An investigation of Dell and Hewlett Packard’s business models: How is competitive advantage created? Introduction:
Dell and Hewlett Packard (HP) are two of the most influential companies in the PC market. The CEO of HP requires an understanding of how dells strategy allows it to achieve a competitive advantage so that he/she can counteract it. This report has been carried out to provide the CEO with the necessary information to do this. Therefore the objective of the report is to provide the CEO with detailed information on Dell as a business and its strategy. In order to achieve this, first the main strategies of Dell and how they provide competitive advantage will be identified, then the business models and e-business initiatives used by both Dell and HP will be compared, next a review of Dell from its emergence to the present time will be carried out, and finally the use of the internet in creating economic value and sustained competitive advantage for businesses like Dell will be assessed. The findings will then be synthesised, providing an analysis of the key elements characterising successful e-business strategies and initiatives. Main body:
(1) This section of the report will describe the main strategies used by Dell and how they have helped Dell to achieve a competitive advantage. A competitive advantage is an advantage over competitors gained by offering consumers greater value, by means of lower prices or by providing greater benefits and service that justifies higher prices (Tutor2U 2005). In order for Dell to achieve competitive advantage, Direct selling and Just in Time production have been a major part of their strategy. This strategy has enabled Dell to achieve cost advantages over its competitors (Hansen, Nhoria & Tierney 1999). Direct selling means that Dell sells its products directly to the customer. This allows Dell to earn above average profits as expensive intermediaries in the distribution chain have been eliminated (Enders & Jelassi 2005). Dell has no shop fronts; it operates via its website therefore overhead costs are low. The normal business supply chain (see figure 1, appendix 1) has 5 links; the Supplier, the PC maker, the distributor, the retailer and the final customer. By making direct sales Dell has removed the retailer and the distributor from their supply chain (see figure 2, appendix 1). This has allowed Dell to achieve a cost advantage. They do not need to pay retailers to sell products for them. As a result of direct selling Dells customers get products built to their specification, thus enabling Dell to meet customer needs. Just in Time Production allows Dell to achieve further cost advantages. Dell only builds PC’s when customers order them. Therefore they minimize inventory costs as they are not storing a lot of stock. Technology changes frequently, with new products coming into the market all of the time. This just in time production allows dell to introduce new technologies to their machines as soon as customers want them. They can adjust their production to demand very quickly. Another advantage of this strategy is that Dell already has an order and payment before it orders components from suppliers. This gives Dell a ‘negative cash conversion cycle’ in which it receives payment before it must pay the supplier (Breen 2004). In summary Dell’s strategy has been very successful in achieving a competitive advantage by creating cost advantages. (2)
In this section I will critically appraise the e-business initiatives and business models deployed by both HP, and Dell. A business model is ‘the mechanism by which a business intends to generate revenue and profits; this includes strategy and implementation’ (Wikipedia 2005). Dell and HP have different business models that I will now describe: Dell uses a direct sales business model (Dedrick and Kraemer 2001), it sells its products direct to the customer over the internet or telephone, each product is then made to specifically meet...
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