Dell Business Strategy Change Essay Example

2-3 days after ordering (Bozarth & Handfield, 2008, p. 26).

Dell have also focused on building strong partnerships with their suppliers, and sharing information with them to help them provide better service to Dell. The direct model allowed Dell to gain access to valuable purchasing information that could also be passed down the supply chain to suppliers (Magretta, 1998, p. 73-74). Dell were also ble to reduce inventory turnover to 3-4 days compared to its competitors 30-45 days, providing a slight first mover strategic advantage (Kumar & Craig, 2007, p.201). Up until quite recently, this model had served Dell extremely well, helping them to become the largest supplier of personal computers in the world, until 2007 when HP took their place (Shah, 2007). Since then, Dell's profits have gone down, along with their share price. Furthermore, Dell's major competitors have improved their position in the personal computer market.Hill & Seggewiss (2008) believe that while HP has made improvements to its customer service and prices, Dell has had problems with its customer service and product quality, resulting in Dell replacing its senior management and cutting jobs.

In response, Dell have announced a radical change to their business strategy, effectively planning to move away from their trademark made to order direct sales model and reduce the complexity of their supply chain. Dell will adopt a more traditional approach of selling computers with fixed configurations via resellers (SCN, 2008).Kumar & Craig (2007, p. 211) present a SWOT analysis for Dell, which is very useful in identifying the environmental changes that have led to Dell reversing its made to order strategy. The following threats were identified.

• Customisation from other companies (i.
  

e. HP, Sony, Lenovo, Apple);

(Kumar & Craig, 2007, p. 211)

In responding to threats from the improvement of their competitor's supply chains and provision of made to order personal computers, Dell could have considered trying to continue with improving their business model, aiming to be more efficient than their competitors. Instead, Dell have opted for a strategy of trying to compete on price and quality.

This strategy was outlined by Michael Cannon on April 14, 2008. The aim of the new Dell strategy is to “provide the customers with great satisfaction on their needs, better than our competitors, in a way that delivers total lowest landed cost, anywhere in the world” (SCN, 2008). In the past, Dell's supply chain was focused on being able to provide customers with a made to order computer. Dell are finding that although this strategy is profitable for customers that customise their configurations to the higher end of the configuration price bracket, when they are selling the base model, the cost of their complex supply chain is not efficient, as most of the complexities are not needed. Dell have recognised that not all segments of the market want a customisable computer, and are happy to purchase a limited configuration with slower delivery time.This will be especially true in emerging markets, where Dell believes customers will be looking to buy cheaper personal computers with fixed configurations.

One of the major changes to their sales approach will see them entering the retail market, which they have already started to

do. However, Michael Cannon did confirm that the direct model will remain important to Dell (SCN, 2008). To achieve the goals of their new strategy, the Dell supply chain will change. Product design will change to focus on specific platforms for specific price ranges.They will also enter into agreements with more partners that can provide equipment and assemble their computers for them. To aid in getting the computers to customers at the “lowest landed cost” they will use partners who are geographically closer to the end customer.

In changing their strategy, Dell are effectively saying that the global computer industry is becoming commoditised, moving from a market where differentiation of a computer is valued, to one where undifferentiated products are sold in an increasingly competitive market at decreasing prices.To reflect this, Dell's new business strategy aims to gain a sustainable competitive advantage by producing personal computers at a lower cost and better quality than their competitors. This essay now considers the customer value proposition of this new strategy. Dell's previous strategy saw customisation and delivery time as the most important customer features, but their new strategy sees cost and quality as the most important product features.Dell will need to streamline its new supply chain to produce computers at the lowest cost possible, while at the same time ensuring that the quality of their computers is as good as, if not better than, their competitors. In identifying the features a customer will be looking for in a personal computer, certain characteristics need to be considered, such as: cost, performance; reliability; maintainability; supportability; and safety.

• Cost: The market that Dell aims to compete in will be very cost
  

conscious;

Dell's new strategy is based on the belief that the computer industry is becoming more commoditised, where products are becoming standardised and cheaper. Therefore, product performance will become less important as most personal computers will be expected to provide the same level of performance. To differentiate between two similar personal computers, a customer will consider the cost of the machine in forming their final purchasing decision. In making this decision, reliability, supportability and maintainability will also be deciding factors in customer choice.In evaluating the importance of a product's features, proposes a model for classifying features as essential, performance, or winning.

• Essential features: Performance; Safety, including compliance with local safety regulations;
• Performance features: Cost;
• Winning features: Reliability, Maintainability, Supportability.
• Dell must provide computers that meet an expected, almost taken for granted, level of performance and safety. Customers will then differentiate based on the cost of the computers.

However, an organisation can gain a strategic advantage over its competitors by providing a greater level of reliability, maintainability, and supportability. Providing these features will be a considerable challenge for Dell.

In their new strategy

they will be working with more suppliers than they worked with previously, who will also be providing Dell with more products and services that they provided before, such as: manufacturing the whole computer for them; and providing full after sales support and service (SCN, 2008, p. 4). This essay now discusses what lessons other organisations can take from the Dell experience. The Dell experience has shown that “supply chain excellence does correlate to financial success” (Kumar & Craig, 2007, p. 212), which Dell achieved by focusing on building strong relationships with its supply chain partners, emphasising the sharing of information, integrating systems and tracing products throughout the supply chain (Kumar & Craig, 2007, p. 212).

The negative turnaround in Dell's performance has come about due to two factors. Firstly, its competitors have improved their supply chains and being able to compete with Dell. Secondly, customisation has lost its competitive edge in the personal computer marketplace, where we now see successful companies as those that provide good quality personal computers at a low price. The lesson to be learnt from this is that if the business strategy is not correct, then even the best supply chain in the world will not be able to compete. Other organisations should also take note of the fact that Dell has also acknowledged the importance of the global supply chain, and their strategic response in aiming for components to be produced and assembled closer to the end-customer.Other organisations in the computer industry should analyse the new Dell strategy and work out if they agree with the environment changes that Dell believe are occurring.

If they agree with Dell, then they should consider

aligning their strategies and supply chains accordingly. In Summary, Dell are changing their business strategy as they believe that their previously successful made to order direct sales model is no longer competitive in the personal computer industry. This has been reflected in their loss of position as the largest seller of personal computers in the world.They believe that customers, especially those in emerging markets, are looking for good quality personal computers with fixed configurations at competitive prices. To compete in this changing environment, Dell have changed their business strategy to focus on selling personal computers with fixed configurations, which will also include selling via resellers. Dell are also changing their supply chain to align with the new business strategy: focusing on less complexity and building more partner relationships with suppliers closer to the end-customer.

Bibliography

1. Bozarth CC & Handfield RB, 2008, Introduction to Operations and Supply Chain Management, 2nd edn, Pearson Prentice Hall, New Jersey.
2. Hill B & Seggewiss K, 2008, 'The Dell dream dies', The Ottawa Citizen, April 24 2008, <http://www. canada. com/ottawacitizen/news/story. html? id=d399d387-df1f-4400-8274-1c45879f8ed2&p=1>, accessed 31 Aug 2008.
3. Kumar S & Craig S, 2007, 'Dell, Inc.'s closed loop supply chain for computer assembly plants', Information Knowledge Systems Management 6, 197-214, IOS Press. Magretta J, 1998
4. The power of virtual integration: An interview with DellComputer's Michael Dell', Harvard Business Review, vol. 76, no. 2, pp. 73-84 SCN, 2008,
5. Complete Transcript of Michael Cannon of Dell Describing Plans for Supply Chain Transformation', Supply Chain News, 14 April, <http://www. scdigest.com/assets/On_Target/08-04-14-1. php? cid=1613>, accessed 16 May 2008.
6. Shah A, 2007, 'HP tops Dell as world's largest PC supplier', Infoworld, October 17, 2007, ;http://www. infoworld. com/article/07/10/17/HP-tops-Dell-as-worlds-largest-PC-supplier_1.html;, accessed 31 Aug
   

2008.