Term Paper on "Strategic Management at Dell Computer Corporation"

Term Paper 7 pages (1944 words) Sources: 3 Style: APA

[EXCERPT] . . . .

Strategic Management at Dell Computer Corporation

The modern corporations are marked by a wide series of new features and approaches, all revolving around the development and implementation of clear strategies that support the organization in achieving its overall goals. These strategies refer to the management of the human resource, the management of commodities, the acquiring of the necessary funds, the complete identification and satisfaction of the customers' needs or the territorial expansion of the organization. All these decisions are organized under the umbrella term of strategic management, which represents the art and science of developing and implementing the necessary strategies to reaching corporate goals (David, 1989).

The formulation and actual implementation of the most suitable strategies is the core act of the corporate activity and it is foremost important in a world that changes on daily basis. The vitality of strategic management is obvious in all companies, but even more so within the companies activating in the it industry, where change is an ongoing process. Foremost important is within the companies that operate internationally and must learn to adapt and respond to a wide variety of necessities, all cultural, economic, political or technological. A relevant example of an organization that activates in the it industry and also operates world wide is given by Dell Computer Corporation.

2. Company Description

Dell Computer Corporation is a publicly traded company founded in Austin, Texas on the 4th of November 1984 under the name of PC's Limited. Today, the company employs more than 95,000 individuals world wide and operates on an annual revenue of $57.095 billion, following as such a continuously ascendant trend. "Dell was founded in 1984 by Michael Dell on a simple concept: by selling computer systems directly to customers, we could best understand their needs and efficiently provide the most effective computing solutions to meet those needs. our evolving business strategy combines our revolutionary direct customer model with new distribution channels to reach commercial customers and individual customers around the world" (Official Website of Dell Computer Corporation, 2008)

The company started off by selling IBM computers via telephone, but soon came to produce its own line of personal computers. Even from its starting point, the company was extremely focused onto the full satisfaction of its customers' needs and wants. "It provided customers with a 24-hour hot line for complaints and guaranteed 24-to-48-hour shipment of replaced parts. As its customer base grew, Dell also implemented a direct toll-free technical support line." (Kraemer, Dedrick and Yamashiro, 2000)

The company then began to sell its products through intermediaries, but with the 1993 financial loss, realized that, however sells had increased, it was not making sufficient money. Dell then decided to become the sole direct seller of its personal computers. However the primary purpose of this move was to increase their financial results, the focus was always kept on customer satisfaction, both individual as well s corporate clients. "Dell was focused on improving service support to its large business customers by installing custom software, keeping track of customers' PC inventory, allowing individual business users to order PCs directly rather than having to go through a central purchasing office, leasing computers and allowing electronic payment via the Internet. [...] the company also revamped its design, manufacturing, procurement and logistics processes to reduce costs and speed up the entire supply chain. Finally, it expanded its markets internationally and developed successful notebook and server product lines. The result has been an extraordinary run of growth in revenues, profits and market value for the company" (Kraemer, Dedrick and Yamashiro, 2000)

3. Strategic Management at Dell Computer Corporation

An impending problem for Dell was the rather large amount of time their products spent in the company's warehouses, materialized in a delayed actual selling on the market as compared to the actual finalization of the personal computer. Foremost, during the past recent years, changes in the industry have become a constant and the company had to readjust to the new demands quicker and quicker. All these revealed the need for a new strategic approach of the operations and business process in order to best satisfy the needs of the customers and to ensure they return for more Dell products. "Product life cycles in the personal computer industry have shrunk from about 22 months in 1988 to 6 months in 1997 and the price/performance of key components has continued to double every 18 months or less. As a result, excess inventory depreciates rapidly. In addition, getting new, quality products to market on time is critical to maintaining competitiveness in an industry where customers are willing to pay a premium for the latest technologies and reward quality by repeat purchases" (Kraemer, Dedrick and Yamashiro, 2000)

As a result of this understanding, the company identified two major risks that needed to be limited. First, there was the excess inventory that reduced the value of the personal computers and secondly, there were the latest technological developments that had to be incorporated into the new products and which carried a price premium. This basically meant that the organization had to limit its storage time and sell the existent computers quickly, before they lost their value and materialized in financial loses for Dell. The company needed to do this as to make room and enter the market with newer and superiorly qualitative PCs that incorporated superior technologies and could be sold at higher prices, materializing as such in financial gains.

Dell initially started up as a sales company, commercializing through telephone IBM's computers. But when they began to manufacture their own line of personal computers, Dell sold it through intermediaries. This eventually resulted in low profitability margins and forced the company to return to direct sales, this time of their own products. This particular approach constituted the basic business model implemented by Dell. But aside from direct sales, the computer manufacturer also implemented a built-to-order production strategy. This basically implied that each computer would be made with the clear specifications requested by the future buyer. In other words, the client could come to a Dell technician and request a computer with a certain kind of microprocessor, a certain hard-disk capacity or a certain RAM memory. The strategy was extremely successful as it attracted several individuals lured by the possibility to customize their PC based on their personal preferences. The strategy is successful today as well among several customer types, but mostly among it programmers, who wish for more freedom and adaptability. Dell was an innovator in this area within the it industry, mostly because its competitors were rather rigid. However, it did have a downside: it required large amounts of work and was extremely time and energy consuming. "While other PC maker rely on resellers, retailers and other agents to carry much of the burden of marketing and sales, Dell has to reach out to customers largely through its own efforts. And while other PC makers can run high-volume assembly lines to achieve economies of scale, Dell must fill in each order to meet customer specifications, a process that puts heavy demands on shop floor employees, suppliers, logistical systems and information systems" (Kraemer, Dedrick and Yamashiro, 2000).

Direct Sales

The approach of direct sales was based on two major features. First of all, the company maintained constant communications with the clients through open channels of direct customer relationships. Then, they tried to address several niche industries by developing customized products that would best adapt to the demands of certain target markets. The identification of these target markets as well as the continuous communications with the clients imposed the need for highly skilled and qualified marketing analysts, but the hiring of these specialized once again increased corporate expenditures.

The direct customer relationships, or the continuous communication with customers, offer Dell Computer Corporation four primary strategic advantages, materialized in:

percent cost advantage in comparison to the companies implementing indirect sells strategies better and more comprehensive knowledge of the customer base; "vendors that sell through resellers and retailers often don't know who their final customers are, so they must rely on secondary market research to identify their own customer base" (Kraemer, Dedrick and Yamashiro, 2000), and the possibility to quickly identify changes in demands, preferences and trends as to quickly adapt and adjust to the market the possibility to build a strong relationships with the clients, "which makes it quick and easy for customers to do business with Dell" (Kraemer, Dedrick and Yamashiro, 2000)

The second major feature of direct sales is based on the clear division of the market is smaller parts, based on certain features, such as gender, demands or various backgrounds. The process is called segmentation and based on it, Dell divides its primary customers into Relationship, Transaction and Public / International customers. "Dell's segmentation of customers helps it respond to changes in demand among different customers, to develop new customer segments and to 'grow' the most profitable segments. [...] Relationship customers (50 companies including Ford, Boeing or Microsoft) are Fortune 1000 companies that purchase at least… READ MORE

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