a bargaining power because they create the demand for products with their preferences in terms of various functionalities of computers. Customers at one point preferred computers that were both mobile and could provide wireless connectivity at a lower cost. This led to the growth of the laptop market as a response strategy by computer manufacturers. Companies that focused only on desktop computers had to restructure their operations and incorporate the manufacture of laptops in order to remain relevant in the market.
There has been serious demand for cheaper products by consumers and this has resulted in a serious price war among the companies. This has also led to the emergence of other cheaper computer options such as notebooks and netbooks which reduce the cost of wireless connectivity significantly. Dell has also been affected by these consumer demands and has resulted to a business model where they use a distribution network that also involves retail stores in order to reach a wider market (“The Five Competitive Forces That Shape Strategy” 78).
Bargaining power of suppliers
In the computer industry, the suppliers of hardware components do not have a significant bargaining power because manufacturers can choose any supplier. This is also because of the fact that different suppliers are selected for the supply of various components therefore no particular supplier can have any significant influence on the manufacturers. Microsoft on the other hand is able to exert significant bargaining power over companies manufacturing personal computers due to the dominance of their Windows operating system. Most suppliers providing hardware components are therefore not able to exert considerable bargaining power to computer manufacturing companies like Dell because their products are similar in terms of functionality and therefore a manufacturer will opt to use the cheaper model at all times (“The Five Competitive Forces That Shape Strategy” 78).
Threat of new entrants
The price wars experienced in the computer and information technology industry lead to lower profit margins and therefore increased barriers to entry. Most computer manufacturers have invested heavily on research and development in order to ensure they develop new and improved products continuously. This is also made possible by the availability of highly technical employees who are able to use their expertise to develop new products. This means that the existing companies are able to cater for the needs of the consumers without the need for new entrants to develop new products and increase the already stiff competition. This factor therefore has increased the entry barrier of most small companies that would be interested in entering the computer manufacturing industry (“The Five Competitive Forces That Shape Strategy” 79).
Threat of substitutes
The computer industry faces challenges due to the new developments in the industry, such as highly technical mobile devices, and innovating concepts, such as cloud computing. Mobile phone companies like Samsung and Apple are developing mobile devices that have increased computer functionalities which pose threats to computers due to their portability. The need for increased communication and access to the internet has led to the growth in popularity of mobile devices at the expense of personal computers. This therefore means that computer manufacturing companies have to increase their investments in research and development in order to continue developing products that serve the customers need and make sure that personal computers are not made irrelevant by the emergence of mobile devices with powerful computing and communication capabilities (“The Five Competitive Forces That Shape Strategy” 79).
Dell SWOT Analysis
Dell Corporation uses a direct model for distribution of its products and this enables it to maintain direct relationships with most of the valuable customers such as corporations, governments and institutions. The company also provides an on-site support service for their products which is very popular with their customers. These are major strengths of the company that have contributed to its’ continued growth in the computer manufacturing industry. The company’s use of the internet to conduct most of their business activities such as customer support and procurement is another major strength as they are able to keep open communication with customers and are also able to solve customer issues online and respond to queries promptly. Most issued can be solved through information received from the company’s website and this is a sure way of ensuring that customers are kept happy (Porter Competitive Strategy 24).
A major weakness of the company is the fact that over time, they have directed very little effort to market themselves to the students in various colleges and universities. This is evident from the portion of the sales revenue that is attributed to the market segment which comprises 5% of the total sales revenue of the company. The company focused more on the corporate world and on government institutions at the expense of educational institutions. This resulted to a situation where most students do not purchase their products because most of them purchase personal computers through their colleges and schools. The direct method of distribution has also made it difficult for individual customers to purchase their products because there is no network to distribute products. The company has therefore introduced a distribution network through the use of retail outlets in order to overcome this weakness (Porter, Competitive Strategy 24).
Improved educational standards of most people around the globe have resulted in to a situation where there are more people who are computer literate and who need to use computers in their daily activities. This means a wider market for Dell and other computer manufacturing companies which may lead to growth in profits in utilised well. The need for communication and access to the internet is also another opportunity for the company where they can improve their laptop line of production to come up with cheaper laptops that have more computing power and communication capability but at a cheaper price. This will ensure that they cater for the current needs of the customers and therefore remain relevant in the industry (Porter Competitive Strategy 24).
One of the major threats to the business activities of Dell is the price wars among computer manufacturing companies. The fact that other companies are able to charge lower prices for their products means that if Dell is not able to provide superior quality in terms of functionality or durability, then the customers can switch to competitors leading to loss in revenues and customer base. It is also important to note that the growth market for the computer and information technology industry has been shrinking for a while due to the large number of devices currently in use by customers. This means a smaller market share due to increased competition. The company therefore must increasingly develop new products that meet the current needs of customers in order to remain in business (Porter Competitive Strategy 24).
The Strategic Position and Action Evaluation (SPACE) Matrix
This is a four quadrant matrix that evaluates the strategies that a company can use in their daily operations. The matrix is divided into aggressive, conservative, defensive or competitive strategies. These strategies vary for different organisations depending on the industry. In the case of Dell, the company can adopt either aggressive, competitive or a defensive strategy in order to maintain their market.
Competitive: the company can adopt a competitive approach where they ensure that their computers have better functionality in terms of computing power and communication capabilities. The company could also decide to enter the mobile devices market since these are the ones posing a lot of competition to the computer industry (Angwin, Sotirios and Mitson 74).
Aggressive: the company can adopt aggressive marketing campaigns in order to promote the awareness of their products to customers and therefore ensure access to larger market. These marketing strategies can therefore be used to increase the market share of the company (Angwin, Sotirios and Mitson 74).
Defensive: this strategy can be used by the company where they direct their efforts to defending their market share from competitors. This can be done through improving their relationships with existing corporate and government customers in order to reduce their chances of switching to other computer manufacturers. This will help the company maintain their market share and therefore steady performance (Angwin, Sotirios and Mitson 74).
The analysis above shows that the environment in which Dell operates in is influenced by various factors such as political, economic, social, technological, bargaining power of suppliers and customers, threat of new entrants and threat of substitutes. Understanding these factors and taking advantage of them will therefore ensure that the company remains a going concern in the foreseeable future and continue to increase their profitability. Competition in the industry is also another major factor that the company should put in consideration when developing strategies to help them carry out their business operations. The fact that the computer and information technology industry is characterised by rapid changes means that the company has to concentrate on research and development in order to make sure that they provide innovative products that satisfy the customers.
Angwin, Duncan, Paroutis Sotirios and Sarah Mitson. “Connecting Up Strategy: Are Senior Strategy Directors a Missing Link?” California Management Review 51.3(2009): 74+. Print.
Dell. About Dell. 2013. Web.
Jensen, Nathan, M, “Political Risk, Democratic Institutions, and Foreign Direct Investment”, Journal of Politics, 70.4(2008): 1040-1052. Print.
Porter, Michael E. Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York: Free Press: 1998. Print.
—-. “The Five Competitive Forces That Shape Strategy.” Harvard Business Review, 1.1(2008): 78-93. hbr.org. Web.