Major Case Assignment
Case: Dell 2009
John Molson School of Business
July 22, 2010
After almost 20 years of unprecedented growth and industry leadership, Dell has started losing market share to its competitors: HP, Apple, Acer and Lenovo. Furthermore, its stock price has plummeted from its record 1998 high of US$139.88 to almost US$20.00 in July 2008. Due to poor performance, the founder of the company Michael S. Dell has returned to the company as CEO and has devised a plan to bring back Dell as a market leader in this industry and to improve its stock price.
Company’s Current Strategy
Vision: To be the world’s leading ...view middle of the document...
2 Industry Situation Analysis
1.2.1 Industry Structure:
• The industry as a whole is an oligopoly with few competitors and substitutes from companies such as Acer, Apple, HP and Lenovo
• Acer, HP and Lenovo targeted both commercial and consumer markets
• Apple primarily targeted the premium consumer market.
Directions and Trends:
• As technology improves and the cost of components reduces, it drives down the cost for PCs but increases the demand from consumer market.
• Industry went from computers to sales of servers and workstations, notebooks, services, peripheral devices, digital music players.
• Changing consumer needs.
• Multiple distribution channels (direct and indirect through channel partners)
1.2.2 Industry Driving Forces
• Improving technology and decreasing costs reduced the need for customization of computers (was Dell’s value add)
• Competitors complied to industry standards Intel platform which reduced switching costs for consumers (Apple)
Entry or exit of major firm
• HP merged with Compaq in 2002 and became a major player in desktops, notebooks and servers
• Apple, known in the industry for aesthetic design and easier to use products that were better integrated and in 2008 iPod portable digital audio player sold 100 million units
Changes in cost and efficiency
• Many components that cost extra in the past now came as standard-issue items in retail PCs and prices for PCs dropped by 50% since the late 1990s.
1.2.3 Key Success Factors
• Used e-commerce providing first with technical support information and then with price guides that enabled consumers to mix, match and price components.
• Set up value chain website for top suppliers from which Dell purchased 90% of its goods.
• Operational efficiency as computers built to order resulting in minimal inventory
• No inventory of finished goods
• Low-cost production efficiencies that minimized the number of touches to build customize and ship a computer. (60 compared 130 by the rest of the industry)
• Short delivery time: whole process from telephone call to loading onto a delivery truck (36 hours).
• Ranked number one in service and customer satisfaction in leading industry surveys
• Industry’s lowest cost structure
• Customer value increased due to “the Dell Effect” when it entered a new product category, a drop in price and an increase in value.
1.3. Competitive Situation Analysis
1.3.1 Competitive Forces (Porter Analysis)
Using Porter’s Five Forces model, we analyze that the computer industry is highly competitive among key players and the threat of substitute products is low. For complete analysis and supporting criteria, please refer to Exhibit I.
1.3.2 Key competitors’ analysis
• Acer has always...