1) What is your evaluation of Michael Dells performance in his roles as Dells CEO and Chairman?

How well has he performed the five tasks of crafting and executing strategy that were discussed in Chapter 2? When we talk about Michael Dell, theres only one simple word can explain Dells performance and it is amazing. Dells first company, PCs Ltd. had a strategy of selling PC computers which mimicked IBM, except for a few minor components, were being sold to price conscientious consumers, about 40 percent below the price of the best selling IBM. By selling the computers below market price, and generate rapid revenue growth for Dell. Michael Dell put tremendous effort into his company, working 18 hour days, and employing more than 40 people. I found it astonishing that at the end of that year, sales had reached 33 million. He later renamed the company in 1987, Dell, Inc. while seeking to refine the companys business model, and production compactly, while focusing on building a deeper management staff and corporate infrastructure, while trying to obtain the same low cost. I was also impressed with the financials of the company during it first years at Dell, Inc. The company started selling to large companies, along with government agencies, and became a public company, raising $34.2 million in its first offering of common stock. In 1990 is had sales of $388 million. I strongly believe Michael Dell embraced his vision of trying to become one of the top three PC companies. Dell found a niche and was able to run with it. I would give Dell an A considering posted revenues for 2008 were $61.1 billion, showed a profit of almost $3 billion. I think that Dells decision of bringing in Lee Walker proved that Dell wanted and knew what was best for the company, and provided it. I view Michael Dell as a very involved and well rounded CEO, while focusing on implementing the five strategies

2) What are the elements of Dells strategy? Which one of the five generic competitive strategies is Dell employing? How well do the different pieces of Dells strategy fit together? In what ways is Dells strategy evolving? There are four main elements to Dells strategy of delivering superior customer value. The fist key element is that Dell focused on selling directly to the consumer, which has proved to be very efficient way to market the companys products, while eliminating wholesale and retail First it made its computers build to order. Second, it partner with its suppliers to squeeze cost savings out of the supply chain. Third, it used direct sales techniques to gain customers. Fourth, it grew into a larger a larger market share with expanding its additional products and services to capture a larger share of consumers IT spending. Fifth, it focused on providing outstanding customer service and technical support. Sixth, it kept R&D and engineering activities solely on better meeting the needs of consumers. Lastly, it focuses on using standardized technologies in all of its product offerings. Dells strategy is together well, which the major factors relying on one another in order for the company to succeed as a whole. I believe Dells strategy is constantly evolving. They are always looking of new ways to expand their products and services without trying to overload the system. In recent years, Dell has expanded into data storage hardware, switches, handheld PCs, printers, and printer cartridges, and several new software products. VALUE CHAIN ANALYSIS Personal computers flowed from manufacturers to customers via four channels - brick and mortar retail stores, distributors, integrated resellers and direct distribution. Some PC makers like Apple opened their own retail stores. A handful of large distributors such as Ingram Micro and Tech supplied a full range of computer hardware and software to more than 100,000 resellers. Some resellers were large enough to buy directly from manufacturers. Retailers and distributors typically mark up the product 3 - 4%. Distributors earn a thin margin of 1%. In direct distribution PC makers took order by phone or Internet and shipped the PCs through third party shippers such as UPS directly from manufacturers to the customer. Demand for PCs changes overtime (decreased in corporate customers and increased in end consumer), making the marketing, product innovation, and distribution channels more important to

reach the customer. With increase in global demand and low substitutes, the industry presents itself as an attractive market. INTERNAL ANALYSIS Companys Resource and Competitive Position (Internal) Company strategy (Corporate and Functional) Corporate Strategy Dells strategy was to increase its market growth by targeting large customers directly and selling online to end consumers while keeping supply chain costs to a minimum. Now Dell is moving towards small businesses and home users through retailers and resellers. Functional Strategies Supply Chain Dell was the industry leader in efficient supply chain management. Using Just-inTime distribution allowed them to reduce inventory storage costs and expedite order delivery. Manufacturing Dell tried to reduce its cost by closing its Texas, Tennessee plant into India, and relied more contractors to produce its PCs Human Resources After returning, Michael Dell hired Ronald Garriques from Motorola as the head of Dells consumer division and Michael Cannon from Solectron as Chief Global Operations. Brian Gladdin from GE and Ed Boyd were hired as CFO and Chief Consumer Designer. Marketing and Sales They enhanced their product line by launching a series of laptops in bright colors and selling through major retailers globally. They also launched the Partner Direct program to build relationship with qualified resellers. Company vision and mission/purpose and competitive advantage Dell vision statement Make information technology solutions affordable for millions of people around the world. Mission Statement To be the most successful computer company in the world by providing the best product with competitive pricing through the utilization of the most efficient supply chain and manufacturing strategy.

Competitive advantage

 Dell has strong direct sales compared to competitors giving it a large presence in the B2B market. Dell provided exceptional customer service to corporate clients. They could repair or replace high-end servers of corporate customers within hours. They had personnel in five control centers around the world to respond to IT emergencies. PORTERS 5 FORCES ANALYSIS

Competition: Intense The industry is highly fragmented with many large key players HP spent $1 billion in sales and marketing in 2008. Acer is the fastest growing company in computer industry. Apple spent $500million in sales and marketing, and increased market share from 2004-2008 as well globally. Lenovo entered US market through the purchase of IBMs PC division for $1.25B in 2004 Threat of Entry: Low - Medium It takes high level of investment and technological expertise to enter the industry. It takes $750 to manufacture a desktop PC. Entry takes place by foreign companies acquiring companies losing market share. Chinese PC manufacturer Lenovo entered the US market by acquiring IBMs PC division. Taiwanese company Acer entered the US market by acquiring Gateway. Substitutes: Low

 The switching costs are low. Cell phones and PDAs offer some features which overlap with laptops Supplier Power: Medium Suppliers can be categorized into hardware and software. Hardware can be purchased in highly global competitive market served by many companies except for microprocessors. In 2009, Intel had 80% market share in microprocessors and charged a fixed price for all buyers. Microsoft had a strong market share in operating systems. All PCs companies except for Apple are strongly dependent on Microsoft software Buyer Power: Medium Buyer can be categorized into large business & government, small & midsize business, consumers (home) and education. Transactional consumers have low buyer power. Relationship buyers have high buyer power. They can negotiate prices as they purchase in large volumes such as government, education or large business

3) Does Dells expansion into other IT product make good sense? Why or why not? I think that Dells decision to expand into other IT products makes good sense. I think that Dell has dominated the PC industry not only is it marketing and customization, but is the quality if the product it sells to the consumer. It make good sense to me because many people who purchase Dell computers, and are very loyal to their brand would preferred to have matching components to their PCs. For instance, many consumers would probably buy the printer, so that it matched their computer. They would do this not only for the name brands to match, but because Dell has a quality reputation which consumers know and trust. They would be more apt to try a new product from an honest and worthy quality supplier, than they would from a company they do not trust. 4) Is Dells strategy working? What is your assessment of the financial performance that Dells strategy has delivered during fiscal years 2002 2008? Use the financial ratios presented in Table 4.1 of Chapter 4 (pages 104 105) as a basis for doing your calculations and drawing conclusions about Dells performance.

Profitability ratios Gross profit Operating Margin

2002 18.3

2004 18.4 8.6 6.1 2.1 47.1

2005 17.7 7.9 6.5 2.4 89.0

2006 16.6 5.3 4.5 2.2 59.70

2007 19.1 5.6 4.8 2.2 78.9

2008 17.9 5.2 4.1 2.3 58.0

Profit 7.8 5.8 2.3

Net profit Margin Return on total assets

Return on 41.9 stakeholders equity

The overall financial position of the company is declining. Dell has a relatively stable gross profit margin with sufficient revenues to cover their operating expense and still make a profit. The decline in operating profit margin indicates that Dells ability to cover its current operations has reduced. Dells net profit margin shows the decline in revenue while costs increase. The return on assets is constant but more assets are spent to achieve lesser profits than before. Despite the huge decline in 2006 and 2008, Dell ROE is higher than its competitors. The trend is unpredictable indicating high risk.

5) What does SWOT analysis reveal about the attractiveness of Dells situation in 2008? Strength worlds largest pc maker one of the best known brands cuts out the retailer customers own specification Weaknesses a huge range of products and components from many suppliers from various country computer maker not computer

 relatively cheap labor keep track of your delivery Opportunities diversification strategy by introducing many new products to its range making and selling low cost unbranded low price computers to PC retailers in the US

manufacturer making DELL unable to switch supply Threats competitive rivalry that exists in the PC market globally new entrants to the market pose potential threats exposed to fluctuations in the world currency markets (changes in exchange rates)

In sum, Dells commitment to customer value, to being directs, to operating responsibility and, ultimately, to winning continues to differentiate it from other companies

6) Which company is competitively strongerDell or HP? Use the weighted competitive strength assessment methodology shown in Table 4.4 of Chapter 4 to support your answer.

Positioning Map of the Industry

7) What issues and problems does Michael Dell need to address? a. Distribution Channel b. Increasing Competition c. Product Differentiation Distribution Issues Dell experienced significant losses in retail sales and was forced to temporarily withdraw from retail stores. Retailers were not comfortable with Dells direct and online distribution strategy. Increasing Competition Entry of new firms, mergers within competitors and return of Apples Macintosh increased the rivalry in the industry. Dells inability to respond to the evolving competitive landscape resulted in loss of market share. Product Differentiation Since PC prices have reduced significantly, Dell needs to differentiate itself by creating a unique competitive advantage for the customer.

ANALYSIS OF ISSUES Distribution Dells current competitive advantage in direct model is becoming less and less advantageous in a global market. Contributing factors include the decrease in US sales through the direct model

(-7.6% growth between 2004-2008). End consumers are less receptive to the direct model. Only 27% of the global market share can be attributed to the direct distribution channels, but 73.25% of the global market belongs to retailers and resellers. This is critical as 74% of Dells sales take place directly. 38% of Dells sales take place in the stagnant US market which decreased 3.2% between 2007-2008 in dollar sales whereas the global market increased by 5%. Resellers are hesitant to work with Dell considering that their whole strategy was built around cutting them. In addition, Dells presence in retail is weak with only 11% units sold through retail. 93% consumers accepted retailer recommendations. They also preferred to buy the personal computer in the store because it allows them to touch and feel the product. As sales in large businesses decreased and among end consumers increased, (by 2008 sales for large business was $ 20.2 billion, compared to $ 45.9 billion for consumers), the importance of indirect channel had risen. The sales by indirect distribution channel in US increased from 39.7% in 2004 to 55.9% in 2008, compared to direct distribution 56.6% in 2004 to 42.2% in 2008. Michael Dell downplayed potential conflicts by stating that direct and indirect businesses were separate. However, retailers and resellers were hesitant to work with Dell and preferred HP over any other PC. Increasing Competition Dell lost significant market share to its competitors. Lenovo entered the market with acquisition of IBMs PC division for $1.25B giving them the rights to IBM brand for five years and access to international markets. Similarly, Taiwanese company Acer purchased Gateway and Packard Bell, making it the fastest growing PC provider. Acers product line focused on inexpensive computers with good internet connectivity and economies of scale allowed it to achieve lowest overhead costs in the industry. In 2009, Acer surpassed Dell to become the second largest PC provider in terms of units sold. Furthermore, HPs move to acquire Compaq for $25B created a company which ultimately became Dells biggest rival. In 2007, HPs consumer PC revenue grew by 39% and notebook PC revenue grew by 47%. HP spent $1B in innovative marketing campaigns to position itself as a unique PC provider. They also worked with retailers and resellers to capture the growing consumer market. In addition, Apples Macintosh resurfaced in the market. Its PCs which were known for sleek design and high prices were improved with a shift to Intel microprocessors and the release of new operating systems. Along with its own independent retail stores, Apple also sold through resellers, storefront retailers and direct sales. As a result Apples revenue from laptops and

PCs experienced annual growth rates of 35% and 6% respectively. Dells re-entry in the retail market with limited product lines was an ineffective strategy in targeting end consumers. Product Differentiation The prices of PCs reduced significantly. Dells price for Desktop PC decreased from $1,052 in 2002 to $601 in 2008 due to outsourced manufacturing in China and Taiwan where the labor costs are 80 90% lower. Customers are now satisfied with standard PCs and do not require a high level of customization. As a result R&D budgets have been reduced to less than 4% as a percentage of sales in 2008. Creating brand value is necessary to charge premium prices and increase margins. Dell does not differentiate itself as a low cost provider or the most premium product. Acer has the lowest operating cost in the industry while Apple and HP are leaders in brand value. Even though Dell spent 800M in advertising and sales in 2008 it was not able to create the brand value to generate sufficient demand. 8) Recommendations Significant restructuring in the way Dell operates is necessary to improve the competitive position of the company. Dell should partner with retailers to target the 36.8% PCs sold globally through retail channels. We recommend that Dell merge direct sales to end-consumers with its retail channel. Customers who order directly may pick up their orders from closest retail stores who can charge a small fee for their service. If retailer relationships cannot be developed, opening independent stores will enable Dell to avoid retailer conflict and retain the margins. Furthermore, creating a competitive advantage for its products such as built-in applications or hardware capabilities is necessary to create a unique value proposition for the customer. A marketing campaign focused on creating brand value should be implemented which will allow Dell to charge premium prices and maintain brand loyalty.