Strategic Management-Dell Case Study

Answer

Case Study Analysis of Dell Inc. and Strategic Management

Synopsis

Dell Inc. is an American technology firm specialized in designing and manufacturing a range of products. The products include desktop PCs, laptops, mobility, software and peripherals, servers and networking equipment, infrastructure services and storage systems. It is headquarter in Round Rock, in Austin, Texas. Dell was founded in 1984 as a dedicated retailer of personal computers. The business enabled it to amass high revenues and profit margins which became a core competence for the firm. It has a strategic approach to low cost production through sub-contracting, effective value chain and supply chain, competent management under Michael Dell and a group of competent team of managers. A combination of these factors enabled Dell to grow rapidly and brome a market leader in PC production and sales. In spite of this, the firm failed to keep up with the rapid changes in the industry.

Dell failed to keep up with changing customer needs, changes in economic environment and transformations of the industry life cycle. As a result, the changing times pushed it out of the market. An instance was the late discovery that the global business landscape was rapidly changing in favor of customer centric geographic structures. This motivated Dell to restructure itself into four business units: large enterprises, small and medium business, consumer unit and public unit. This created a turnaround effect enabling Dell to increase its revenues in 2010 after the 2008-2009 Global Economic Recession. However, it was not sustainable. Massive changes in the industry, as evident with the speedy maturity of the industry lifecycle, made it hard for Dell to catch up as the low profit margins and revenues were depleting its resources, and simultaneously eroding its capabilities and core competencies.

One point of weakness was Dell’s continued focus on desktop PCs, a flagship product, and failed to adapt to evolving market needs. Its failure to invest into research and development, and instead, its focus on purchasing standard and commoditized technology, barred it from assuming a first mover position. Another challenge was poor leadership. This was after Michael Dell relinquished his CEO rolls to a third party and assumed the role of the chairperson. This led to massive loss of sales and revenue. After his reinstatement as CEO in 2007, he focused on restructuring the business through acquisitions, downscaling, and poaching experts from Nike and Motorola. In spite of these changes, the industry was quickly shifting from laptops to mobile computing, provision of technology services and software development. Dell lacked competence in these areas. Dell lost its core competencies associated with value chain efficiencies and direct sale model opting to use supply chain similar to that of competitors. Dells focus on low cost production however led to substandard products thus losing customers’ loyalty.

Resources

During its initial years, from 1984 to 2006, Dell amassed a lot of resources. These included production and assembly lines in USA, China, India, Brazil, Poland and Malaysia. These countries were strategic in providing cheap labor and access to support services and sub-contractors. Second, Dell had a superior brand name that attracted customer loyalty and commitment. Third, the firm had competent management under Michael Dell as well as a group of talented and competent managers. Fourth, the high returns on investment reported in the initial years enabled Dell to create a pool of resources that would finance its development projects.

Capabilities

Dell had financial capability which created economies of scale since it could buy a lot of goods at once. This buying power made it to influence the market and obtain discounts thus lowering its overall production costs. At first, the direct marketing model was a key capability for Dell. Nonetheless, its dependence on direct marketing model became a liability after it was imitated by competitors who supplemented it with retail outlets. The direct only strategy had to be reconsidered since it failed to provide quality support and customer care services. Dell began selling through Canadian and US retailers such as Sam’s Club, Wal-Mart, Best Buy and Staples among other 56,000 outlets globally.

Core Competencies

Cost cutting through perfection of manufacturing processes. In addition, Dell achieved low cost production through lean management where it reduced overhead expenses by 9.6%. This translates to higher revenue per employee compared to its competitors such as HP and IBM.

Outsourcing component production operations as well as express shipping. This was a cost saving strategy where Dell closed its desktop production and assembly plants in the USA and moved them to Mexico and Asia which were providing these services at cheaper costs.

Product diversification. This involved broadening product portfolio and product line to include laptops, desktops, storage systems, servers, printers, infrastructure services, peripherals and software. This was a strategic plan aimed at leveraging Dell against shortfalls in one product line.

Findings of Fact

Poor leadership that lacked ambitious and focus on the future of the industry was the main challenge leading to the downfall of Dell.

Recommendations/Justifications

                It is necessary that Dell considers hiring competent, talented and visionary leaders. Competence can also be achieved through continuous learning and training by the firm (Rothaermel 9). This will enable the leaders to continuously analyze the industry life cycle and key market trends. As a result, they will continuously invest into research and development initiatives that will reinforce achievement of a fast mover position. The leadership void left by Michael Dell means that the firm lacks a succession strategy. The firm has to introduce policies that will enable training of managers and future leaders (Klettner 150). Such leaders will be able to effectively use resources to achieve sustainable growth by creating core competencies.