Dell Pursues Growth in a Challenging Environment
I. Company Overview
Dell was founded in 1983 by Michael Dell, an 18 year old college freshman from Texas who started out upgrading hard drives for IBM compatibles on nights and weekends. Dell is leading technology provider that design, develops, manufacturer and support PC’s, software and peripherals, storage and servers, and associated services. Within a year, his service business had grown to an incredible $6 million from performing computer upgrades for local area businesses and he dropped out of school to concentrate on the business. When Dell changed his strategy and started offering custom built-to-order machines, the business exploded, with $70 million in sales by the end of 1985. Evolving into an assembler company, Dell was able to exploit certain events occurring in the industry and swiftly adapted to meet market conditions. Five years later, total sales had grown to an unbelievable $500 million and Dell became nationally known as a supplier of state-of-the art desktop and portable computers. Dell continually achieved phenomenal records in sales and profit growth, eventually making it the most successful company ever in the PC industry, surpassing $25 billion in 2000. As one of the world's premier providers of computer products and services, Dell was the US market leader in its core products, the desktop and laptop markets by 2001.
Although Dell is seen to be a highly successful company, analysts worry that the recent slumping economy in the 4th quarter of 2000 and the market saturation in the technology arena could prevent Dell from achieving its prior growth rates and profits. Can it continue to maintain its stellar track record in light of the sudden decrease in demand, especially with lower and lower profit margins resulting from price wars in the industry? Should Dell continue forward with its highly successful ‘direct model’ strategy to try andsustain its profitability in light of the industry’s-10% growth rate and 50% reduction in profit margins in late 2000, or should it change its expectations and react to the commodity nature of the environment? Dell’s immediate challenge is to try and sustain its positive growth rate, spike its stock prices, and conquer new markets. But how does Dell choose its next product or service to offer the world? It must make the right choices as to what is the next value proposition that really matters to its customers. Another challenge for Dell is how to cope in a new world where technology devices and components cost less and less (resulting in shrinking profit margins) that become obsolete practically overnight.
III. Analysis of Business Situation
Method that used to analyze external factor for business issue that happened to Dell Inc. industry is Five Forces Porter’s analysis:
a. Task Environment based on Porter’s Five Forces
Threat of New Entrants: MEDIUM
Bargaining Power of Customers: HIGH
Bargaining Power of Suppliers: HIGH
Rivalry among Existing Competitors: HIGH
Threat from Substitutes: HIGH
1. Threat of new entrants (Medium)
In The computer industry, it was difficult to find a new competition, because the competition usually involves only a few vendors. In this case, the competitors are Apple, Lenovo, Acer, HP, Toshiba, Fujitsu and others. They are also old players. 2. Rivalry among existing firms (High)
As they told in the case that competitors are more advanced in innovation, while innovation is a critical field in the computer business. The need to facilitate the gadget features of everyday life are growing higher, the lack of innovation will destroy the growth of a computer company. 3. Threat of substitute product or services (High)
Computer market vulnerable to innovation. Technology companies are easily destroyed if they do not innovate, in this era, the development and innovation of new technology are rapidly increase. So companies must continue...
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