Revitalizing Dell Case Analysis

Revitalizing Dell Case Analysis

The overall attractiveness of the personal computer industry was dependent on different underlying factors. There were internal and external factors that provided the dynamic evolution of this industry.

In the early 80s, there was IBM and Apple leading the market. As demand for PC exploded, other firms began to offer ¡§IBM clones¡¨. Compaq and other small players entered the market. This competition rivalry provides added pressure in the industry. In this era, these companies primarily enter the market using distribution channels like resellers and retail stores to reach the consumers. In terms of vendors/suppliers to complete a finished product that customers purchase, Microsoft and Intel were the major suppliers for majority of the players for operating system and processor respectively. They are the main parts of both hardware and software and eventually became the standard of the PC market. On this note, the bargaining power of the suppliers became very high.

The personal computer market size grew significantly as it becomes a useful tool in both business and personal aspects. Demand for PCs started to surge in the 90s especially with the availability of new applications such as internet, multimedia and email. Prices fell precipitously due to intense market competition mainly driven by price. Dell changed the dynamics by injecting a different approach in the business model. The direct model dealt directly with end-users which served corporate customers and small/home computer users. As seen on Exhibit 1, the average price dropped considerably from early 90s to late 2000s by approximately $1,500. Evidently, the market reached its maturity and halted its growth by year 2000. It bounced back in 2004 due to the launched of new technological innovations like PC notebooks.

Five Forces Affecting Industry Structure: (See Five Forces Diagram on Figure A)

Force #1: Rivalry

The attributes of this market is highly competitive. There are large numbers of players from big established firms to small firms. Taking into consideration the market¡¦s relatively slower growth (even decline in early 2000s), this leads to lesser revenue and provides extra pressure to all the market players.

Impact: High

Force #2: Power of Buyers

PC buyers are categorized into different types: large business / government; small and midsize business; individual customers; and educational institutions. These customers have different buying power and knowledge level about computers. But in general, buyers are somewhat in control in this market. With PCs being a commodity item and standardization of software applications like operating systems. There is almost no cost for the consumer to switch. That¡¦s the reason why PC manufacturers tend to enter into a price war.

Impact: High

Force #3: Power of Suppliers

Suppliers of the PC market are primarily dominated by Intel for microprocessor and Microsoft Windows as the operating system. This became a standard known as ¡§Wintel¡¨ reflecting the combination of both the processor and OS. The shares if Intel and Microsoft in the PC market is more than 80% and 90% respectively coming into late 2000s. This implies that the they can strongly influence prices and terms with the market players. Wintel also understands that they are ¡§locked in¡¨ with the major players that¡¦s why they can dictate more power in dealing with the PC manufacturers.

Impact: High

Force #4: Factors influencing ease of entry

Although there are high numbers of of small players which competes mainly in price, the threat for new entrants is not very significant. It is important to note that there is a strong possibility that new businesses may be able to introduce new innovative concepts just like what companies like Apple did by introducing music devices, smartphones, etc. in addition to personal computers.

Impact: Moderate

Force #5: Threat of Substitution

The threat of substitutes with personal computers has been blowing large due to development of technology. Before 2000, customers do not have much selection in personal computer. They may choose between a desktop or laptop. But due to technological development, there are wide range of substitutes available to customers including smart phones and tablets. As a matter of fact, the cost of replacement can be cheaper than a personal computer. In this period of time, consumers (whether for personal of business use) prefer to have the devices with more portability and cloud storage applications instead of solely relying on a personal computer.

Impact: High

In summary, from the following assessment using the five forces indicating low to high competitive pressure. The PC market is deemed to be an unattractive market due to a highly competitive industry in a mature market stage. This market is also driven by the buyers who are price sensitive. Investing in R&D, technological innovations or new product inventions is essential to this market. This needs high capital expenditures but this is another way to be differentiated among the competition, of course this comes along with right strategies and business model.

Figure A. Five Forces Diagram

Dell¡¦s Competitive Advantage

Excellent Inventory Management

4 days of inventory versus 20 to 30 days of their competition

Production process from order entry to shipping merely took hours.

Dell production facility had capacity to produce over 16 PCs per minute.

Took orders directly from customers -Dell mainly focused on two groups of customers - Relationship buyers and Transactional buyers. The relationship buyers were the main source of revenue generation. they were corporate businesses and government organizations adding up to 66% of the revenue. Consumers were 27% and Education sector generated 7% of the revenue. Dell had thousands of outside representatives courting for customer