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You dont ever really know whether youve come up with the right plan until much later when it either works or it doesnt. What is the right plan? Its the one that helps you identify what you need to do to ensure success. Its the one that rallies your employees around a few common goals and motivates them to achieve them. Its one that involves your customers goals and your suppliers goals and brings them altogether in a unified focus. Michael Dell In 1984, at the age of 19, Michael Dell founded Dell Computer with a simple vision and business concept that personal computers could be built to order and sold directly to customers.
Michael Dell believed his approach to the PC business had two advantages: (1) Bypassing distributors and retail dealers eliminated the markups of resellers, and (2) building to order greatly reduced the costs and risks associated with carrying large stocks of parts, components, and finished goods. While the company sometimes struggled during its early years trying to refine its strategy, build an adequate infrastructure, and establish market credibility against better-known rivals, Dells build-to-order, sell-direct approach proved appealing to growing numbers of customers worldwide during the 1990 s as global PC sales rose to record levels. And, as Michael Dell had envisioned, the direct-to-the-customer strategy gave the company a substantial cost and profit margin advantage over rivals that manufactured various PC models in volume and kept their distributors and retailers stocked with ample inventories. Dell Computers Market Position in Early 2000 Going into 2000, Dell Computer was the U. S.
leader in PC sales, with nearly a 17 percent market share, about 1 percentage point ahead of second-place Compaq. Gateway was third with 8. 9 percent, followed by Hewlett-Packard with 8. 8 percent and IBM with 7. 2 percent. Dell overtook Compaq as the U. S. sales leader in the third quarter of 1999, and it had moved ahead of IBM into second place during 1998 (see Exhibit 1). Worldwide, Dell Computer ranked second in market share (10. 5 percent) behind Compaq (14. 0 percent).
IBM ranked third worldwide, with an 8. 2 percent share, but this share was eroding. Since 1996, Dell had been gaining market share quickly in all of the worlds markets, growing at a rate more than triple the 18 percent average annual increase in global PC sales. Even though Asia's economic woes in 199798 and part of 1999 dampened the market for PCs, Dells PC sales across Asia in 1999 were up a strong 87 percent. Dell was also enjoying strong sales growth in Europe. Dells sales at its Web site (web) surpassed $ 35 million a day in early 2000, up from $ 5 million daily in early 1998 and $ 15 million daily in early 1999. In its fiscal year ending January 31, 2000, Dell Computer posted revenues of $ 25. 3 billion, up from $ 3. 4 billion in the year ending January 29, 1995 a compound average growth rate of 49. 4 percent.
Over the same time period, profits were up from $ 140 million to $ 1. 67 billion 64. 1 percent compound average growth rate. Since its initial public offering of common stock in June 1988 at $ 8. 50 per share, the company had seen its stock price split seven times and increase 45, 000 percent. Dell Computer was one of the top 10 best-performing stocks on the NYSE and the NASDAQ during the 1990 s. In recent years, Dells annual return on invested capital had exceeded 175 percent. Dells principal products included desktop PCs, notebook computers, workstations, servers, and storage devices. It also marketed a number of products made by other manufacturers, including CD-ROM drives, modems, monitors, networking hardware, memory cards, speakers, and printers.
The company received nearly 3 million visits weekly at its Web site, where it maintained 50 country-specific sites. It was a world leader in migrating its business relationships with both customers and suppliers to the Internet. In 1998 the company expanded its Internet presence with the launch of web an online source for more than 30, 000 competitively priced computer-related products. Sales of desktop PCs accounted for about 65 percent of Dells total systems revenue; sales of notebook computers generated 2025 percent of revenues, and servers and workstations accounted for 1015 percent of revenues. Dell products were sold in more than 170 countries. In early 2000, the company had 33, 200 employees in 34 countries, up from 16, 000 at year-end 1997; approximately one-third of Dells employees were located in countries outside the United States, and this percentage was growing.
Company Background When Michael Dell was in the third grade, he responded to a magazine ad with the headline "Earn Your High School Diploma by Passing One Simple Test. " At that age, he was both impatient and curious always willing to try ways to get something done more quickly and easily. Early on, he became fascinated by what he saw as "commercial opportunities. " At age 12, Michael Dell was running a mail-order stamp-trading business, complete with a national catalog, and grossing $ 2, 000 per month. At 16, he was selling subscriptions to the Houston Post, and at 17 he bought his first BMW with the more than $ 18, 000 he had earned. He enrolled at the University of Texas in 1983 as a pre-med student (his parents wanted him to become a doctor) but soon became immersed in the commercial opportunities he saw in computer retailing and started selling PC components out of his college dormitory room. He bought random-access memory (RAM) chips and disk drives for IBM PCs at cost from IBM dealers, who often had excess supplies on hand because they were required to order large monthly quotas from IBM. Dell resold the components through newspaper ads (and later through ads in national computer magazines) at 1015 percent below the regular retail price.
By April 1984 sales were running about $ 80, 000 per month. Michael Dell at age 18 dropped out of college and formed a company, PCs Ltd. , to sell both PC components and PCs under the brand PCs Limited. He obtained his PCs by buying retailers surplus stocks at cost, then powering them up with graphics cards, hard disks, and memory before reselling them. His strategy was to sell directly to end users; by eliminating the retail markup, Dells new company was able to sell IBM clones (machines that copied the functioning of IBM PCs using the same or similar components) at about 40 percent below the price of an IBM PC. The price-discounting strategy was successful, attracting price-conscious buyers and producing rapid growth. By 1985, with a few people working on six-foot tables, the company was assembling its own PC designs.
The company had 40 employees, and Michael Dell worked 18 -hour days, often sleeping on a cot in his office. By the end of fiscal 1986, sales had reached $ 33 million. During the next several years, however, PCs Limited was hampered by growing pain lack of money, people, and resources. Michael Dell sought to refine the companys business model; add needed production capacity; and build a bigger, deeper management staff and corporate infrastructure while at the same time keeping costs low.
The company was renamed Dell Computer in 1987, and the first international offices were opened that same year. In 1988 Dell added a sales force to serve large customers, began selling to government agencies, and became a public company raising $ 34. 2 million in its first offering of common stock. Sales to large customers quickly became the dominant part of Dells business. By 1990 Dell Computer had sales of $ 388 million, a market share of 2 to 3 percent, and an R& D staff of over 150 people. Michael Dells vision was for Dell Computer to become one of the worlds top three PC companies. Thinking its direct-sales business would not grow fast enough, in 199093, the company began distributing its computer products through Soft Warehouse Superstores (now CompUSA), Staples (a leading office products chain), Wal-Mart Stores, Sams Club, and Price Club (now Price/Costco).
Dell also sold PCs through Best Buy stores in 16 states and through Xerox in 19 Latin American countries. But when the company learned how thin its margins were in selling through such distribution channels, it realized it had made a mistake and withdrew from selling to retailers and other intermediaries in 1994 to refocus on direct sales. At the time, sales through retailers accounted for only about 2 percent of Dells revenues. Further problems emerged in 1993, when Dell reportedly lost $ 38 million in the second quarter from engaging in a risky foreign-currency hedging strategy; had quality difficulties with certain PC lines made by the companys contract manufacturers; and saw its profit margins decline. Also that year, buyers were turned off by the companys laptop PC models.
To get laptop sales back on track, the company took a charge of $ 40 million to write off its laptop line and suspended sales of those products until it could get redesigned models into the marketplace. The problems resulted in losses of $ 36 million for the companys fiscal year ending January 30, 1994. Because of higher costs and unacceptably low profit margins in selling to individuals and households, Dell Computer did not pursue the consumer market aggressively until sales on the companys Internet site took off in 1996 and 1997. Management noticed that while the industry's average selling price to individuals was going down, Dells was going up second- and third-time computer buyers who wanted powerful computers with multiple features and did not need much technical support were choosing Dell. It became clear that PC-savvy individuals liked the convenience of buying direct from Dell, ordering exactly what they wanted, and having it delivered to their door within a matter of days. In early 1997, Dell created an internal sales and marketing group dedicated to serving the individual consumer segment and introduced a product line designed especially for individual users.
By late 1997, Dell had become the global industry leader in keeping costs down and wringing efficiency out of its direct-sales, build-to-order business model. Going into 2000, Dell Computer had made further efficiency improvements and was widely regarded as having the most efficient procurement, manufacturing, and distribution process in the global PC industry. The company was a pioneer and acknowledged world leader in incorporating e-commerce technology and use of the Internet into its everyday business practices. The goal was to achieve what Michael Dell called "virtual integration"a stitching together of Dells business with its supply partners and customers in real time such that all three appeared to be part of the same organizational team. 1 The companys mission was "to be the most successful computer company in the world at delivering the best customer experience in the markets we serve. " 2 Michael Dell Michael Dell was widely considered one of the mythic heroes of the PC industry, and was labeled "the quintessential American entrepreneur" and "the most innovative guy for marketing computers in this decade. " In 1992, at the age of 27, Michael Dell became the youngest CEO ever to head a Fortune 500 company; he was a billionaire at the age of 31. Once pudgy and bespectacled, Michael Dell at the age of 35 was physically fit, considered good-looking, wore contact lenses, ate only health foods, and lived in a three-story 33, 000 square-foot home on a 60 -acre estate in the Austin, Texas, metropolitan area. In early 2000 Michael Dell owned about 14 percent of Dell Computers common stock, worth about $ 12 billion.
The companys glass-and-steel headquarters building in Round Rock, Texas (an Austin suburb), had unassuming, utilitarian furniture, abstract art, framed accolades to Michael Dell, laudatory magazine covers, industry awards plaques, bronze copies of the companys patents, and a history wall that contained the hand-soldered guts of the companys first personal computer. 3 In the companys early days Michael spent a lot of his time with the engineers. He was said to be shy, but those who worked with him closely described him as a likable young man who was slow to warm up to people. 4 Michael described his experience in getting the company launched as follows: There were obviously no classes on learning how to start and run a business in my high school, so I clearly had a lot to learn. And learn I did, mostly by experimenting and making a bunch of mistakes. One of the first things I learned, though, was that there was a relationship between screwing up and learning: The more mistakes I made, the faster I learned. I tried to surround myself with smart advisors, and I tried not to make the same mistake twice...
Since we were growing so quickly, everything was constantly changing. Wed say, "Whats the best way to do this?" and come up with an answer. The resulting process would work for a while, then it would stop working and wed have to adjust it and try something else... The whole thing was one big experiment. From the beginning, we tended to come at things in a very practical way. I was always asking, "Whats the most efficient way to accomplish this?" Consequently, we eliminated the possibility for bureaucracy before it ever cropped up, and that provided opportunities for learning as well.
Constantly questioning conventional thinking became part of our company mentality. And our explosive growth helped to foster a great sense of camaraderie and a real "can-do" attitude among our employees. We challenged ourselves constantly, to grow more or to provide better service to our customers; and each time we set a new goal, we would make it. Then we would stop for a moment, give each other a few high fives, and get started on tackling the next goal. 5 In 1986, to provide the company with much-needed managerial and financial experience, Michael Dell brought in Lee Walker, a 51 -year-old venture capitalist, as president and chief operating officer. Walker had a fatherly image, came to know company employees by name, and proved to be a very effective internal force in implementing Michael Dells ideas for growing the company. Walker became Michael Dells mentor, built up his confidence and managerial skills, helped him learn how to translate his fertile entrepreneurial instincts into effective business plans and actions, and played an active role in grooming him into an able and polished executive. 6 Under Walkers tutelage, Michael Dell became intimately familiar with all parts of the business, overcame his shyness, learned the ins and outs of managing a fast-growing enterprise, and turned into a charismatic executive with an instinct for motivating people and winning their loyalty and respect.
Walker also proved instrumental in helping Michael Dell recruit distinguished and able people to serve on the board of directors when the company went public in 1988. When Walker had to leave the company in 1990 because of health reasons, Dell turned for advice to Morton Meyerson, former CEO and president of Electronic Data Systems. Meyerson provided guidance on how to transform Dell Computer from a fast-growing medium-sized company into a billion-dollar enterprise. Though sometimes given to displays of impatience, Michael Dell usually spoke in a quiet, reflective manner and came across as a person with maturity and seasoned judgment far beyond his age.
His prowess was based more on having a pragmatic combination of astute entrepreneurial instincts, good technical knowledge, and marketing savvy rather than on being a pioneering techno-wizard. By the late 1990 s, he was a much-sought-after speaker at industry and company conferences. (He received 100 requests to speak in 1997, 800 in 1998, and over 1, 200 in 1999. ) He was considered an accomplished public speaker and his views and opinions about the future of PCs, the Internet, and e-commerce practices carried considerable weight both in the PC industry and among executives worldwide. His speeches were usually full of usable information about the nuts and bolts of Dell Computers business model and the compelling advantages of incorporating e-commerce technology...
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Research essay sample on Dell Computer Corporation Strategy And Challenges
