Management Fundamentals 5th Edition by Robert Lussier

Exercise 31

Dell is a multinational information technology corporation based in Round Rock, Texas, that develops, sells, and supports computers and related products and services. Bearing the name of its founder, Michael Dell, the company is one of the largest technological corporations in the world, employing more than 96,000 people worldwide. From its early beginnings, Dell operated as a pioneer in the "configure to order" approach to manufacturing- delivering individual personal computers (PCs) configured to customer specifications. In contrast, most PC manufacturers in those times delivered large orders to intermediaries on a quarterly basis. To minimize the delay between purchase and delivery, Dell has a general policy of manufacturing its products close to its customers. This also allows for implementing a just-in-time manufacturing approach, which minimizes inventory costs. Dell's manufacturing process covers assembly, software installation, functional testing, and quality control.
For years, Dell had the largest share of the PC market over rivals Hewlett-Packard (HP), Apple, and IBM. By 2005, Dell was valued at $100 billion-more than HP and Apple combined! However, that all changed in the late 2000s as Dell fell on hard times. While HP, IBM, and other rivals transformed themselves by acquiring new companies and capabilities, Dell long stuck with its old playbook of cranking out PCs as efficiently as possible. Corporate PC sales began slowing, while HP began pulling consumers into stores-and away from Dell-with its stylish notebook PC designs. Dell suffered the consequences. It lost its position as the largest PC maker in the world to HP, and profits tumbled. Dell's net income dropped 28 percent in 2007 and by 2009, Dell's net worth was $30 billion-less than a third of its rivals' market values.
To help Dell turn its fortunes around, CEO Michael Dell has been making sweeping changes to Dell's business strategy. Dell has focused the company's shift in strategy in four areas: distribution, innovation, acquisitions, and management.
• Distribution. Dell used to undercut rivals on price by selling PCs directly to businesses and consumers. Now Dell is broadening its distribution, selling through retailers such as Best Buy and Wal-Mart and wireless companies like AT T to appeal to a wider audience.
• Innovation. Dell used to rely on Microsoft and Intel for most innovations, investing less than 1 percent of its revenues in research and development (R D) so it could offer the best-priced PCs around. Now it is ramping up R D to make its products stand out with innovative features and designs.
• Acquisitions. In the past, CEO Dell promised investors they wouldn't see his computer company anywhere near a negotiating table. Now, it's a different story. In 2008, Dell acquired EqualLogic for $1.4 billion in a move to expand further to storage networks and related products. In 2009, Dell closed its largest acquisition ever by acquiring Perot Systems, a provider of information technology services and business solutions, for $3.9 billion. The acquisition is expected to bring Dell an additional $8 billion a year. In 2010, Dell acquired data storage company 3PAR for $1.8 billion in an effort to enhance Dell's position in utility-storage solutions.
• Management. As long as Dell focused on selling hardware, it could concentrate on the one objective of making those products as efficiently as possible. Now the CEO wants to branch out into services, software, and new hardware categories, including smartphones and tablet-like devices. To achieve this, CEO Dell has installed an almost completely new management team and has restructured the company around four customer groups-Consumers, Corporations, Small and Midsize Businesses, and Governments and Educational Buyers-to give each division manager more responsibility, autonomy, and flexibility to respond to clients.
It's not clear whether Dell can turn itself around and become the number one PC maker in the world again. The old Dell succeeded because of its mastery of logistics and the supply chain, allowing it to sell computers directly to customers at prices no rival could match. The new Dell requires completely different skills-flexibility, customer focus, and innovation. The old Dell is history, Michael Dell vows, and a new one is just beginning.
Use the five steps of the comprehensive change model to explain how Dell is changing its business strategy.