Dell Case Study

The case study Product Development at Dell Computer asks for the validation of a product development decision facing Dell Computer Corporation in fall 1993 with respect to the implementation of a new battery technology for laptop computers. Case Crackers inquire into the competitive forces in the computer industry at the time of the decision (section one), scrutinize Dell’s product development process (section two), and evaluate three potential courses of action laid out in the case materials (section three). Case Crackers gives equal recognition to considerations of quality and revenue and recommends adoption of a hybrid option combining the advantages of all of these options while avoiding their downsides (section four). Expected net margin under Case Crackers’ recommendation is about 20% or $100,000,000 more than under any of the courses of action so far discussed by Dell.

Table of Contents Page

Cover / Abstract 1

Table of Contents 2

References 3

Section One: Background 4 - 6

1. Competitive Forces in the Computer Industry 4 - 5

2. Dell Computer Corporation’s Business Model 6

Section Two: Dell’s Product Development Process 7 - 11

Section Three: Valuation of Courses of Action 12 - 18

1. Qualitative analysis 14 - 16

a) Option one: develop laptop for a proven battery technology (NiHi) 14

b) Option two: develop laptop for a new battery technology (LiOn) 15

c) Option three: develop laptop for both battery technologies 16

2. Quantitative analysis 17 - 18

a) Option one: develop laptop for a proven battery technology (NiHi) 17

b) Option two: develop laptop for a new battery technology (LiOn) 18

c) Option three: develop laptop for both battery technologies 18

Section Four: Recommendation 19 - 24

1. Option four, quantitative analysis 20 - 22

2. Option four, qualitative analysis 22 - 24

3. Conclusion 24

Appendix A: Decision Tree 25

References

Our analysis is based on the treatment of the case Product Development at Dell Computer as a self-contained problem. Thus, the majority of the information and data we used were drawn from the case itself:

Stefan Tomke, Vish Krishnan & Ashok Nimgade, Product Development at Dell Computer, Harvard Business School Case 9-699-010 (1999).

Additional insights were derived from the following readings:

Marie Bell, Dell вЂ" New Horizons, Harvard Business School Case 9-502-022 (2002).

Joan Magretta, The Power of Virtual Integration: An Interview with Dell Computer’s Michael Dell, Harvard Business Review, Reprint 98208 (1998).

Jan Rivkin & Michael Porter, Matching Dell, Harvard Business School Case 9-799-158 (1999).

For better readability we abstained from attributing each factoid mentioned to its source by means of footnoting and only give this general reference.

Section One: Background

Our inquiry starts out with a description of the competitive forces in the computer industry at the time the decision that we are facing now was made: October 1993. Particular attention is given in this section to Dell’s business model, e.g. how Dell chose to compete in the industry and what organizational skills and capabilities it employs. These observations are crucial for a valuation of Dell’s options in the particular issue at hand, because every single business decision should ideally be in tune with the firm’s corporate identity and at the same time both build upon and fortify its distinctive company profile and core capabilities.

1. Competitive forces in the computer industry

In the ever-changing world of technology every company wants to be the first to develop the most innovative of products and sell them to their target market. In the early 1990’s, the technological main focus of computer companies was on portable computers. Many competitors wanted their share of the market for this new technology. These competitors included Dell, Compaq, Gateway, Hewlett Packard, IBM, and Apple. In 1993, IBM dominated the market share, with 14 million units. Apple followed IBM closely with 13.9 million units. Compaq had sold 9.6 million units. Dell was lagging behind with 5.4 million units sold. All of these companies had their own ideas and strategies on how to go about being the leader in the portable computer industry.

Dell Computer Corp. had been a frontrunner in the computer industry since its creation by Michael Dell in 1984. Its main strategy had been the elimination of the middleman: the sale of computers directly to customers, rather than selling its products through retailers. Additionally, Dell built its computers to order. Thus, customers could buy a personalized computer within the limits of selected components that met the specific demands and expectations for a wide spectrum of user profiles.

Over the years, many companies recognized the success Dell had acquired from its direct selling method. Therefore, in 1990, some of Dell’s competitors, including Compaq, IBM, and Gateway, decided to imitate Dell’s model. Compaq did not only copy Dell’s direct selling method, but also cut its prices by 30% with the undisguised intention to begin a pricing war. Gateway’s sales grew from $275 million to $914 million in only two years, between 1990 and 1992. This growth in sales was due to pursuing the direct model Gateway had copied from Dell.

Not only did companies mimic Dell’s direct model, in part they also developed better products than Dell. In 1992, Dell’s portable computers accounted for 12% of all of their computer sales. However, these computers