Dell Strategic Management

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Explaining Dell's Success from a Strategic Management Perspective Maris G. Martinsons Dell Computer is arguably the most successful business among those established within the last twenty years (Microsoft just misses qualifying under this timeframe). As I have stated recently in different venues, I believe that this company provides a classic example of how the principles of strategic management have been used to translate an innovative vision into a successful and sustainable enterprise. Dell Computer has also realized tremendous benefits from its application of information technology. IT has been used not only to create competitive advantages at the operational level, but also to introduce an unprecedented type of strategic information management. As a result, I am pleased to accept the invitation from the Stockholm School of Economics to review the success of Dell Computer, and to explain it from a strategic management perspective. Michael Dell founded Dell Computer in 1984. At the time he was only 19 years old, and in his first year of studies at the University of Texas in Austin. Michael Dell had a simple but powerful vision: that personal computers could be built to order and sold directly to customers. This followed from his belief that the PC, made up of little more than software from Microsoft and chips from Intel, was rapidly becoming a commodity product. Dell's new approach to the PC business had two advantages: (1) bypassing distributors and retail dealers reduced marketing and sales costs by eliminating the markups of resellers, and (2) building to order greatly reduced the costs and risks associated with carrying large volumes of both and finished goods. Michael Dell started his company with only US$ 1,000 of capital. Dell Computer experienced its share of difficulties in the first few years, to the point where some family members and friends wondered whether it had been wise for Michael to drop out of university. Several times it had to refine its strategy even as it was implementing it. The company started off by using the direct sales model for upgraded versions of IBM-compatible PCs. However, within a year it was selling its own brands of PCs. Most of Dell's customers in the 1980s were hobbyists and experienced PC consumers. By 1990, Dell had captured a significant share of the corporate PC market. The direct sales model was particularly appealing to IS/MIS departments in large organizations that rarely needed the various services provided by corporate resellers. In the early 1990s, Dell briefly augmented its direct sales by using a retail channel for marketing and distribution, but this was abandoned after a business downturn. Despite its evolution (with some trials and errors) over the years, Dell has faced the constant challenge of creating and continuously upgrading of a world-class

manufacturing infrastructure while simultaneously developing a good reputation in the marketplace against bigger and better-known rivals. Significantly though, Dell did not have to compete directly against the more established PC manufacturers. They continued to concentrate on product design and after-sales service even as Dell's energy went into providing an affordable product and reliable delivery. Both of these goals would be achieved by cutting out the intermediaries between the manufacturer and the consumer. Initially, Dell's direct from the factory approach relied on telephone sales. With the emergence of the Internet, Dell Computer could extend the reach and scope of the direct sales model at a relatively low marginal cost. The company was ideally positioned to take advantage of the Internet because of its distinctive supply chain. Unlike its major rivals, Dell did not face any channel conflict with resellers or distributors by going online. Moreover, with a build-toorder manufacturing process already in place, customers could easily configure their own products online, just like they were already doing over the...
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