Strategy Evaluation

2nd Assignment

ALLAMA IQBAL OPEN UNIVERSITY

(Department of Business Administration) Assignment # 2
Business Policy and Strategy (5522)

TOPIC: STRATEGY EVALUATION

Submitted to: Sir Imtiaz Ahmed Submitted by: Ishtiaq Ahmed AH-526270

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ACKNOWLEDGEMENT
This project comes out to be a great source of learning and experience. A lot of effort has been put by various people to make this project a success. This has greatly enhanced our knowledge about Dell Inc. I greatly acknowledge our ineptness to Mr. Imtiaz Ahmad, for helping me throughout this project and for providing me in-depth knowledge. This project is a culmination of efforts of my friends whose sincere inputs and focused attitude could bring this project to fruition. Finally, thanks to almighty God who has been a source of strength and confidence.

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EXECUTIVE SUMMARY
Dell has experienced tremendous growth over the past twenty years. Throughout this period, Dell has continued to raise its standards of excellence. The values, mission and vision of the company facilitate the achievement of these illustrious goals. The purpose of this document is to evaluate the internal and external environments and Dells position within this competitive landscape. Based upon this analysis, a recommended strategy will be outlined which will guide Dell back to its roots. The key competencies of Dell are customer focus, manufacturing processes, supply chain management, customer selection, acquisition and retention, customer service and human capital management. Dells strategy has been to match its core competencies with key industry success factors. The PC industry is facing increasingly strong worldwide competition leading to reduced differentiation among competitors and increased price sensitivity among consumers. Although Dell has seen considerable growth, the company is beginning to lose its competitive edge in critical business segments. Specifically, Dell needs to improve in the following areas: customer service, customization options, increased marketing presence and retail solutions tailored to the global environment. Dells ability to adapt in these business segments will ultimately determine its ability to maintain its predominant position. The recommended strategy for Dell is to reinvigorate its differentiation advantage. Ultimately, the company must get back to basics. This requires the firm to realign its core competencies with the needs of a global marketplace.

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Table of Contents Title page Acknowledgement Executive Summary Introduction to the issue Strategy Evaluation process Practical study of organization

Page No 01 02 03 05 06 12

Evaluation of Dell strategies under Evaluation 15 process SWOT analysis Recommendations Conclusion References 28 32 33 34

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Introduction to Topic
What is Strategy?

Strategy is a set of decision making rules or procedures for guidance of organizational behavior. According to managers strategy means their large scale, future oriented plans with the competitive environment to optimize achievement of organization objectives. It shows a firms ` Game Plan and provides a framework for managerial decisions. It also reflects a companys awareness of how to compete, against whom, when, where and for what.

Birth of strategic management:

Strategic management as a discipline originated in the 1950s and 60s. Although there were numerous early contributors to the literature, the most influential pioneers were Alfred D. Chandler, Philip Selznick, Igor Ansoff, and Peter Ducker. Alfred Chandler recognized the importance of coordinating the various aspects of management under one allencompassing strategy. Prior to this time the various functions of management were separate with little overall coordination or strategy. Interactions between functions or between departments were typically handled by a boundary position, that is, there were one or two managers that relayed information back and forth between two departments. Chandler also stressed the importance of taking a long term perspective when looking to the future. In his 1962 groundbreaking work Strategy and Structure, Chandler showed that
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A long-term coordinated strategy was necessary to give a company structure, direction, and focus. He says it concisely, structure follows strategy. In 1957, Philip Selznick introduced the idea of matching the organization's internal factors with external environmental circumstances. This core idea was developed into what we now call SWOT analysis by Learned, Andrews, and others at the Harvard Business School General Management Group. Strengths and weaknesses of the firm are assessed in light of the opportunities and threats from the business environment.

Strategy Evaluation:
The final stage in strategic management is strategy evaluation and control. All strategies are subject to future modification because internal and external factors are constantly changing. In the strategy evaluation and control process managers determine whether the chosen strategy is achieving the organization's objectives. The fundamental strategy evaluation and control activities are: reviewing internal and external factors that are the bases for current strategies, measuring performance, and taking corrective actions.

Strategy-Evaluation Process:
Strategy-evaluation activates in terms of key questions that should be addressed, alternative answers to those questions, and appropriate actions for an organization to take. Notice that corrective actions are almost always needed except when (1) external and internal factors have not significantly changed and (2) the firm is progressing satisfactorily toward achieving stated objectives. While strategy is a word that is usually associated with the future, its link to the past is no less central. Life is lived forward but understood backward. Managers may live strategy in the future, but they understand it through the past. (Henry Mintzberg)

Step#1: Reviewing Bases of Strategy

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A revised IFE Matrix should focus on changes in the organization's management, marketing, finance/accounting, production/operations, R&D, and management information systems strengths and weaknesses. A revised EFE Matrix should indicate how effective firms' strategies have been in response to key opportunities and threats. This analysis could also address such questions as the following. How have competitors reacted to our strategies? How have competitors' strategies changed? Have major competitor's strengths and weaknesses changed? Why are competitors making certain strategic changes? Why are some competitor's strategies more successful than others? How satisfied are our competitors with their present market positions and profitability? How far can our major competitors be pushed before retaliating? How could we more effectively cooperate with our competitors? Numerous external and internal factors can prohibit firms from achieving long-term and annual objectives. Externally, actions by competitors, changes in demand, changes in technology, economic changes, demographic shifts, and governmental actions may prohibit objectives form being accomplished. Internally, ineffective strategies may have been chosen or implementation activities may have been poor. Objectives may have been too optimistic. Thus, failure to achieve to achieve objectives may not be the result of unsatisfactory work by managers and employees. All organizational members need to know this to encourage their support for strategy-evaluation activities. Organizations desperately need to know as soon as possible when their strategies are not effective. Sometimes managers and employees on the front lines discover this well before strategists. External opportunities and threats and internal strengths and weaknesses that represent the bases of current strategies should continually be monitored for when they will change and in what ways. Some key questions to address in evaluating strategies. Follow
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Are our internal strengths still strengths? Have we added other internal strengths? If so, what are they? Are our internal weaknesses still weaknesses. Do we now have other internal weaknesses? If so, what are they? Are our external opportunities still opportunities? Are there now other external opportunities? If so, what are they? Are our external threats still threats? Are there now other external threats? If so, what are they? Are we vulnerable to a hostile takeover?

Step#2: Performance

Measuring

Organizational

Another important strategy-evaluation activity is measuring organizational performance. This activity includes comparing expected results to actual results, investigating deviations from plans, evaluating individual performance, and examining progress being and toward meeting stated objectives. Bothe long-term and annual objectives are commonly used in this process. Criteria for evaluating strategies should be measurable and easily verifiable. Criteria that predict results may be more important than those that reveal what already has happened. For example, rather than simply being informed that sales in the last quarter were 20 percent under what was expected, strategists need to know that sales in the next quarter may be 20 percent below standard unless some action is taken to counter the trend. Really effective control requires accurate forecasting. Failure to make satisfactory progress toward accomplishing long-term or annual objectives signals a need for corrective actions. Many factors, such as unreasonable policies, unexpected turns in the economy, unreliable suppliers or distributors, or ineffective strategies, can result in unsatisfactory progress toward meeting objectives. Problems can result
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from ineffectiveness not doing the right things or inefficiency poorly doing the right things determining which objectives is most important in the evaluation so strategies can be difficult. Strategy evaluation is based on both quantitative and qualitative criteria. Selecting the exact set of criteria for evaluating strategies depends on a particular organizations size, industry, strategies, and management philosophy. AN organization pursuing a retrenchment strategy, for example, could have an entirely different set of evaluative criteria from an organization pursuing a market development strategy. Quantitative criteria commonly used to evaluate strategies are financial ration, which strategists use to make three critical comparisons: (1) comparing the firms performance over different time periods, (2) comparing the firms performance to competitors, and (3) comparing the firms performance to industry averages. Some key financial ratios that are particularly useful as criteria for strategy evaluation are as follows. Return on investment (RIO) Return on equity (ROE) Profit margin Market share Debt to equity Earnings per share Sales growth Asset growth But there are some potential problems associated with using quantitative criteria for evaluating strategies. First, most quantitative criteria are geared to annual objectives rare than long-term objectives. Also, different accounting methods can provide different results on many quantitative criteria. Third, intuitive judgments are almost always involved in deriving quantitative criteria. For these and other reasons, qualitative criteria are also important in evaluating strategies. Human factors such as high absenteeism and turnover rates, poor production quality and quantity rates, or low employee satisfaction can be underlying causes of declining
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performance. Marketing, finance/accounting, R&D, or management information systems factors can also cause financial problems. Seymour Tiles identified six qualitative questions that are useful in evaluation strategies. Is the strategy internally consistent? Is the strategy consistent with the environment? Is the strategy appropriate in view of available resources? Does the strategy involve an acceptable degree of risk? Does the strategy have an appropriate time framework? Is the strategy workable? Some additional key questions that reveal the need for qualitative or intuitive judgments in strategy evaluation are as follows: How good is the forms balance of investments between high-risk and low-risk projects? How good is the firms balance of investments between long-term and short term projects? How good is the firms balance of investment between slow-growing markets and fast-growing markets? How good are the firms alternative strategies socially responsible? To what extent are the forms alternative strategies socially responsible? What are the relationships among the key internal and external static factors? How are major competitors likely to respond to particular strategies?

Step#3: Taking Corrective Actions

The final strategy-evaluation activity, taking corrective actions, requires making changes to competitively reposition a firm for the future. Examples of changes that may be needed are altering an organization's structure, replacing one or more key individuals, selling divisions, or revising a business mission. Other changes could include establishing or revising objectives, devising new policies, issuing stock to raise capital, adding additional salespersons, differently allocating resources, or developing new performance incentives. Taking corrective actions does not necessarily mean that exiting strategies will be abandoned or even that new strategies must be formulated.
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No organization can survive as an island; no organization can escape change. Taking corrective actions is necessary to keep an organization on track toward achieving stated objectives. In his thought-provoking books future Shock and The Third Wave, Alvin Toffler argued that business environments are overcoming so dynamic and complex that they threaten people and organizations with future shock, which occurs when the nature, types, and speed of changes overpower an individuals or organizations ability and capacity to adapt. Strategy evaluation enhances an organizations ability to adapt successfully to changing circumstances. Brown and Agnew referred to this notion as corporate agility. Taking corrective actions raises employees and managers anxieties. Research suggests that participating in strategy-evaluation activities is one of the best wary sot overcome individuals resistances to change. According to Erex and Kanfer, individuals accept change best when they have a cognitive understanding of the changes, a sense of control lover the situation, and awareness that necessary actions are going to be take to implement the changes. Strategy evaluation can lead to strategy-formulation changes, strategyimplementation changes, either formulation and implementation changes, or no changes at all. Strategists cannot escape having to revise strategies and implementation approaches sooner or later. Hussey and Langham offered the following insight on taking corrective actions. Corrective actions should place an organizations is in a better position to capitalize upon internal strengths; to take advantage of key external opportunities; to ovoid, reduce, or iterate external thereat; and to improve internal weaknesses. Corrective actions should have a proper time horizon and an appropriate amount of risk. They should be internally consistent and socially responsible. Perhaps most important, corrective actions strengthen an organizations competitive position in its basic industry. Continuous strategy evaluation keeps strategists close to the pulse of an organization and provides information needed for an effective strategic management system. An example company that today is taking major corrective actions is Sun Microsystems. For nearly two decades, Sun Microsystems dismissed the standard chips and software that ran most computers in favor of its own so upped-up custom designs. Although more powerful than Intel and Microsoft chips and servers, Sun products were also more expensive.
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However, today Intel and Microsoft and similar firms produce generic chips and software that are less expensive than Suns and just as powerful, so Sun increasingly is unable to compete on price, quality, or power. Suns revenues and profits are declining rapidly, and the firm is actively engaged in the strategy-evaluation process.

Practical Study of the Organization

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Organizational Mission:
The organizations mission statement is as follows: Dell's mission is to be the most successful computer company in the world at delivering the best customer experience in the markets we serve

Organizational Vision
While not specifically stated, it has been surmised that Dells vision is to lead in all regions we serve. The foundation of our success is the same in the United Kingdom and France, China and Japan, Canada and other countries. Customers want technology products that are relevant to them, offer great value and can be easily purchased and used. Thats what our team around the globe consistently delivers (Fiscal 2005 in Review, 2005). Dells vision is quite focused and assumes customer needs to be somewhat homogenous throughout the world.

Objectives:
Modify laptop designs according to students preferences. Double laptop sales in student market. Increase revenues by 25% by the end of the second year of launching. Develop a promotional campaign to promote the modified laptops. Increase awareness of the existent agency project objective research strategic plan conclusion.

History of Dell:
Dell traces its origins to 1984; when Michael Dell created PCs Limited while a student at the University of Texas at Austin. The dorm-room headquartered company sold IBM PC-compatible computers built from stock components. Michael Dell started trading in the belief that by
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selling personal computer systems directly to customers, PCs Limited could better understand customers' needs and provide the most effective computing solutions to meet those needs. Michael Dell dropped out of school in order to focus full-time on his fledgling business, after getting about $300,000 in expansion-capital from his family. In 1985, the company produced the first computer of its own designthe "Turbo PC", sold for US$795. PCs Limited advertised its systems in national computer magazines for sale directly to consumers and custom assembled each ordered unit according to a selection of options. The company grossed more than $73 million in its first year of trading. The company changed its name to "Dell Computer Corporation" in 1988 and began expanding globallyfirst in Ireland. In June 1988, Dell's market capitalization grew by $30 million to $80 million from its June 22 initial public offering of 3.5 million shares at $8.50 a share. 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 via its web site, and in 2002, Dell expanded its product line to include televisions, handhelds, digital audio players, and printers. Dell's first acquisition occurred in 1999 with the purchase of Convergent Technologies. In 2003, the company was rebranded as simply "Dell Inc." to recognize the company's expansion beyond computers. From 2004 to 2007, Michael Dell stepped aside as CEO, while long-time Dell employee Kevin Rollins took the helm. During that time, Dell acquired Alienware, which introduced several new items to Dell products, including AMD microprocessors. To prevent cross-market products, Dell continues to run Alienware as a separate entity but still a wholly owned subsidiary. Lackluster performance, however, in its lowerend computer business prompted Michael Dell to take on the role of CEO again. The founder announced a change campaign called "Dell 2.0," reducing headcount and diversifying the company's product offerings. The company acquired Equal Logic on January 28, 2008 to gain a foothold in the ISCSI storage market. Because Dell already had an efficient manufacturing process, integrating Equal Logics products into the company drove manufacturing prices down. In 2009, Dell acquired Perot Systems, a technology services and outsourcing company founded by H. Ross Perot. On September 21, 2009,
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Dell announced its intent to acquire Perot Systems (based in Plano, Texas) in a reported $3.9 billion deal. Perot Systems brought applications development, systems integration, and strategic consulting services through its operations in the U.S. and 10 other countries. In addition, it provided a variety of business process outsourcing services, including claims processing and call center operations. On August 16, 2010, Dell announced its intent to acquire the data storage company 3PAR. On September 2, 2010 Hewlett-Packard offered $33 a share, which Dell declined to match. On February 10, 2010, Dell acquired KACE Networks a leader in Systems Management Appliances. Terms of the deal were not disclosed. On November 2, 2010, Dell acquired Software-as-a-Service (SaaS) integration leader Boomi. Terms of the deal were not disclosed.

Evaluation of Dell strategies under Evaluation Process

Step#1: A. Dell Present Strategies:
Partnering closely with suppliers to squeeze cost savings out of the supply chain Using direct sales techniques to gain customers Expanding into additional products and services to capture a bigger share of customers IT spending Providing good customers service and technical support
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Keeping R&D and engineering activities focused squarely on better meeting the needs of customers Using standardized technologies in all product offerings Entering into the white-box segment of the PC industry Advertising Continuous pursuit of cost reduction initiatives

Overall Low-Cost Provider Strategy:

Use the companys strong capabilities in supply chain management, low-cost manufacturing, and direct sales to grow sales and market share in both the PC and server segments and expand into product categories where Dell could provide added value to its customers in the form of low prices. The standard pattern for entering new product categories was to identify and IT product with good margins; figure out how to how to build it (or else have it build by others) cheaply enough to be able to significantly under price competitive products; market the new to Dells steadily growing customer base; and watch the market share point, Incremental revenues and incremental profits pile up. Dell competes in several international and domestic markets and currently produces a wide variety of products. In each of these markets, Dell has succeeded due to its broad differentiation approach. This approach, detailed in Appendix N, is based on the strength of its direct sales business model, manufacturing prowess, and brand strength and customer service. The ability to differentiate has allowed Dell to stand out within mature markets and maintain a higher than average margins for its products. Although Dell's products cover a wide swath of the industry, there are several product lines and markets that the company does not currently serve. The company should consider three options: Adding a PC and server product line based on AMD microprocessors Developing a showroom style storefront in developing markets Expanding consulting services to include business services Dell's addition of a product line based on AMD microprocessors would enable the company to service the entire market of PC users. Dell's exclusive use of Intel processors has limited the company's ability to match the high end products that its competitors are offering. This leaves
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Dell continuing to serve the low-end portion of the market and out of the very profitable high-end portion of the market. In addition, as AMD gains market share on Intel, Dell will encounter pressure on its own market share. Dell currently is the largest worldwide provider of PCs based on the strength of its U.S. business. In international markets, Dell is currently second or third, but has struggled to gain market share with its direct sales business model. Issues in developing countries include lack of credit cards and buying habits that involve touching and seeing before purchasing. Without gaining market share in these large markets, Dell could surrender its top position to competitors such as Lenovo, who are already entrenched in these markets. Developing a showroom style storefront would enable Dell to compete effectively against its competitors in these countries. The showroom allows Dell to maintain its competitive advantages while simultaneously meeting the societal needs of the developing markets. It will be a place for Dell to exhibit its product and conduct sales for later delivery. Dell will retain its ability to customize its products and maintain its build-to-order efficiencies. Dell's efficiency has made the firm a player in business infrastructure services. However, the company is viewed as a leader in providing value, not necessarily complete or creative solutions. By moving into business consulting, Dell may be able to develop more extensive relationships with companies. These relationships could help grow Dell's core business through better understanding of client's needs and stronger ties to Dell, rather than to their current consulting partner: HP, IBM, et al. This process will effectively open an additional sales channel to Dell, but it is a risky endeavor. Diversification into consulting may pull the company too far from its core competency of sales and production. Before branching into the development of business consulting, Dell should examine the impact on the other portions of its product portfolio. Due to its varied product portfolio, Dell cannot be cast into one particular quadrant of either the Boston Consulting Group Growth-Share matrix or the McKinsey 9-cell. Each business group must be looked at separately in order to accurately portray its business prospects. Dell's sole cash cow is its PC business. This market continues to grow and as the market share leader, Dell is poised to reap the benefits of this growth. In order to ensure that this product remains a cash cow, Dell
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must continue to determine what products the industry wants, and consistently be a best-in-class deliverer of value to its consumers. One of Dell's stars is its server business. Dells market share has grown at a rate of over 25% and it recently surpassed Sun as the #3 provider of servers. To keep this product line a star, Dell needs to continue its growth in the low end server market, it also needs to simultaneously develop its higher end server product line to meet the needs of the entire server market. Dell's one visible question mark is its services business. Although this division is one of The fastest growing segments at Dell, its small market share leaves this segment vulnerable to Competitors and other market forces. In order to turn this business into a star, Dell needs to Increase market share. Dell must develop its creative infrastructure and then advertise its Creativity throughout the market. By changing its market perception, Dell will begin to draw Clients that it previously would not have drawn, and thus increase market share.

B.

Environment and Strategy Assessment

The computer industry can be characterized as mature in the U.S., Japan, and Europe but there is continued room for growth in Latin America, the Middle East, and the rest of Asia. Further, business and consumer customers globally are subject to a technology upgrade cycle, whereby the short product lifecycle of computer products drives repeat purchases. Pricing is fiercely competitive in the computer hardware industry. Further, mergers characterize a significant trend and are likely to remain a defining factor in the near-term. These deals are enabling computer hardware providers to offer better services to their customers. Two of Dells largest competitors, HP and IBM, offer full-service products (i.e. hardware, software and consulting services). As discussed in Appendix J, computer hardware consumers increasingly prefer and are willing to pay a premium to vendors that are able to provide all of their IT needs: hardware, software, and the knowledge to package the items to meet the customers requirements. In addition, the technology in this industry is rapidly changing and Dell does not conduct its own research and
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development. This is not necessarily a problem. However, Dell does risk being considerably outpaced by its competitors. The computer hardware industry offers extensive opportunities for growth. For instance, 80% of sales over the next four years will take place in developing countries. Dell has the opportunity and the ability to earn a high percentage of those sales if it develops a successful strategy for entering the market.

Step#2: Is Dells strategy working? (Measuring Dell Performance)

2011

2010

2009

2008

2007

Total Revenue

61,494. 52,902. 61,101. 61,133. 57,420. 0 0 0 0 0

Cost of Revenue, Total Gross Profit

50,098. 43,641. 50,144. 49,462.47,904.0 0 0 0 0 0 0 0 11,396. 9,261.0 10,957. 11,671. 9,516.0

Selling/General/Administr 7,234.0 6,228.0 6,966.0 7,538.0 5,948.0 ative Expenses, Total Research & Development Depreciation/Amortization Interest Expense (Income), Net Operating Unusual Expense (Income) Other Operating Expenses, Total Operating Income 3,433.0 2,172.0 3,190.0 3,440.0 3,070.0 0.0 0.0 0.0 0.0 0.0 76.0 244.0 138.0 83.0 0.0 653.0 0.0 0.0 617.0 0.0 0.0 663.0 0.0 0.0 610.0 0.0 0.0 498.0 0.0 0.0

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Interest Income (Expense), Net NonOperating Gain (Loss) on Sale of Assets Other, Net Income Before Tax 59.0 12.0 0.0 0.0 0.0 0.0

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0.0 0.0 0.0

0.0 -58.0

0.0 -19.0

36.0 -19.0

3,350.0 2,024.0 3,324.0 3,827.0 3,345.0

Income Tax - Total Income After Tax

715.0

591.0

846.0

880.0

762.0

2,635.0 1,433.0 2,478.0 2,947.0 2,583.0

Minority Interest Equity In Affiliates U.S. GAAP Adjustment Net Income Before Extra. Items Total Extraordinary Items Net Income

0.0 0.0 0.0

0.0 0.0 0.0

0.0 0.0 0.0

0.0 0.0 0.0

0.0 0.0 0.0

2,635.0 1,433.0 2,478.0 2,947.0 2,583.0

0.0

0.0

0.0

0.0

0.0

2,635.0 1,433.0 2,478.0 2,947.0 2,583.0

From 2000 to 2002 Dells net income had a loss of 25.5%. 2002 to 2006 the net income is rising quickly. Dell experienced a decline in 2007. In 2008 the situation was getting better, 14.09% increasing in net income. Even so, operating profit margin and net profit margin are still lower than level of 2002 to 2006. For Dell, its long-term living conditions may be experiencing a slow down. After years of quick growth, Dell may return to a slow growthing pace. But it still has a strong financial condition (Ample financial resources to grow the business). The leverage ratios indicate that Dells balance sheet is strong and the capacity to borrow additional funds is great. The company is creditworthiness. Generally speaking, Dell is a successful company in applying its strategy and achieves promising profit and financial performance. Dell is a perplexing company. Years ago, it was atop the tech industry with its direct sales model. Not only was it selling computers at an astounding rate, but the corporate world was quite happy with its PCs.
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everything was going right for the Texas-based technology company, even though it shunned the channel with its direct-only sales model. And then all that changed. As the consumer market shifted away from traditional purchasing models, HP built far better computers than it had for years, and Dell lost its way, the company was marginalized. Its dominance gave way to HP, and after a short fight, Acer. Today, Dell is the worlds third-largest PC manufacturer and its trying desperately to catch up with HP and Acer. And unfortunately for the Dell, catching up will be extremely challenging. Dell is a tough company to understand. And why it doesnt follow sound strategies in its many divisions is unknown. Read on to find out how Dell continues to confuse both consumers and enterprise customers.

Some issues with Dell Strategies:

1.

Shrinking PC Market share:

According to IDC, Dell (NASDAQ:DELL), which had annual revenue of $61.1 billion, has lost market share and it has lost its No.2 spot to Acer in the global market. It has, of course, lost the top spot in the U.S. market to HP. Dells recently reported third quarter results were also disappointing, missing both earnings and revenue estimates. Dell currently controls 12.7% of the worldwide market while HP and Acer are ahead with 20.2% and 14%, respectively. In the U.S. market, HP leads with 25.5% while Dell is behind by just 0.5%. Dell said that the timing of the Microsoft Windows 7 launch has hurt its revenue but that it expects the upgrade cycle to increase PC growth to over 10% in 2010. But will it be able to fend off competition from HP and Acer? It would seem that they too will benefit from the same upgrade cycle. Revenue was up 1% q-o-q and down 15% y-o-y to $12.9 billion versus analyst estimates of $13.2 billion. Net income was down 54% to $337 million or $0.17 per share. Gross margin was 17.3%, down from 18.7% last quarter. Dell ended the quarter with $14 billion in cash and investments, but the completion of its $3.9 billion acquisition of Perot Systems on November 3 will decrease the balance by $4 billion. Q2 coverage is available here.

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By business unit, Large Enterprise revenue was down 23% y-o-y and up 4% q-o-q to $3.4 billion. Public revenue was down 7% y-o-y and 3% q-o-q to $3.7 billion. Small and Medium Business revenue was down 19% but up 5% q-o-q to $3 billion. Consumer Business revenue was down 10% y-oy and 1% q-o-q to $2.8 billion with units up 17% y-o-y. For the third quarter, Perot Systems reported revenue of $629 million, down 12% and gross margin of 19.4%. By region, the Americas revenue was down 2% q-o-q while EMEA was up 6% q-o-q and Asia-Pacific and Japan was up 7% q-o-q. Revenue from the BRIC countries was up 18% q-o-q and accounted for about 12% of total revenue, while the US accounted for 53% of revenue. By product, mobility units were up 11% q-o-q and revenue was down 14%. Desktop revenue declined 9% on 10% q-o-q decline in units. Server revenue was down 6% on a 7% decline in units. Worldwide X86 server share was up 180 basis points, and Dell held onto its No.2 spot worldwide and No.1 spot in the US. In the overall server market, it is No.3 worldwide and No.2 in the US. Storage revenue was down 19% but Equal Logic revenue was up 31%. Enhanced Services revenue increased 2% q-o-q to $1.2 billion. Software and Peripherals revenue declined 7%. Dell has recently announced the creation of a new business unit focused on communications and mobile devices. Dell had earlier announced its Android Smartphone, Mini 3 to be launched in China and Brazil, which will act as the testing ground for the companys Smartphone strategy. However, to be successful in the highly competitive U.S. market, Dell will need to make a Smartphone acquisition, and either Palm or RIMM would be good targets. In an earlier post, I evaluated such a possibility. Palm with a market cap of about $1.5 billion, is more affordable while RIMM, with a market cap of $34 billion, would be more difficult to acquire. The stock is currently trading around $13 with market cap of about $26 billion. It had hit a 52-week high of $15.27 on August 24.

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2.

Declining Sale from Corporate Customer:

Increasing Market share of Apple:

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Its HP Strategy:
Dell's top competitor is HP. Although Acer continues to capture more market share from Dell, and soon will be the world's top PC manufacturer, Dell has more to worry about with HP. The reason why is simple: HP is a U.S.-based firm with the goal of targeting the same companies as Dell. So far, HP has been far more successful. And for the most part, Dell has done little to stop it. The time has come for Dell to start improving its HP strategy.

The Corporate World Awaits:

When Dell was on top of its game, the company was delivering some of the best corporate PCs in the space. Today, it's still doing a good job of offering solid products, but HP and Lenovo are doing a better job. Dell must find ways to target corporate customers. It won't be easy, since HP is so entrenched in that market, but if Dell wants to turn things around (and it should), it's a necessity.

Wheres the Vision?

One of Dell's hallmarks during its successful years was its vision. The company knew what it needed to do in order to be successful. And it was able to achieve that with several successful products, including desktops,
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notebooks, and even hand-helds, like the Dell Axiom. Today, Dell doesn't seem to have that vision. It's simply meandering its way through a market trying to figure out what to do next. That's not the Dell of old.

Alienware:
When Dell acquired Alienware, some wondered how the company would use the computers from the boutique vendor. Unfortunately, it hasn't managed the Alienware brand that entire well. In fact, it's simply providing consumers with supposedly high-end computers at a premium without helping the Dell brand all that much. It's a mistake. Alienware has a long pedigree of providing outstanding computers that are designed well. Why isn't Dell capitalizing on that?

Apple or HP?
Dell seems to see value in the business models of both Apple and HP. On one hand, it sees Apple innovating and delivering unique new products and it wants to capitalize on that. On the other hand, it sees the practicality of following an HP-like business strategy. All the while, it's unsure of what it really is. That needs to stop. Dell needs to determine if it wants to be a hardware provider or a computer maker. In any case, it should follow the path it chooses and not venture into unknown territories.

Its Focus:
Following that, maybe it's time that Dell starts focusing more of its efforts on computers. After all, computers were how Dell became the company that it is today. And it's arguably the product that it understands best. By focusing its efforts there, Dell can go back to its roots, deliver a best-inclass product, and then worry about other markets. Apple might be making billions of dollars, but that doesn't mean that Dell can follow suit. Apple is a special case with a vastly different corporate culture. Dell should embrace that and realize that it doesn't need to be Apple to be successful.
3.

Price or Value:

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Dell needs to decide if it wants to compete on price or on value. In the tech industry, there are two types of companies: those who are capable of beating the competition with cheaper prices and those that deliver a superior product for a premium price. Dell is neither. Currently, its computers and accessories are not premium products offered at a premium price. And although it still makes fine products, it's not beating the competition on price. Dell is decidedly middle-of-the-road. That's not a good place to be for Dell.
4.

There Is No Experience:

A major issue for Dell (and just about every other tech company in the space) is that it doesn't provide an experience in its products the way Apple does. When a user picks up an Apple product, they know what they're getting. But when someone opens up a Dell computer, they're getting the same basic experience as that of an HP machine. It's not a good thing. Dell products lack the user experience that would make them unique in the marketplace. And the longer that happens, the worse it will be for the company

Step#3: Taking Corrective Actions:

I have suggested some new strategies for Dell as a corrective Action. These strategies are as follows,

Options and recommended Strategies:

1.

While many of its competitors are working feverishly to develop the next generation of technology, Dell has been waiting. To date, the firm's strategy has been to recreate technology. In many cases, companies that do their own R&D are able to stay ahead of the industry through the development of new products. Putting more emphasis on R&D has some potential benefits. Through increased R&D spending, Dell may be the first to introduce products to market and establish first mover advantage. Dell's recognizable brand-name would allow it to expand into new products and potentially create insurmountable barriers to entry for its competition.
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Focus on innovation:

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However, an increased emphasis on R&D would distance the company from its core competencies. Increasing R&D changes its focus from mass customization of mature products to smaller batches and product introduction and growth. Additionally, it would force the company from its direct sales model, as new products require multiple distribution channels to ensure they are available to customers as quickly as possible. Currently Dell's strength is the sales of mature products through mass production, bringing quality and price without the cost of R&D.
2.

Divesting:

As is the nature of many larger companies, Dell is competing in several different product markets. Divesting products or services that the company is not competing near the top of the market will increase internal focus. Divesting of these assets or divisions could occur through identifying a competitor and selling the business, or by spinning a division into its own company. The key benefit of this strategy is the improved focus on core business. Stripping away these segments would enable Dell to become more streamlined. Specifically, it would require all segments to work for similar customer bases. Establishing a singular customer focus to each employee allows Dell to leaps in product creativity and adds more than value to its brand. As a complete solutions provider, Dell is uniquely positioned to meet a full range of customer needs. Divesting portions of their business, especially in its growing infrastructure segment, could potentially limit growth. Removing components from Dell's network will mean that as business grows, Dell would utilize external resources to satisfy customer's requests, limiting the effectiveness of Dell's competitive advantage. A single Dell branded solution is more likely to position Dell as a differentiated service company.
3.

Expansion into services:

This strategy encourages Dell to move into business consulting. This is a new business segment for Dell and would open a potentially new revenue stream. Given the firm's internal success at manufacturing and valuechain efficiencies, Dell would have a respected reputation as a consultant. While application of these theories may be difficult at other firms, Dell's expertise and proven track record would provide differentiation in a crowded market. Movement into the services business
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places Dell against largely entrenched competitors. These competitors have levels of expertise that Dell cannot currently match, placing it at a competitive disadvantage. While Dells specific knowledge would help it enter the market, its ability to service the complete market would be limited. Likewise, a limited market would not allow a stable revenue stream, making this business segment questionable. Ultimately, a move towards business consulting would distance the company from its core competencies. This move would limit focus from core businesses and distract the company from its position of excellence.
4.

Reinvigorate Differentiation Advantage:

This strategy encourages Dell to return to its core competencies and calls for the company to get back to basics. It pushes the company to improve upon those competencies which helped differentiate it from the beginning. Specifically, improvements will include the enhancement of customer service, the addition of suppliers, new marketing campaigns, the modification of retail sales and the expansion of turn-key solutions. This strategy seeks to widen Dell's competitive advantage through the further refinement of its existing core competencies. Advantages of this strategy are considerable. Dell has long established itself as a pioneer and expert in value-chain management. The improvements this strategy develops are located within the companys existing value-chain. Furthermore, Dells culture and structure is specifically aligned to focus on improvements in these areas. Most significantly, the suggested strategy does not force the firm reinvent itself. Because improvements are limited to existing business segments, Dell will not be required to produce or develop new product lines. The negative aspects of this strategy are worthy of mention. By solely improving upon existing competencies, the company runs the risk of becoming stagnant. The proposed strategy does not encourage the addition of new products or services, potentially keeping the company out of new and profitable markets. Stagnation in the technology industry represents a significant risk and may cause degradation in the firms signaling criteria. This may reduce the companys premium price and ultimately decrease profitability.
5.

Recommended Strategy:
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It is recommended that the final alternative, in which Dell reinvigorates its differentiation strategy, be implemented. With this strategy, existing organizational resources and wherewithal can be leveraged to develop a clear differentiation advantage. This strategy does not make unnecessary or drastic operational changes which have the potential to disrupt the successful corporate culture and structure. Rather, the recommended strategy identifies and improves several existing competencies which have made the company so successful. Dell considers customer service and support to be a key differentiator. The company, which prides itself on this segment of business, has consistently ranked #1 in the industry. Not surprisingly, this segment represents a significant and expanding revenue stream for the firm. However, Dells lead in customer service and support has declined in recent years. Declining training and the outsourcing of customer service and support has damaged its reputation. To rectify this problem, Dell must improve its customer service representatives selection process, ensuring they are easily understood and well trained. By improving this segment of business Dell can once again clearly differentiate itself from rivals HP and IBM. Dells hugely successful direct sales model has allowed its products to be customized by customers. However, Dell maintains a single source relationship with chip maker Intel which limits consumer choice. Those that prefer to have PCs powered with AMD chips are currently unable to do so. To strengthen Dells customization position, the firm must offer increased configuration choices through the establishment of additional supplier relationships. There is however, one significant caveat. Dell must pursue relationships with only those suppliers that are able to integrate seamlessly with Dells supply-chain. This strategy will allow Dell to offer additional choices for its customers while maintaining production efficiencies. This strategy also recommends that Dell revitalize its marketing efforts to target underserved markets within the U.S. while expanding its marketing abroad into emerging and growing international markets. As noted, the first tactic is domestic. Recent surveys show that a high percentage of U.S. homes have PCs. However, there is a stark discrepancy in computer use among ethnicities. Whites and Asians are much more likely to use and own computers than their
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Black or Hispanic counterparts. This high ownership among Whites and Asians makes it difficult for Dell to grow in this demographic segment. However, the low ownership among Blacks and Hispanics represents an area of growth. To strengthen Dells visibility with Blacks and Hispanics, it is recommended that Dell modifies its marketing focus. Dell must develop marketing campaigns to position its PCs as commodities that are necessary for everyday life. The second marketing enhancement will be centered in emerging markets where Dells direct sales model has several inherent limitations. For obvious reasons, the model does not work well in markets which customers do not have access to the internet or credit-cards. In these markets it makes sense for Dell to expand its use of retail locations or showrooms. To achieve success within emerging markets Dell must combine its direct sales model with its learned experience from its retail partnerships. This tactic calls for Dell to develop showrooms in which displays are available for customers to test and use products before they place an order. Once a customer has decided to purchase an item, they may use an in-store phone or internet connection to place their order. As in the traditional Dell model, customers may customize their product during this process. This tactic allows Dell to bring its product to customers in emerging markets while still maintaining its direct sales business model. Turn-key IT solutions include the planning, implementation and maintenance of IT customer services. Simply stated, it provides Dells customers with one-stop shopping opportunities. As noted in Appendix O, this business segment represents a tremendous opportunity for revenue growth. While Dell does offer limited turn-key or managed lifecycle services, the firm is not considered to be a major player in the market currently representing less than 1% of the total market. The aim of this strategy is to increase market-share through further enhancement of turn-key IT solutions. To strengthen Dells position within the market, the company must improve its focus on specific customer needs. Dell must improve its existing services to provide reliable and predictable solutions around this segment of business. Specifically, it is critical that the company design and deliver services which offer superior quality and efficiency, while sustaining customization for individual customer needs. The subsequent exhibit shows the gap between buyer intended value and perceived value.
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The difficulty for Dell stems from the lack of real differentiation between intended value and perceived value of buyers. Competitors adoption of Dell's business model, combined with the recent decline in Dell's customer service has reduced Dell's competitive advantages, forcing customers to make decisions solely based on price.

SWOT 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
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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 competing priorities for resources. "SWOT" analysis constitutes one of the most important aspects in the strategic management process.

Strengths:
Worlds largest PC maker. One of the best known brands in the world. First PC maker to offer next-day, on-site product service. Direct to customer business model. Uses latest technology. Dell has remarkably low operating cost relative to revenue because it cuts out the retailer and supplies directly to the customers. Dells Direct Model approach enables the company to offer direct relationships with customers such as corporate and institutional customers. Dells direct customer allows it to provide top-notch customer service before and after the sale. Each Dell system is built to order to meet each customers specifications. Reliability, Service and Support.

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Dell boasts a very efficient procurement, manufacturing and distribution process allowing it to offer customers powerful systems at competitive prices. Dell is able to introduce the latest relevant technology compared to companies using the indirect distribution channels. Dell is not a manufacturer; Components are made by the suppliers and Dell assembles the computers using relatively cheap labor. The finished goods are then dropped off with the customer by courier. Dell has total command of the supply chain. Dell turns over inventory for an average of every six days, keeping inventory costs low. Dell is enhancing and broadening the fundamental competitive advantages of the direct model by increasingly applying the efficiencies of the Internet to its entire business.

Weakness:
A huge range of products and components from many suppliers from various countries. Computer maker and not the computer manufacturer, making DELL unable to switch supply. Dell lacked solid dealer / retailer relationships. No propriety technology Not attracting the college student segment of the market. Dells sales revenue from educational institutions such as colleges only accounts for a merely 5% of the total. Dells focus on the corporate and government institutional customers somehow affected its ability to form relationships with educational institutions. For home users, Dells direct method and customization approach posed problems. For one, customers cannot go to retailers because Dell does not use distribution channels. Customers just cant buy Dell as simply as other brands because each product is custom-built according to their specifications and this might take days to finish.
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Opportunities:
Diversification strategy by introducing many new products to its

range. Personal computers are becoming a necessity now more than ever. Customers are getting more and more educated about computers. Second-time buyers would most likely avail of Dells custom-built computers because as their knowledge grows, so do their need to experiment or use some additional computer features. The internet also provides Dell with greater opportunities since all they have to do now is to visit Dells website to place their order or to get information. Since Dell does not have retail stores, the online stores would surely make up for its absence. It is also more convenient for customers to shop online than to actually drive and do purchase at a physical store.

Threats:
Competitive rivalry that exists in the PC market globally. New entrants to the market pose potential threats. The threat to become outmoded is a pulsating reality in a computer business. Price difference among brands is getting smaller. Dells Direct Model attracts customers because it saves cost. Since other companies are able to offer computers at low costs, this could threaten Dells price-conscious growing customer base. With almost identical prices, price difference is no longer an issue for a customer. They might choose other brands instead of waiting for Dells customized computers. The growth rate of the computer industry is also slowing down. Today, Dell has the biggest share of the market. If the demand slows down, the competition will become stiffer in the process. Dell has to work doubly hard to differentiate itself from its
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substitutes to be able to continue holding a significant market share. Technological advancement is a double-edge sword. It is an opportunity but at the same time a threat. Low-cost leadership strategy is no longer an issue to computer companies therefore it is important for Dell to stand out from the rest.

Recommendations
Increase the intensity of product innovation and R & D. Promote the change of management and form a good team to change the company's performance. (Implement as quickly as they can.) No matter how he change Dell's strategy, the honor of customers value cannot change, which is a key factor of Dell's past success. Should look for Alliance-mergers and acquisitions that would bring synergic benefits for the company

Reduce the attrition rate by Converting customers(people who visit the Dell site)

visitors

into

Physical presence of Service centers would add value to their customer service
Invest more in Research and Development

Reduce errors in Dells direct Internet ordering system and create a Clearance area on its website Enhance customer support services
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Increase Company recognition through a national advertising campaign. Should not only depend on the internet sales, should give equal importance to retail stores. Though they have started with the retail selling but they should give equal importance to it as they give to online selling Build a variety of competencies (build core competencies into diverse product lines)
Should focus on developing nations like India, China etc...

Demand for laptops will increase in the coming future therefore they should try to exploit this situation

Conclusion
Dell computer is successful in global markets as a result of best understanding of customers needs and their direct sell business model. Dell's environmental programs for product asset recovery and product design for environment have spanned more than a decade. The company designs and customizes products and services to the requirements of the organizations and individuals, and sells an extensive selection of peripheral hardware and computing software.
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Dell is a well known name in the world that has been very successful towards its mission. It has focused on customization and maintaining low cost that has been very profitable for the company. But are faced with the problem of de slipping sales in the U.S. They are being forced to look at alternative ways of brining revenue to the company, we believe that they will be able to tackle this situation and would maintain a tight grip on the market due to their cost leadership and because of their coming strategies. Dell has lost its game in the global market. Dell shows no indication of significant change in implementing its strategies. Dell stands to lose its competitive advantage in the next 3-4 years, unless significant change is brought about in leadership style, organisational structure, and innovation.

Reference

Project report Strategy Evaluation

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www.slideshare.com http://www.dell.com. http://en.wikipedia.org/wiki/Dell_Pakistan http://www.scribd.com

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