Dell

Questions

1. Why was DELL so successful?

2. Effectiveness of competitors on DELL’s proposition?

3. DELL’s operating strategy vs. how does it fit with competitive strategy?

4. How DELL leveraged technology as a competitive advantage?

History

1981: IBM had a 61% market share

1984: Compaq enters the market

1984: DELL enters the market

1986: a critical year for the industry whereby IBM declines the famous 386 chip and as a result its market share declined from 37% in 1985 to 17% in 1989

1990: Windows 3.0 was the norm in the market place

Attractiveness of the PC Industry in 1998 (5 forces)

Power of suppliers (High)

• Wintel (Windows, Intel) – concentrated, set proprietary standards (High)

• Other peripheral players (keyboards etc.) – not concentrated, don’t set proprietary standards (Low)

Rivalry (Intense, high)

• Comprise large manufacturers

• Low switching costs for users, undifferentiated products, prices for inputs ↓ “Murphy’s Law”

Power of customers (High)

Channel (Retailers, Distributors) End Consumers

Distribution concentrated Not concentrated

Low margins Big investment

Low switching costs Low switching costs

Compare products easily

Barriers to Entry (Low)

• Very low $ to set up shop

• Inputs / components readily available

Substitutes (No)

• Hand-held devices still in infancy

Verdict: PC Manufacturing industry in 1998 is unattractive despite significant growth potential

DELL’s value chain

Procurements

DELL had the ability to procure and buy from its suppliers large quantities under exclusivity

Buttom line WTP increased and Cost decrease

Logistics

All the logistical set-up was made to accommodate the just in time strategy and this led to a very efficient delivery service with a maximized inventory management.

Buttom line Cost decrease

Operations

Operations were efficient especially when using the cell-based approach, which also materialized in a 1 day delivery.

Another attribute is the large quantities...