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Dell Inveronment Analysis

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					DELL. ANALYSIS OF THE EXTERNAL ENVIRONMENT
Contents
1.     INTRODUCTION 1
2.     ANALYSIS OF THE EXTERNAL ENVIRONMENT USING PESTLE              2

2.1 Political   2

2.2 Economical 2

2.3 Social      3

2.4 Technological      4

2.5 Legal       5

2.6 Environmental     5
3.      ANALYSIS OF THE EXTERNAL ENVIRONMENT USING PORTERS 5 FORCES 6

3.1 Threat of New Entrants     6

3.2 Bargaining Power of Customers.      7

3.3 The Threat of Substitute Products   8

3.4 The Bargaining Power of Suppliers 8

3.5 Competitive Rivalry within the Industry 9
4.     ANALYSIS OF THE INTERNAL ENVIRONMENT           10

4.1 How well is the present strategy working   10

Qualitative evaluation 10

Quantitative evaluation 11

4.2 What is the company’s internal resource strengths and weakness, and its external opportunities
and threats.    11
5. Recommendations 14
5.       Conclusion   15
7. Bibliography 16

 INTRODUCTION
  The History of Dell Computers
  The origin of Dell Computers backdates to 1984 when Michael Dell, student at the University of Texas
at Austin created computers from the vicinity of his dormitory room at the university. He built and sold
IBM PC-compatible computers trading as “PCs Limited”, from stock components. He believed that by
selling personal computer systems directly to customers, PCs Limited could better understand the needs
and wants of its customers, thereby providing the most effective computing solutions to satisfy those
needs and wants. Michael Dell dropped out of school in order to focus full time on his growing business,
after receiving $300 000 in expansion capital from his family.
  In 1985 PCs Limited produced the first computer of its own design called the Turbo PC which sold for
US$795.PCs Limited advertised its systems in national magazines which highlighted its custom made
machines and the direct selling concept. The company grossed more than $73 million in its first year of
trading.
  In 1988, PCs Limited changed its name to “Dell Computer Corporation” and expanded globally-first in
Ireland. In June 1988, Dell’s market capitalization grew by $30 million to $80 million.
  In 1992, Fortune magazine included Dell Computer Corporation in its list of the world’s 500 largest
companies, making Michael Dell the youngest CEO of a Fortune 500 company ever.
  In 1996, Dell began selling computers through the internet, and in 2002 Dell expanded its product line
to include televisions, handhelds, digital and audio players, and printers. Dell’s first acquisition occurred
in 1999 with the purchase of Converge Net Technologies. In 2003, the company was rebranded to “Dell
Inc.”
  From 2004 to 2007, Michael Dell stepped aside as CEO, while Kevin Rollins took over. During that time,
Dell acquired Alienware which brought about the introduction of several new items to Dell products,
including AMD microprocessors. However, due to poor performance in its lower-end computer business,
Michael Dell regained the position of CEO. He announced a change campaign called “Dell 2.0,” reducing
headcount and diversifying the company’s product offerings. In January 2008 Dell Inc acquired Equal
Logic to gain a foothold in the iSCSI storage market and to dive the manufacturing costs down.

 ANALYSIS OF THE EXTERNAL ENVIRONMENT USING PESTLE

Part of the external environment can be analyzed using PESTLE.

2.1 Political

Political factors influence organizations in various ways creating advantages and opportunities as well as
placing obligations and duties on organizations. Political factors include the following types of
instrument:
a) Legislation such as minimum wage or anti discrimination laws.
b) Voluntary codes and practices.
c) Market regulations.
d) Trade agreements, tariffs or restrictions.
e) Tax levies and tax breaks.
f) Type of government regime e.g. communist, democratic, dictatorship.
Analysts believed that the direct model concept that Dell approached in China would not be successful
as China had ruled that if goods were not manufactured in China itself, they could not be sold directly in
the mainland. For this reason Dell had to operate through local distributor centers and later opened a
manufacturing plant in China to produce computers and set up a China Customer Centre to provide
technical support.
The second factor encountered by Dell in China was the bureaucracy and red tape involved in securing
government contracts. Although the government negotiation process was lengthy and one sided, Dell
could not afford to ignore the governmental institutions and state owned enterprises as they were
major customers in China’s PC market.
 The third factor that affected Dell in the political perspective was the fact that Dells competitor Lenovo,
which was of Chinese origin, received government backing and was also promoted by the government.
The direct import of computers was discouraged through the imposition of high taxes and tariffs. This
led other multinational companies such as Hewlett Packard, Toshiba and Compaq, to join forces with
national companies to gain market share. In exchange they shared their knowledge and expertise. This
severely impacted on Dells market share and its ability to compete profitably.

2.2 Economical

These factors include interest rates, taxation changes economic growth, inflation and exchange rates.
Economic change has a major impact on a firm’s behavior in terms of the following:
  1) Higher interest rates may deter investments as it costs more to borrow
  2) Stronger currency may make it more difficult to export.
  3) Inflation may provoke higher wage demands and raise costs
  4) Higher national growth may boost demand for a product.
An economy that undergoes recession will have high unemployment, low spending power and low
stakeholder confidence. On the other hand, an economy with a growing economy will have low
unemployment, high spending power and high stakeholder confidence.
Dell being a successful organization responded to the growing economy in China and anticipated the
intense increase or demand for computers. To their advantage, China surpassed Japan to become the
second largest PC market in the world and continued to grow at a rate of 21% compared to the 10%
worldwide. As the economy of China grew stronger so did the income and wealth accumulation in the
nation on average. This broadened the gap between the rich and the poor and the urban and rural
populations.
The economic status of Xiamen also played a major role in the selection criteria of where to set up the
production premises. Xiamen was chosen as one of China’s first four Special Economic Zones. It was a
rapid growing city, with a vigorous economy, and with a fully modern infrastructure. Xiamen had
excellent highway connections to major cities in China and, an efficient domestic airport, making the
distribution of Dell components from suppliers as well as the distribution of Dell computers to its
customers easier and more cost effective. The other reason why Dell chose Xiamen was the fact that the
people of Xiamen were eager to get in on the high tech economy and anxious for new jobs.
Furthermore, Xiamen had a number of reputable universities and more than 20% of the population was
graduates of higher education.

2.3 Social

This aspect focuses on the forces within society such as family, friends, colleagues, neighbours and the
media. Social forces impact our attitudes, interests and opinions.
These forces shape the way we behave and what purchases we make. In China, with the interest in
technologies increasing, the demand on computers increased accordingly.
However, unlike the consumers in other countries, the people of China were hesitant to invest in a
foreign product (Dell) without having to see and feel the product. In some instances, because the cost of
a new computer equated to almost 3 times the salary of an individual, the entire family was involved in
the decision making of what computer should be purchased. To combat this issue, Dell tried to gain the
trust of its competitors through face to face contact. Dell set up several experience centers for
customers to see and touch the products offered by Dell. However, this only assisted to reach the
market of first-and second-tier cities. Third, forth, smaller towns and rural areas were still out of reach.
This strategy initially resulted in higher costs until such time that the purchaser had gained the trust of
Dell and was confident enough to make his purchase through the internet.

2.4 Technological

Technological advances have greatly changed the manner in which businesses operate.
Organizations use technology in various ways, they have:
  1) Technological infrastructure such as the internet and other information exchange systems.
  2) Technological systems incorporating a multitude of software packages that assists them to manage
their business profitably.
  3) Technological hardware such as mobile phones, Blackberry, laptops, Bluetooth devices and copying
machines and devices that transmit, record and store information.
Technology has created a society that expects instant responses between stakeholders and also expects
business to operate remotely (out of office). Consumers can now make purchases via the internet from
the comfort of their homes even after normal working hours. Staff can report to their superiors via a
modem, Smartphone or Blackberry. This can sometimes prove to be detrimental to the working
relationship as it removes all boundaries of work versus personal time.
The pace of technology change is so fast that the average life of a computer chip is approximately 6
months. It is for this reason that Dell has opted for a build to order strategy so that they are never in the
position of having outdated components. This means that they never have to wait for the outdated
components to be sold out before they introduce new products to the market. This gives them a cost
advantage as they never have to offer their customers outdated products at discounted rates that is
sometimes at cost or below, like their competitors do.
Dell being a direct to Customer Company saw the advantages of doing business over the internet and
exploited this avenue way before its competitors. It sold its products to customers and at the same time
received feedback by analyzing the true requirements of its markets. By dealing directly with the
customer and leaving out the middleman, there was no misinterpretation of the customer’s needs and
wants. Dell launched www.dell.com in order to create a link with its customers, thereby enhancing its
direct sales approach. Through the internet, Dell offered its customers online support and real-time
price reductions 24 hours a day.
In 1999 Dell introduced E-Support Direct. The plan was to create an environment where a PC or server
would be able to maintain itself thereby providing tailored services designed to achieve higher levels of
system up-time, streamlining the customer support process and reducing the cost of system ownership.
In June 2006, Dell launched DellConnect, to enhance its technical support, which enabled Dell service
and support staff to access a customer’s computer in order to diagnose and repair it.
The online sales and service centers helped to reduce sales and marketing costs. The online customer
service and support centers helped reduce the costs of after sales. Besides the cost factor, business
through the internet proved beneficial to Dell as they were able to monitor customer behavior by
detailed tracking of the web click.

2.5 Legal

The legal factor relates to the legislative environment in which the firms operate. Some of these laws
include age and disability discrimination legislation, an increase in the minimum wage and greater
requirements for companies to recycle. Legal costs can affect a company’s costs and ultimately affects
the pricing to the end customer.
Different categories of law include:
  a) Consumer laws; these are designed to protect the customer against unfair practices which includes
misleading information of the product offered.
  b) Competition laws; these are targeted at protecting smaller companies against bullying by larger
companies and ensuring that customers are not exploited by companies with monopoly power.
  c) Employment laws; these cover areas such as redundancy, unfair dismissal, working hours and
minimum wages. They are aimed to protect employees against the abusive power of managers.

2.6 Environmental

This factor includes the weather and climate change. Changes in temperature can impact on many
industries including farming, tourism and insurance. With the major climate changes occurring due to
global warming and with more environmental awareness, this factor has become a significant issue for
companies to consider. The desire to protect the environment has an impact on many industries. For
e.g. the transportation and tourism industries are being severely impacted due to heavy emission laws.
The drive to more environmentally friendly products is affecting demand and in some cases has
produced opportunities.
Dell committed to reduce greenhouse gas emissions from its global activities by 40% by 2015, with 2008
fiscal year 2008 as the baseline year. It is listed in Greenpeace’s Guide to Greener Electronics that scores
leading electronics manufacturing companies according to their policies on toxic chemicals, recycling
and climate change. In October 2010, Dell ranked 10th out of 18 listed companies. Dell was the first
company to publicly commit a timeline for the elimination of toxic polyvinyl chloride (PVC) and
brominated flame retardants (BFRs), which it targeted to phase out by the end of 2009. In 2009, Dell
launched its first products completely free PVC and BFRs with the introduction of the G-Series monitors.
Del also became the first company in the information technology industry to establish a product
recycling goal (in 2004) and completed the implementation of this goal in 2006.
In February 2007, the National Recycling Coalition awarded Dell its “Recycling Works” award for efforts
to promote producer responsibility. I JULY 2007, Dell announced that it had exceeded targets of wanting
to recover 275 million pounds of computer equipment.
In June 2007 Dell set a goal of becoming the greenest technological company on earth. The company
launched a zero carbon initiative that includes:
  1) Reducing Dells carbon intensity by 15 %by 2012.
  2) Requiring primary suppliers to report carbon emissions during quarterly business reviews.
  3) Partnering with customers to build the greenest PC on earth.
  4) Expanding the company’s carbon offsetting program, “Plant a tree for me”.

Dell reports its environmental performance in an annual Corporate Social Responsibility report (CSR)

 ANALYSIS OF THE EXTERNAL ENVIRONMENT USING PORTERS 5 FORCES

Another means of analyzing the external environment is the use of Porters 5 Forces:

3.1 Threat of New Entrants

The threat of new entrants makes industries more competitive. Dell is in an industry that is highly
competitive. In the computer industry there is uniformity and focus is placed on availability of
technology and very little focus is placed on differentiation which offers the customer low switching
costs. The Government policy in China favored local production and gave manufacturers in China
subsidies, subjected them to lower taxes and gave them higher points in the government and state
tenders. This made it easier for Lenovo to enter the market and pose as a significant competitor to Dell.
Dell was not able to sell directly to customers on the outland of China due to the products not being
built in China. This made it easier for competitors that had retail stores in those areas to compete with
Dell as the distribution channels for Dell to distribute its products to those areas were very poor due to
poor transport structures such as roads. However, Dell had an advantage over its other competitors in
the sense that it had cut out the middle man making its products more attractive at lower costs and
higher performance.
Dell had very little benefits from the economies of scale.
Dell had a unique supply chain system which enabled it to operate without a warehouse by building its
products to customer order. This made them very cost competitive and created barriers of new
entrants. However, the same approach was adopted with competitors such as Lenovo and Hewlett-
Packard. Unfortunately for these competitors, that approach was resisted by their retailers threatening
to sanction the accessories that they carried and so they had to revert back to the traditional way of
wholesale and retail through a middleman being their retailer.
Dell being the leading computer company in the US and other parts of the world had a very strong
brand, and given the success, capital, profitability and size of the company, it created barriers of other
smaller companies penetrating into its market.

3.2 Bargaining Power of Customers.

With the demand of computers growing at a rapid rate and various manufacturers such as Hewlett
Packard and Lenovo trying to enter the industry, the buying power of the consumer in China was high.
The buying power of the consumer was raised even further with Dell offering reduced rates on its
computers in order to penetrate the market in China and win the trust of its intended customers. The
consumers in China were very conscious of the purchase they made (which to some was equivalent to 3
months of salary) and were therefore put to an advantage as the computer companies had to ensure
they offered “the best value for your money” propositions in order to win the support of the consumers.
Buyer information had to be made clearer and more easily assessable. Each brand had to prove why
their product was the better option.
China being the second largest PC market in the world meant that the Chinese were quite educated in
the sector and could not be misled into bad purchases. There are no unique components in computers
and most of them are similar in their price ranges, similar in what they have to offer in terms of
hardware and software capabilities and therefore is easily switchable. This seats the customer in a
position of high power to purchase from whomever they believe gives them the best service.

3.3 The Threat of Substitute Products

The threat of substitute products to Dell can view in various categories.
The first being Dell’s competitors, who can be categorized as substitutes as they offer a similar product
to that offered by Dell. In this category, the price factor, quality, speed and technology play a vital role.
With the customer having a variety of options in terms of brand, each manufacturer has to ensure that
costs are minimized without sacrificing quality, speed and technology in order to ensure that the end
customer receives a product in time, with great quality and with the latest spec. In this category, Dell
has the advantage as they do not carry stock ensuring that they always have the latest technology
available, they are always trying to improve on their operational systems ensuring that they can deliver
the product to the customer at faster times, and they do not have warehouses or a middleman ensuring
that costs are kept to a minimum.
The other category being the introduction of innovations such as internet based TV’s, Sony Play Stations,
the X-Box, cell phone banking, smart phones, and tablets. Previously, the usage of a computer was
business, playing games, managing your monthly payments etc, these days with the inventions of the
above, the usages just mentioned can be executed in various ways without even having a computer.
Another category that constitutes as a threat of substitutes is the change of wanting and needing a
desktop to a laptop. In this category, Dell is put to a disadvantage as desktops was their field of expertise
and their primary focus. Due to this change, they had lost significant market share.

3.4 The Bargaining Power of Suppliers
The bargaining power of a supplier would depend on how unique its products are, the availability of its
raw materials and resources, as well as how easy it would be for its customer to switch over to another
supplier-the smaller the number of suppliers in an industry, the more the power the suppliers posses.
Another factor that needs to be considered in the power of a supplier is the knowledge the customer
has in the industry. If the knowledge is low, the customer can be easily misled into accepting lower
levels of service at higher pricing. In the computer industry, the components are generally not unique
and are easily available. It is for this reason that Dell’s suppliers had very low bargaining power over Dell
and Dell could dictate to its suppliers on pricing, availability and quality. If any of Dells suppliers not
been able to meet the terms and conditions lay out by Dell, the supplier would be easily replaceable.
Dell also took the route of partnering with some of its major suppliers. In doing so, Dell was positioned
as a low cost/high quality leader in the market. This was mutually beneficial to Dell and its partner
suppliers as they were able to:
     a) Reduce inventory costs by providing just in time deliveries.
     b) Raise the value of goods and services supplied by making effective use of information such as
customer needs and preferences.
     c) Increase the speed on the introduction of new technologies.

3.5 Competitive Rivalry within the Industry

Of all five forces of the Porters model, competitive rivalry stands out as the most powerful force
influencing the success of any company. If the competitive force is weak, companies would be able to
increase pricing thus earning more profit. If the competitive force is high, it would be necessary to
improve on quality, technology, reduce pricing and offer better levels of service. This would certainly
impact on profitability.
In the computer industry, most components are not unique. Technology, quality and demand are quite
similar. It is for this reason that Dell opted on the direct selling model to ensure it had a price advantage
over that offered by its rival competitors. Dell’s customer care support group also assisted Dell in gaining
an advantage over its competitors. This was achieved by keeping close contacts with its customers and
improving the relationship between customers and the company.
With Dell, Hewlett Packard and Lenovo striving for the leading position in the industries market, rivalry
was intense.
Technology on computers was changing at a rapid pace. Every company had to have an aggressive
strategy to sell out on outdated technology. Dell never carried inventory with the build to order policy
so they had the advantage on this point.

 ANALYSIS OF THE INTERNAL ENVIRONMENT

  The company’s internal environment is analysed to determine the following:
    a) How well is the present strategy working.
    b) What is the company’s resource strengths and weaknesses, and its external opportunities and
threats.
     c) If the company’s costs and pricing are competitive relative to the market.
     d) Whether or not the company is competitively stronger than its rivals.
     e) Which strategic issues and concerns require managerial attention?
To identify and address these issues, we need to look at the company’s competitive approach and utilize
the SWOT analysis technique to look into the company’s resource and capabilities.

4.1 How well is the present strategy working

To establish how well a strategy is working, one must determine the company’s competitive approach.
To evaluate this approach one needs to view the strategies from 2 viewpoints, qualitative and
quantitative.

Qualitative evaluation

  a) Is the company stressing to be a low cost leader – yes, Del is driving with serious aggression to
achieve this. Del is using the direct sales approach to ensure that costs are kept to a minimum by
keeping no inventory thus eliminating the costs of a warehouse and carrying zero outdated components.
  b) Is the company stressing to differentiate its products offered - yes, by always ensuring that Dell is
offering the latest in technology, Dell differentiates its products to that of its rivals. Having a call centre
that is in direct contact with the customers allows Dell to offer its customers what they want and need
without having to waist budgets on research.
  c) Has the company made recent moves to improve its competitive position and performance – yes,
by cutting prices, improving on design and technology, stepping up on more aggressive advertising,
entering new markets globally and merging with Hewlett Packard’s competitors such as Lexmark,
Samsung, Kodak and Fuji Xerox, Dell excelled in this category.
  d) By improving on the company’s functional strategies in R&D, production, marketing, finance, human
resources, information technology, delivery services and customer feedback systems, Dell improved
market share to be the leader in its industry.

Quantitative evaluation

The best evidence of evaluating a company’s strategy is viewed on its results which indicate:
  1) Is the company achieving its financial and strategic objectives?
  2) Is the company an above average industry performer?
The answers to the above questions is yes, from the info obtained in the financial statement it is evident
that Dell is achieving both these objectives.
Other factors to consider on evaluating a company’s strategy are:
  a) Are the firm’s sales growing faster, slower or about the same pace as the market, resulting in an
increasing, decreasing or stable market share? - Dell is growing faster in market share as compared to
the market as a whole thus increasing market share.
  b) Is the company acquiring new customers at a significant rate while retaining current customers? –
Yes, by offering new customers later technologies and lower rates than its rivals, Dell is able to attract
new customers at a very attractive rate. By keeping in close direct contact with current customers, Dell
was able to understand the needs and wants of its customers thus satisfying those needs kept
customers loyal.
  c) Does the company demonstrate continuous improvement in internal performance such as aged
stock, employee productivity, units cost and delivery timing? – Yes, Dell continuously strived to improve
on the above by keeping zero inventories and measuring processes to view improvements and reduce
cost.

4.2 What is the company’s internal resource strengths and weakness, and its external opportunities
and threats.

Opportunity
  a) International Growth: approximately 70% of Dell’s revenue comes from sales in the American
market. Dell has seen an increase in Market share in the EMEA region moving from 9.7% to 10.5%. In
France, Dell climbed from a number four position to an impressive number 2 position. This resulted from
a strong growth that was 20% higher in units than the competitive rivals. More recently, Dell has
focused its resources in the four key markets which are growing at an exceptional pace, Germany,
France, China and Japan. If Dell succeeds in increasing its market share in these core areas from 15% to
30% over the next five years, the company could ultimately double its revenue.
  b) Pricing Flexibility: With Dell using the direct sales approach and removing the third party retailer
from the sales equation, Dell eliminates additional product mark-ups. This cost cutting could be either
recognized as higher margins or passed onto the end customer. In both options, Dells experiences better
pricing flexibility than its rival competitors. When the economic conditions are slow, Dell is able to offer
lower pricing to its consumers yet remain profitable. This is clear in the 2001 most economic downturn
where Dell’s market share climbed from 19% to 24.2%.
  c) New Product Expansion: Dell is in various stages of a product expansion strategy that will further
extend its product reach into storage, midrange servers, networking and printers. By partnering with
suppliers that are experts in this industry, Dell expects that its market share would grow significantly
  d) Rapidly Changing Technology: with the rapid pace that technology is changing, Dell ensures that it
has close contacts with its customers ensuring customer loyalty and return purchases. Dell hopes that by
analysing its customer needs and offering later technologies at a fast pace, it would convince its current
customers to upgrade more often thus increasing sales. Low finished good inventories better positions
Dell to offer the latest technologies to its customers. Changes in customer wants and needs puts the
rival competitors at a disadvantage as they have to often write off obsolete inventories in order to keep
up with technology offerings.
  Threats
  a) Possibility of Component Shortages; Any possible lockouts or strikes could pose as a significant
threat to dell as Dell does not keep finished inventories and its component stock is very low (one to two
weeks) . Should a strike or lockout occur, Dell requires flying in parts from other parts of the world. This
results in higher costs, lower margins, delays in supply and less value for the end customer.
  b) Competition: Dell faces major challengers from low cost PC manufacturers to technology leaders in
the industry. As Dell enters into new markets such as networking and printers, execution concerns are
raised even further. Recent cancellation of distribution agreements with Hewlett Packard, Cisco and 3
Com could have an adverse effect on future financial results.
  c) Prolonged Economic Downturn; General fluctuation in economic conditions carries the most
uncertainty for Dell, given the IT spending downturn. These downturns result in Dells technology leading
suppliers and partners hampering the release of new products and in turn hampering on Dell’s sales
based on technology upgrades.
  d) Dependency on Third Party R&D Efforts: A major reason why Dell is the low cost manufacturer is
that it leverages a collaborative R&D model. Dell relies on technology from third party companies such
as Microsoft and Intel. Part of Dell’s success is dependable on the success of R&D efforts by its partners.

  Strengths
  a) Strong Supplier Relationships: Dell has long-term single source relationships in situations where
alternative sources are unavailable or the relationship is advantageous in reference to performance,
quality, support, delivery and pricing. Securing long-term relationships makes it easier for Dell to
integrate its suppliers into its supply chain management system. This helps Dell to reduce inventories
resulting in lower costs. By having long-term relationships with suppliers, Dell secures stock at lower
pricing.
  b) Lower Unit Costs; By offering its customer’s products at lower costs, Dell is able to either increase its
margins or pass the benefit to the customer giving the customer more value and ensuring increased
market share. Lower costs are achieved by not carrying inventory and not having to dispose of obsolete
components.
  c) Quicker Reaction to Customer Needs and Wants: Dell focuses on streamlining production
operations. Finished products are swiftly assembled in direct response to customer request. By dealing
directly with customers, Dell is able to eliminate delays due to third party incapability’s and
misinterpretation of customer requirements.
d) Strong Customer Retention and Relationships: By having a support team dealing directly with its
customers, Dell is able to keep in close contact with customers thus offering them products that meets
their requirements and strengthening the relationship. Having high customer retention enables Dell to
reduce costs on market research. The costs are rather focussed on adding value to existing customer
requirements.

  Weakness
  a) Revenue Mix; Dell’s revenue mix was focussed more on desktop computers as this was their area of
expertise. With the change in technology and the cost of laptops dropping, Dell found it difficult to
attract the younger generation, especially college students who needed mobile computers. Dell did try
to focus on this market and was highly unsuccessful. In fact, Dell had to Write of $40 million in trying to
suspend its laptop line until such time as it had a better designed model.
  b) Hard to touch and feel: By Dell eliminating the retail source of distributing its products, customers
found it difficult to touch and feel the products offered by Dell. This made it difficult for Dell to attract
new clients who were doing impulse buying without proper research (especially first time buyers who
had no clue of what they needed and was easily persuaded into purchases based on input from
salesman).
  c) Acceptance of Direct Sales Model: The acceptance of Dell in China was a rather difficult task for Dell
to accomplish. Dell’s direct sales model proved rather difficult for the Chinese to adapt to as most of the
Chinese consumers that were out of the government and corporate sectors utilized more than twice
their monthly salaries to purchase a computer. For this reason the customers needed the authorization
and viewpoint of the entire family when making such purchases. The customers wanted to touch and
feel the products and online purchases were not adopted by these customers.
  d) Dependence on Volume: Dell having a low margin policy meant that it was dependant on lower
prices at higher volumes to be successfully profitable. Dell not carrying any inventory put themselves at
the risk of recessions, strikes and component shortages. Any one of these factors could place Dell in a
position of low supply and less profitable.

5. Recommendations

To remain competitively advantaged Dell needs to adopt different strategies for its markets.
  1) For corporate clients, Dell should maintain the policy of direct sales through sales agents who go out
to the various larger companies. These agents should present what Dell has to offer in terms of value
and what resources and capabilities are available in terms of after sales and support.
  2) For the smaller companies and individual customers, Dell should focus on more intense advertising
and market strategies. Dell needs to have stores that display and demonstrates what products are
available and allow customers the opportunities of experiencing the products. Touching and feeling a
product makes customers more comfortable with purchases. Dell needs to advertise more regularly on
social media such as face book and twitter so that if a customer wants to upgrade, they can merely click
on a shortcut that would direct them to Dell’s website and indicate for them the different products, the
pricing and the nearest demonstration stores.

 Conclusion

Managers are normally not prepared to either change the direction of their companies or alter the
company strategy until they have fully developed an understanding of the factors that surrounds the
company’s situation.
One of the key questions to be addressed in evaluating a company’s business prospects is “What is the
company’s present situation?” Two factors are vital in influencing this:
  1) The industry and the competitive environment in which it operates and the forces acting to reshape
this environment.
  2) The company’s own market position and competitiveness
   a) Its resources and capabilities.
   b) Its strengths and weaknesses versus its rivals.
   c) Its window of opportunity.
Analysing the company’s external and internal environment is a prerequisite for a company to succeed
in aligning its strategy to best fit with the company’s situation. It assists in building competitive
advantage and reflects good prospects for boosting the performance of the company. It is therefore
important to first analyse the external and internal environments before attempting to create the
company’s strategy.
In this analysis of Dell’s internal and external environments we used PESTLE and Porter’s Five forces to
examine the external environment, and the SWOT analysis together with the Resources and Capabilities
of Dell was used to examine the internal environment.

7. Bibliography

Bateman/Snell, TS/SA. 2010, '', in Management Leading & Collaborating in a Competitive World, eds ,
McGraw-Hill Irwin/Ninth Edition, pp. .

Hugh, J. 2008/South African, '', in Crafting & Executing Strategy, eds , McGraw-Hill/Berkshire, pp. .

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Description: Dell Inveronment Analysis