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Dell Casestudy Essay

1220 words - 5 pages

Matching Dell

Jonathan S. Leonard

Two Fundamental Strategies

Beat them on costs
Sidestep them with differentiation

Two Fundamental Strategies

Dell relentlessly drove down costs

Corporate Financial Comparisons? These are
clouded by differences in Business Organization,
Product Mix, Industry Mix, Pricing, Cost
Product level Comparison:
Apples to Apples

Five Forces Analysis
Bargaining Power of Some Suppliers (very high)
Proprietary standards + customer desire for compatibility
Microsoft and Intel positioned to extract profits from
Other inputs are commodities

Bargaining Power of Customers (Low)
Resellers and retailers have ...view middle of the document...

It is
influenced by firm decisions, good and bad
In choosing what to do, industry leaders have to balance
their desire to attain a leading position with the
management of industry structure
IBM ends up with a strong position in an unattractive

How to Compete in a Competitive Industry
Find attractive growing segment of the market
Provide quality of service leading to WTP comparable or
above others in the industry
Outperform industry on costs
Interlinked strategies

Value Creation Approach




Dell’s Approach
Attractive segment:

Educated business consumers

Raise (or equalize) WTP:
Speed of delivery
After sales service

Lower costs:

Direct channel
Build to order
Speed of delivery

Linked Activities
Dell focused all of their activities in an
integrated and complex way to achieve
Direct sales focused on knowledgeable customers
No finished goods inventory, little WIP
After-sales service via direct online
Ship everything directly with no warehousing

No one activity was sufficient, combination of
activities created position

How Big Was Dell’s Cost Advantage?
Cost Analysis of PC for Corporate Customer in 1996
Dell price
Dell gross margin
Rate of decline in component prices/week
Annual Cost of Capital
Days Inventory
Channel markup
Competitor channel costs
commodity input and output markets
Dell's cost of goods for one PC
Rival's Increased costs due to:
… inputs purchased 7 weeks earlier
… higher inventory costs
…channel-related costs, buybacks
…channel markup
Total Dell Cost Advantage
Rival's COGS
Dell Cost Advantage / price



Potential Analytic Pitfalls

Compare financials?

Product/Customer Mix
Business Mix

% Revenue?
Separate WTP from cost

Value-chain equivalence?



Direct vs Mfg + Reseller

Average or Marginal Cost?
Competitive Industry

Q&A with Kevin Rollins, Dell Vice Chairman

Q: What is it about the direct sales model and mass
customization that has been difficult for competitors to
A: It’s not as simple as having a direct sales force. It’s
not as simple as just having mass customization in plant or
manufacturing methodology. It’s a whole series of things in
the value chain from the way we procure, the way we develop
product, the way we order and have inventory levels, and
manufacturer service and support. The entire value chain has
to work together to make it efficient and effective.
Q: What is the competition looking for?
A: So many of our competitors are really looking at our
business and saying, “Oh it’s an asset management model—seven
days of inventory. That’s what we’re going to do,”...

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