Michael Dell built a company from scratch. From his dorm room, he created a global business empire building upon a foundation that is unique in the computer world at that time: a build-to-order and sell-direct value chain. Most of the companies existing at t,hat time and even in the 21st century relied on a more predictable and easy to understand model, which is the build-to-stock value chain. However, Hewlett-Packard its closest competitor, wrested control from Dell and became the global leader in PC sales.
Aside from that Hewlett-Packard surge ahead and left Dell behind when it came to sales in x86 servers; data storage devices; printers and printer cartridges; and IT services. Dell has a lot of catching up to do but based on the track record of the company, and as long as Michael, Dell is leading the charge, Dell Computers will always have a chance to unseat Hewlett-Packard as the number one computer company in the world.
The strength of Dell Computer can be seen in its founder’s decision to develop a unique way of selling computers. Michael Dell realized that build-to-order system fits perfectly well with the current market and the mindset of manufacturers, suppliers, and customers. He capitalized on this opportunity to sell high-quality products at a lower cost.
His sales pitch was irresistible for those who desire to save money. And when big enterprises discovered that they can save money as well as enjoy the use of high-value PCs, delivered on time and serviced the same way, there was no turning back for them and their patronage of Dell Computers catapulted a small business into a global empire and made its founder Michael Dell the youngest billionaire in history.
The weakness of Dell Computers is its reliance on this model. This particular value chain model is difficult to replicate when it comes to selling other products and services related to computers and Information Technology. For example, it is not advisable to use this model when it comes to selling printers and ink cartridges. In this type of product, it would be better to use the traditional build-to-stock because users of printers are not particular about the technology behind the printer but the ease of use of the said device.
The same thing can be said about data storage devices, servers, and to some extent, IT services. Customers are looking for a standardized, flexible, modular, and economy of use in these types of products. In this regard, it would be best to have a company designed the traditional way where there is a significant sales force and distributors that can anticipate customer needs and then make ready a product or service that is in demand.
It would be impractical to call Dell’s hotline to receive calls regarding customer’s specification for a printer or data storage device. It is easier to look at an inventory and decide what type of product will work for the whole company; there is no need to customize the product according to the needs of individual customers. Another weakness of Dell Computers is the high demand for notebooks, and based on their model, it is more costly to build a notebook as compared to a PC.
The decision of Michael Dell to transform Dell Computers into an organization that will be well known not only for its custom-built PCs has opened up several opportunities for the company. According to industry insiders, the IT industry is projected to grow at a steady 7.7 percent until 2010.
This is good news for Dell because it means that even in a sluggish economy, their sector is still growing and there is room to grow. For instance, Dell has less than one percent share in the IT service industry. If Dell can find a way to tap into this market, then their profitability will be much greater in years to come.
There are also threats to their continuing dominance in PC sales because there is a shift towards the use of notebooks and mobile computing. Dell has mastered the ability to outsource computer parts and then build their PCs according to customer specification similar to buying from a catalog, sends the finished product a few days later, and delivered directly to the consumer.
However, in the 21st century it has become clear that to lower cost, manufacturers and even assemblers must outsource. It has become a rule, and those who will not adhere to it will suffer significantly, a lesson that Dell learned the hard way.
Hewlett-Packard vs. Dell
Dell decided to wage war in two fronts; against Hewlett-Packard and Compaq. Dell was mildly successful in the sense that it contributed to weakening the strength of Hewlett-Packard in terms of selling printers and printer cartridges and prevented Compaq from breaking away when it comes to PC sales. But when Hewlett-Packard and Compaq merged, Dell faced a unified foe and a much bigger competitor in terms of global market share.
Today, Hewlett-Packard is not only the leader in PC sales, but it is also a dominant force when it comes to other components of the IT industry such as servers, storage devices, networking equipment, and printers and peripherals. In all of these, it is only in networking equipment wherein Hewlett-Packard does not have a major presence.
In comparison, Dell is only strong when it comes to PC sales, and has a more or less significant market share when it comes to servers and data storage devices but has a minuscule market share when it comes to IT services and printers and printer peripherals. Furthermore, Hewlett-Packard is ready to take on emerging markets and is in a better position to capitalize on a global economy.
Dell, on the other hand, was built on the idea that the United States is the center of the supply chain management, and everything has to go through America. This is what happened to their notebook business when they outsourced the first stage of their production and then shipped back the half-finished product to the U.S. for completion. It did not take long for them to realize that this is a foolish idea in the age of business-process-outsourcing.
This is also evident when it comes to the dominance of Hewlett-Packard over Dell when it comes to IT services. This is the IT industry’s bright spot in the years to come, and yet Dell is not ready to go full speed and capture a bigger share of the market. For example, the top two leaders in IT services are IBM and Hewlett-Packard. And IBM employed 74,000 employees in India while Hewlett-Packard through its partner Electronic Data Systems employed 27,000 employees in India.
In contrast, Dell spent $2 billion in acquiring U.S. based IT companies such as Everdream Corporation located in California and SilverBack Technologies located in Massachusetts. It does not require a rocket scientist to realize that IT personnel working for these companies cost more than those who live and work in India.
Dell’s strategy is particularly weak when it comes to focusing its efforts on PC sales and having a U.S. centered view. It took some time for Dell to outsource their computer manufacturing and assembly outside the United States while Hewlett-Packard did not hesitate to work with builders located outside America.
On the other hand, the build-to-order strategy of Dell is still unrivaled. Even if Hewlett-Packard tried to copy this system, when it comes to PCs Dell was still able to demonstrate that they can build it more cost-efficiently and deliver a product that can receive a high-satisfaction rating from their customers.
The only way for Dell to wrest the number one position in terms of PC sales away from Hewlett-Packard is to go out one hundred percent when it comes to outsourcing the building of PCs from scratch, there should be no factory based in the United States, and everything must be done abroad. Also Dell must focus on emerging markets such as those found in China, Brazil, Russia, India, and Latin American countries that are experiencing a surge in their economy.
Without a doubt, Michael Dell is a superb example of how a business leader can develop a fledgling organization into a global conglomerate. He is well-aware of how to craft and execute a strategy. He saw the needs of the customers and yet at the same time, he also understood how to provide a solution to a problem using resources available to him and his organization.
He was one of the first to determine a way to exploit the slow moving and expensive value chain models used by traditional companies and how a small firm can feed on the excess and turn around and build a good quality computer at significantly lower costs.
He was not a perfect leader from the very beginning, but he was willing to adapt. And in terms of developing and executing his strategy he was willing to acknowledge that he did not know everything there is to know about computers and so he sought the help of older and more experienced leaders in the computer industry, and he was willing to learn from them.
But what he lacked in management skills he compensated when it comes to his determination to monitor the performance of the organization and the need to make timely adjustments. This he was able to demonstrate from the very beginning up to the present.
Opportunities in 2008
A SWOT analysis, as outlined at the beginning of this study, revealed that Dell Computers has the opportunity to increase their revenue by focusing on other aspects of the IT industry.
They only have less than one percent market share when it comes to IT services, a mere five percent when it comes to market share in printers and printer cartridges and a mere two percent share when it comes to networking equipment. There is room to grow, and if Dell knows how to position the company and invest correctly, then they can take a bite of these different market categories.
Hewlett-Packard PC strategy
There is one aspect of Hewlett-Packard’s strategy in PC sales that is more appealing is the ability to utilize low-wage workers in other countries to build cheaper PCs.
They also have a global sales force and has various partners within the IT industry that allowed them to adjust and effectively analyze customer needs and therefore able to respond not as a company to another company but as an organization to the world. In other words, Hewlett-Packard can create products that have a global appeal instead of simply manufacturing products tailor-made for the U.S. market.
Dell Computers must embrace a more global perspective. There are more than 6 billion people in the world today, and half of the global population resides in emerging economies far away from the United States. Dell was interested only in the cost-cutting impact of using employees from these countries to deal with their customer service needs but acted very slow when it comes to outsourcing the assembly of computers, especially notebook computers.
Dell must see emerging economies not only as a future location for their factories but also as a growing market that will increase their revenue significantly. Finally, Dell must focus more and provide more resources to develop better notebooks and mobile computing devices. Herein lies the future of the IT industry.