Strategic Turnaround

1. DELL STRATEGIC MANAGEMENT
OVERVIEW
DELL Computers, a leading PC supplier to corporate and government customers, today
is now among the first companies to provide its customers with the next level of
industry-standard Pentium processor power, while many vendors are still struggling to
broaden their processor-based product lines. Dell's unique ability to take a market
strategy position during important technology transitions because of its build-to-order
manufacturing process. This build-to-order approach allows the company to maintain
low inventory levels and integrate emerging technologies into systems. Today's
customers are reducing their supplier bases, providing the opportunity for the most
capable suppliers to seize huge market share gains as Dell needs to redefine its
strategy to make business capabilities within the core of the business model as it
requires creating a new strategy and bringing the company's core activities into
alignment with its business model in customer operations strategy, core operations
capabilities and organization structure. In 1994, Dell was a struggling second-tier PC
maker, the company ordered its components in advance and manufactured to inventory.
Then Dell began to implement a new business model. It converted its operations to a
build-to-order process, eliminated its inventories through a just-in-time system, and sold
its products directly to consumers putting these new supply chain capabilities at the
core of its strategy, Dell developed a supply chain mastery that went far beyond the

2. simple pursuit of efficiency and asset productivity. However, the company had to make
a series of very difficult strategic tradeoffs to bring its functional activities into alignment
with its new business model.
DISCUSSIONS
Dell carefully targeted corporate relationship customers that had predictable, budgeted
needs and that wanted a predetermined set of product models. The company also
selected individual customers who were high-end, repeat purchasers with a preference
for early technology adoption. Both account segments had the stable, predictable
purchase patterns that Dell needed to make its joint build-product-to-order/buy-
component-to-plan system work. Effective in-customer operations require powerful
technical capabilities, crucial customer knowledge, and the ability to fit into the
customer's organization and work processes their unique customer knowledge and
customer relationships created a set of barriers to entry that others could not overcome.
It was this capability at the grassroots level that drove companies' meteoric increase in
customer market share as internet becomes a more pervasive and powerful element of
company business models, it offers companies the ability to differentiate them based on
their in-customer operations. These enhanced capabilities make customer intimacy both
more feasible and more efficient. Dell differentiated itself in the corporate market by
developing a set of extremely effective customer-specific intranet Web sites. Each Web
site was highly tailored to the customer's individual situation. Dell worked with each
customer to specify a particular set of product configurations that would work best in the

3. customer's network. Tailored offerings were specified and developed for each customer.
At the same time, Dell used its direct links with both corporate and individual customers
to get immediate, real-time insights about latent customer needs and to identify new
generations of products and services.
THE CHANNEL STRATEGY: RESOURCE PERSPECTIVES
An effective channel strategy which is a necessary element of supply chain mastery, the
process of choosing a channel strategy, the supply chain master can create a powerful
new channel that reduces its competitors' access to important target accounts and
market segments. In many industries, a battle looms between producers and
distributors and among horizontal competitors over customer ownership through inter-
company supply chain relationships. Most successful supply chain-based strategies
offer significant advantage that is either explicit and the ability to control pricing through
direct customer relations is another key element of channel strategy. As it does with in-
customer operations, the Web opens both new channel opportunities and new
dimensions of customer service. However, this newly created channel must maintain
the fit between a company's account set and its business model. All too many
companies lose sight of this critical factor as they indiscriminately pursue incremental
revenues. Dell's direct-to-customer channel strategy certainly is a breakthrough in the
industry. In the early stages of a technology product's lifecycle, distributors are
important for supporting new adopters. Dell has discerned a lucrative set of high-end
customers that were ready for direct distribution with arm's length customer support
from help lines.

4. An innovative direct channel strategy gave Dell these crucial elements of its powerful
business model:
 Real-time customer feedback and market insights
 The ability to "sell what you have"--that is, using day-to-day pricing and sales
incentives to shift demand toward products that are currently makable
 Extremely crisp product life cycle transitions
 Elimination of the obsolete and excess dealer stock that plagues the non-direct
competitors
 The ability to control pricing on a real-time basis.
The capabilities were rooted in each company's core business processes, many of
which focused on supply management. The new supply chain masters consolidated
their supplier bases in order to form more effective partnerships. The masterful
suppliers that they kept realized large market share gains. Insightful suppliers also can
help supply chain managers accelerate their supply chain mastery. Dell developed a set
of new operations capabilities in five crucial areas as it created the flawless make-to-
order system that has been widely noted (but in fact is only one part of its business
model. Dell worked at length to build an effective supplier management function in order
to shorten component lead times and maintain the absolute quality standards required
by the just-in-time operation.
IMPLEMENTATION WAYS

5. Dell had no choice: It had to find a way of operating with no inventories in order to raise
desperately needed cash. Yet even when faced with impending bankruptcy, Dell's top
marketing and manufacturing executives still fought the establishment of the no-
inventory make-to-order system. Only when they truly had no choice did these
managers embrace the new business model and begin to recast the organization to
make it work. The heart of Dell's model is the critical weekly supply-demand matching
session in which the top managers from sales, marketing, manufacturing, and
purchasing collaboratively decide the company's activities. This gives Dell the
organizational fluidity and cohesiveness to respond instantly to emerging customer
needs and market trends. Supply chain masters employ a powerful set of strategy
creation and change-management skills to successfully lead their companies. We have
distilled the following five key elements of a supply chain mastery program from our
observations of and work with successful companies: develop a fact base, engage your
counterparts, sell the new business model, drive change in the other functions, and
create a rollout game plan.
The key to successful implementation of the new business model is to utilize a team
approach with explicit behavioral drivers. The key functional counterparts must
coordinate with each other--both in creating and implementing the business model--to
achieve a joint result. They must share common performance objectives that span their
functional areas and be organized in a way (e.g. periodic meetings) that forces them to
focus systematically and often on their joint progress. These managers should be given
detailed information that enables them to identify the causes of poor or good
performance in their respective subunits. In this organizational structure, they will have

6. the coordination and flexibility to make the many tradeoffs and adjustments that come
with the complex task of specifying and implementing the new business model. Dell has
used the team approach very effectively not only in creating its masterful strategy but
also in ensuring business model alignment on an ongoing basis. Dell makes computers
in three hours but has a 60-day lead time for components. In order to balance the
system, Dell's top manufacturing and marketing executives meet weekly as a team to
determine which products are "makable" that week. Dell manages demand by using
day-to-day price changes and sales rep incentives to steer customer orders to the
makable product set (this is the "sell what you have" system). These executives share a
common set of performance objectives and compensation measures, meet regularly to
focus on their common problems, and jointly analyze the information needed to develop
a common course of action.
Dell maximizes its flexible-response capabilities by outsourcing component-part
manufacturing. Dell doesn't have substantial resources tied up in physical facilities
dedicated to winning the first-to-market battle for each successive generation of
technology but Dell invests in the information technology infrastructure that supports
real time communication among its customers, its own manufacturing facilities,
component suppliers, and airfreight carriers. Dell streamlines its operations and relies
on its computer monitor suppliers to ship directly to the customer. As long as a supplier
retains its strategic position, Dell will collaborate with it to achieve mutual success, but if
a particular supplier loses its edge, Dell has the flexibility to respond quickly and
customer focused to ensure Dell continued competitiveness. In addition, customers are
important assets to Dell as the company introduced the direct model of its competitors

7. were selling computers to end consumers via distributors and detaching themselves
from end consumers. Dell, on the other hand, sells directly to consumers and is
continuously communicating with them and benefiting, especially in two areas: seeing
sales trends and learning about unmet customer needs. The sales trend data helps Dell
match supply with demand, and information related to unmet customer needs translates
into opportunities for innovation of products and services. The company also relies on
customers' knowledge of what they want to purchase and when they want to complete
the transaction to drive the direct business model.
To build customer intimacy and loyalty, Dell leverages its customers' knowledge of their
own unmet needs. Dell's brand image was and is shaped by customer feedback.
Identifying the linked set of assets enables Dell to select strategy-focused, asset-based
balanced scorecard measures that support the customer intimacy value proposition
include:
 Training dollars spent per full-time equivalent by customer segment to ensure
that well-educated business segment managers provide state-of-the art advice to
customers
 Number of collaborative customer-solution teams that motivate Dell to
collaborate with its customers and jointly create technology solutions that fulfill
any unmet customer needs

8.  Number of emerging technologies evaluated inspires Dell's leaders to stay
abreast of technology threats and opportunities that may alter the competitive
landscape in the future.
STRATEGIC FRAMEWORK: MARKET PERSPECTIVES
An Internet strategy must be considered within the context of the company's overall
business plan. The framework starts from the premise that supply chain decisions must
be evaluated in a strategic context. The goal is to create a fit between the desired
strategic position and the supply chain capabilities and processes used to satisfy
customer needs and priorities. A company defines its desired strategic position by first
ranking its customers' top priorities and then articulating how it plans to respond to
these needs. Typical customer needs include timeliness, accessibility, availability,
customizability, quality of service, and price. At the same time, the company must
consider the trade-off between how it would like to respond to customer needs and the
supply chain costs incurred to meet those needs. The efficient frontier represents the
lowest cost of meeting a given level of customer need using the best available supply
chain processes. Each point on the frontier corresponds to a particular supply chain
structure, employing the best available technologies, managerial policies, and inputs to
meet the desired level of a customer need at the lowest cost. As such, the efficient
frontier constitutes the state of best practices at a given point in time. It also shows the
inherent trade-offs that a company must consider when selecting its strategic position
given limitations in process technology and policies. Companies can use such a
characterization to decide how they can best use e-business initiatives to support their

9. strategic position. As a result, Dell enjoys higher margins than do traditional PC
manufacturers that must share some margin with retailers.
Clearly, retailers are in a weaker position to exploit this e-business opportunity than are
other members of the supply chain. For example, going online would benefit an airline
more than a travel agent. Making online product and other information accessible to all
members of the supply chain allows flexibility on price, product portfolio, and
promotions. The Internet makes information located at a central source (the seller's
Web server) available to anyone with Internet access, so that a change in price, product
portfolio, or promotions only requires one database entry. Dell uses the Internet to
change prices and delivery times for different PC configurations regularly, based on
demand and component availability. Online product information allows a much faster
time to market because a product can be "introduced" as soon as the first unit is
available. Speed is particularly valuable to industries with short product life cycles,
where e-business provides an advantage over a "physical" product information model. A
new-product introduction in a traditional model requires a substantial volume of new
product to be manufactured and transported to fill the physical channels. Negotiating
prices and contracts with customers and suppliers online allows price and service
customization. By accommodating individual requests, the e-business may customize
and price its product/service accordingly. Keeping customer profiles and having clients
"log in" facilitates such price and service discrimination by allowing subsequent
customer-specific routing.
STRATEGIC PROCESS

10. DELL’s strategy is collapsing profit margins throughout the PC market, a dire
development for rivals who cant keep up. DELL is pricing its machines not so much
such as high-tech products but more like airline tickets and low margin commodities.
DELL has tight competency with other big computer sellers like Compaq and HP. Social
factors also affect the business environment of DELL. Computer companies have to
acknowledge that in the Chinese culture, people are still unsure about credit card sales
because of the huge expense of computers in China. Companies, then have to invest in
door-to-door or face-to-face operations to gain consumers’ faith and consumers trust in
the company and its product. DELL also has achieved the ISO 14001 Environmental
Management System (EMS). DELL aims at product design, transportation and so on.
As a part of DELL’s ISO 14001 EMS, the organization implemented goals where by the
goal is to improve internal business environment performance in a continuous
improvement processes which are used to share successes throughout the company.
DELL has positioned to extend its brand name beyond mainstream computer products
by leveraging its reputation as an e-commerce leader. In the year 2000, Dell began to
redefine itself as the company that knows how e-business works. It has shared its
online sales expertise with a few large customers as they developed their own e-
commerce capabilities.
DELL faces some forces from its competitors in terms of Information Technology as the
EDI tool gives very effective opportunities in reducing costs and it can establish the tight
linkage between DELL with its suppliers and DELL with its customer. DELL started
selling its own brand of handheld computers, called the Axim, at low price which can be
considered as high potential and CEO, Mr. Michael Dell stressed how DELL’s success

11. lay in making it as easy as possible for someone to buy a computer. There are some
applications that are currently being used by DELL and they are critical to the core
operations of DELL business and the DELL direct which are its operational factors for
success. Some applications that are currently being used by DELL that are valuable but
are not considered for certain critical success.
DELL TOWS ANALYSIS
It is not surprising for Dell to determine where it wants to go in the future, it must assess
where it is now as a part of the strategic planning process managers can call on the
"SWOT" team for assessing Dell strengths, weaknesses, opportunities and threats, a
critical phase in the general planning process as it helps determine exactly where the
organization is and what resources it may or may not have. Strength assessment
identifies what the department tends to do well and can include a skilled, professional
staff and a modern, well-equipped facility. Weaknesses denote what the company may
not do so well or what diminishes its effectiveness. Inadequate financial resources may
fit into this category. Opportunities reflect what the organization might seize upon to do
better. This area could include increasing community interactions and taking advantage
of particular grants. Finally, threats are environmental factors that may hinder
performance as it could include a rising demand for service or increased legislative
mandates that can impact resources. Managers should consider "SWOT" analysis for
issues both external to the organization, such as population growth and increased
industrialization and internal to it, such as an aging workforce that might result in

12. competing priorities for resources. "SWOT" analysis constitutes one of the most
important aspects in the strategic management process
THREATS
DELL’s threats are technological changes that are expected since technology can only
get better. Global economy and increased competition in which DELL’s financial ratios
identifies that they are no match for their competitors.
OPPORTUNITY
DELL has many opportunities such as potential growth in overseas markets, the
industry is still in a growth phase and the entering to the new product markets.
WEAKNESS
DELL’s weaknesses are single sourcing, new product market and reliance on corporate
clients.
STRENGTHS
Strengths are internal resources and capabilities that have the potential to be core
competencies. DELL’s core competencies are their cost strategy. In consistent to being
an integrated cost leader, DELL also produce high quality PCs by using their Direct
Business Model approach and sells them directly to the customers. With this innovative
process, DELL cuts out the intermediary, excluding the associated cost as the company

13. can understand the customers’ needs better and can provide the most effective
computing solutions to meet those needs.
CRITICAL SUCCESS FACTORS
DELL’s direct-to-customer business model is the key to the company’s dramatic growth
and success and has focused on selling directly to customers. This helps eliminate the
middleman and offers customers more powerful configured systems than most
competitors. The direct model enables DELL to develop a thorough understanding of
customer expectationswhich strengthens customer relationships and increases
customer satisfaction and loyalty. One of the characteristics that distinguishes DELL
from its other competitors is that DELL provides the mode to custom the computers of
the customers’ choice and taste and deliver the system to the customer as it is the most
crucial and critical success factor behind DELL Computers. Therefore, DELL must be
aware of the benefits they wish to realize, how it will be realized and ensure only
investments of appropriate amounts of resources to obtain benefits. DELL relies on
reputation in the US market of award-winning service and a high-quality product.
Customer satisfaction and consumer awareness surveys should be conducted quarterly
to ensure the image that DELL creates for itself within a culture has not existed before
there is a positive one. Market timing and speed are critical to many industries, such as
technology, pharmaceuticals, and some consumer goods.
DELL’s competencies are their cost/ strategy. In consistent to being an integrated cost
leader, DELL produces high quality PCs by using their Direct Business Model approach
and sells them directly to the customers. DELL’s weaknesses are single sourcing, new

14. product and reliance on corporate clients. DELL has opportunities like the potential
growth in overseas markets as the industry is still in growth phase and the entering of
the new product markets. Henceforth, the threats are technological changes that are
expected since technology can only get better. Global economy and increased
competition in which DELL’s financial ratios identifies that the company is no match for
their competitors. DELL’s most competitive force is the Direct-Model concept which
helped them to reach above-average returns and remains in business today. Customers
have developed a brand-name loyalty to Dell because of their low cost differentiation
strategy. The huge threat faced by DELL is the fierce competition in the industry. If
DELL enters into a merge it would not have to spend so much money and time trying to
develop a face-to-face communications, if the local business is already well known.
According to cost saving benefits, the company will not have to spend any extra money
for product development if it is already developed. Furthermore, there will be plenty of
joint financial support. If there is synergy between the two companies, their market
penetration will be that much easier to achieve. DELL initiated ways to overcome its
weaknesses and use its strengths to gain advantages over its competitors- by careful
analyzing of the factors that contribute to the company’s success in business strategies
that had implemented created the path for the company’s continued success. from
APPENDICES
Today, in fast-moving areas such as wireless and hybrid cars, you can see how market
windows open and close relatively quickly. The economic rents accrue to those who can
thoughtfully scan the market environment and quickly spot profitable opportunities. One
of the hottest areas in technology and business process today is around predictive

15. analytics, which is all about helping companies to determine their next move and stay
one step ahead of the competition. One way to analyze a competitor's strategic intent
and migration path is to assess its expansion plans into new market segments and
offering sets for example, think of Dell moving into printers or Microsoft moving into the
CRM space.
Although time-to-market is important, it doesn't mean doing things haphazardly or
without some analysis. Often, companies do get stuck in an "analysis-paralysis" loop
and don't take action until it's too late. In companies, strategy means nothing more than
a plan based largely on today's markets, today's product set and today's competitors
and emphasizing the financial forecast and such a strategy may successfully identify
opportunities to capture the upside of the current business over the next few years but
can rarely anticipate extreme competition, much less show how to reposition a business
to face it. Effective strategy should steer companies toward where an industry is
heading and where it is today.
BEST COMPETITIVE STRATEGY
The best competitive strategy is not to directly engage in a fight. Just as in legal
disputes, there is often a high risk-adjusted cost in waging price or market-share battles,
the same as in litigation. Competition, a combination of the words cooperation and
competition, has become quite popular in recent years. Many companies understand
the vicious cycle of "trading" customers at lower and lower margins in order to gain
market share or win on price. In terms of designing a competitive intelligence system, it
doesn't have to be overly complex. You first need to define the competitive areas that

16. are important at an offering, market and company level. Second, make someone
accountable for monitoring each area. Third, determine the best sources to collect info
competitor Web sites, trade journals, press releases, financial reports, etc. Finally,
create a few pro forma competitive intelligence reports that you can use to evaluate and
track trends and material changes. Dell's ability to change prices and delivery times on
the fly has been leveraged effectively to manage demand based on component
availability over the common components.