Dell Computer Corporation

Case 7-5 Dell Computer Corporation

Measuring and Controlling Assets Employed

Dell, an American computer hardware company based in Round Rock, Texas, develops, manufactures, supports, and markets a wide range of personal computers, servers, data storage devices, network switches, personal digital assistants (PDAs), software, computer peripherals, and more. As of 2006 it employs more than 63,700 people worldwide and manufactures more computers than any other organization in the world. According to the Forbes 500 2005 list, Dell ranks as the 28th-largest company in the United States by revenue. In 2005, Fortune magazine ranked Dell as No. 1 on its annual list of the most-admired companies in the United States, displacing Wal-Mart.12

Dell has shown its ability to adapt to the marketplace and diversified its business to appeal to a variety of market segments over the years. Products range from Dell PowerEdge™ servers, Power Vault™, Dell EMC storage systems as well as PowerConnect™ switches for corporate clients. For individuals and professional customers alike, Dell products give the consumer a broad range of choices, such as Dell Precision workstations, OptiPlex desktops, Dimension desktops, Inspiron and Latitude notebooks. Apart from these core products, the company also offers a wide array of ancillary products and services, including printers, projectors, Axim handhelds, and other accessories (Annual Report 2006).1 More recently, to generate recurring revenues, the company has announced intentions to explore printers, LCD television/computer monitors, as well as digital music players. 8

Discussion Questions:

1. What is Dell's strategy?

2. What is the basis on which Dell builds it competitive advantage?

3. How do Dell's control systems help execute the firm's strategy?

Business Strategy

Dell's business strategy combines direct customer contact with highly efficient manufacturing and effective supply chain management. Dell has emphasized quality production, which it applies to standards-based technologies. Dell puts the customer first and subscribes to what could be viewed as a modern day version of the old adage, "The customer is always right."10 This strategy enables Dell to provide customers with superior value; high-quality, relevant technology; customized systems; superior service and support; and products and services that are easy to buy and use.

The key tenets of Dell's business strategy are:

* A direct relationship is the most efficient path to the customer.

A direct customer relationship, also referred to as Dell's "direct business model," eliminates wholesale and retail dealers. Dell believes those middlemen add unnecessary time and cost to the process and diminish Dell's understanding of customer expectations. As a result of its direct business model, Dell is able to offer customers superior value by avoiding expenditures associated with the retail channel, such as higher inventory carrying costs, obsolescence associated with technology products, and retail mark-ups. In addition, direct customer relationships provide a constant flow of information about customers' plans and requirements and enable Dell to continually refine its product offerings to be highly responsive to the customer's wants and needs. Through a user-friendly website (www.dell.com), customers can review, configure, and price systems within Dell's entire product line; order systems online; and track orders from manufacturing through shipping.

* Customers can purchase custom-built products and custom-tailored services.

Dell believes the direct business model is the most effective model for providing solutions that address customer needs. In addition, Dell's flexible, build-to-order manufacturing process enables Dell to turn over inventory every five days on average, and reduce inventory levels. This allows Dell to rapidly introduce the latest relevant technology more quickly than companies with slow-moving, indirect distribution channels, and to rapidly pass on component cost savings directly to customers.

* Dell is a low-cost leader.

Dell's highly efficient supply chain management and manufacturing organization, efficient direct business model, and concentration on standards-based technologies allow Dell to maintain one of the lowest cost structures among its major competitors and to pass those savings to its customers. Dell's relentless focus on reducing its costs allows it to consistently provide customers with superior value and provides them with a competitive advantage.9

* Dell provides a single point of accountability for its customers.

Dell recognizes that as technology needs become more complex, customers have more difficulty identifying and addressing their particular information technology needs. Accordingly, Dell strives to be the single point of accountability for customers with complex technological challenges. Dell offers an array of services designed to provide customers with the ability to maximize system performance, efficiency, and return on investment.

* Non-proprietary standards-based technologies deliver the best value to customers.

Dell believes that non-proprietary standards-based technologies are critical to providing customers with relevant, high-value products and services. Focusing on standards gives customers the benefit of extensive research and development from Dell and its entire supply chain, rather than a single company. Unlike proprietary technologies, standards provide customers with flexibility and choice while allowing their purchasing decisions to be based on performance, cost, and customer service. 3

Marketing Strategy

Product: Dell's unique approach to manufacturing separates the different processes so that Dell is not reliant on singular production or supplier's chain for equipment production. Separating the components of its products has enabled Dell to target customers based on the regions in which the products are manufactured. By assigning each regionalized production center particular components for production, Dell has minimized the deleterious effects of a labor force that is centralized and concentrated in one location. Dell can better control production costs, and keep its price point where customers