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PRODUCT DEVELOPMENT AT DELL COMPUTER CORPORATIONPRESENTED TO: PRESENTED BY:Dr. Sanjai Parahoo Mohamed AL Hendasi & Obaid Al keebali & Saif Aleisaei
EXECUTIVE SUMMARYThis case is all about dell computer which in spite of taking a good start got stuck into cash crunch in 1993.The company is also facing problems with their existing design of portable computer as they had some technical problem relating to battery life.For solving the problem a meeting was held in hopes the group could reach a consensus on recommendation for developing a new line of laptop computers.
THE PERSONAL COMPUTER INDUSTRY The first digital computer were designed by Charles Babbage in the 1830’s. Micro computer revolution started in 1970’s, with machine catering to hobbyists and hackers. In July 1974 an electronic magazine promoted a printed circuit board that came with instruction book for simulation. In late 1970’s and 1980’s apple computer California based firm successfully commercialized an intuitively “easy to use” interface. Initially Texas Instruments and Zenith entered in the business segment of microcomputer. To play catch-up, IBM rapidly leveraged-off its traditional corporate base and strong direct sales and services organization. It outsourced hardware & software components to launch its IBM personal computer in 1981.
THE HISTORY OF DELL In 1983 Michael Dell a freshman at the University of Texas, Austin started upgrading IBM compatible personal computers door to door for local business. He soon started buying and assembling components himself in order to sell computer his name directly to customers. High growth and attractive margins allowed him to fund growth internally and he began to get number of orders from large oil companies and government agencies. In order to promote dell product , dell started 24 hour complaint hotline & offer a supply of back up replacement equipment. Dell’s company grew to $6 million by 1985, firm introduced its own
DELL BUSINESS MODEL Dell computer used the same principal to sell computers. The company focused on selling customized products directly via mail to shabby customer. Dell assured product quality by extensively pretesting all the configuration options it offered. A 24-hour telephone support system comprising well- trained technical representative provided the first post- shipment level of support. Dell serviced its customers with combination of home based telephone representative and field based representative. Dell maintained a month’s worth of component inventory but it suppliers generally carried supplemental buffer
PROBLEM FACED BY DELL Dell had to callback 17000 units due to technical problem. Company got stuck into Cash Crunch. Dell stock plunged to $7 a share. Profit slashed to $10 million. Retail Selling proved contrary to dell. Senior management unable to guide the firm to maturity. Improper structure of Product Development
THE NEXT GENERATION: WHICH BATTERY Holliday & his team entertained only a few realistic development option: Computer with a proven battery technology (NiHi): McCarty & Taylor, the mechanical engineer, favored this option such as communication control or memory management accessories. Go with the new battery technology (LiOn): Dell could incorporate new Lithium ion batteries into the notebook. This option mean incorporating an unproven & more expensive technology, which would also take up more space than traditional batteries. Defer commitment to either battery technology: Dell could continue to pursue the laptop development
DELL HAS THREE OPTION FOR PDP Option 1: continue with a proven battery technology (NiHi) Confidence = 100% (likelihood that it works as expected) Net margin = 825,000 units * $600/units- $10m =$485m Option 2: Go with the new battery technology (LiOn) Confidence = 60% (likelihood that it works as expected): nsky Net margin (if LiOn works) = 990,000 units*$600/unit-$10m =$584m Net margin (if LiOn fails) = (825,000 units*0.5) * $600/units- ($10+0.3*$10) =$234.5m If LiOn fails at launch, a switch to NiHi would require substantial rework (70% of original schedule and 30% of cost). Because competitors would have an established product on the market before them. Dell would lose about
Option 3: Defer commitment until qualification phase review (dual development or design) *If dual Estimated =$2.5m development additional fixed paths cost *If product is Estimated =0.5% of overdesigned additional revenue (2% of variable cost margin) Gross margin 999,000*$600/u $594m (before (if LiOn works) nit additional cost) Gross margin 825,000*$600/u $495m (before The analysis assumes that Sony will give us enough (if LiOn fails) nit additional cost) information at the end of the qualification phase to determine with full certainly if LiOn will work or fail. If it fails
*these are the actual project cost incurred. They include additional designers and engineers, material & tools cost, etc. if we follow a dual path until the qualification phase review. Te costs do not include the product opportunity forego if we had to pull people away from other projects.* Because of the LiOn battery different dimension and properties we would have to “overdesign” the computer case, the charging circuitry and battery management software to a accommodate either battery technology which would add about $12 cost/unit.
DELL’S LATITUDE DEVELOPMENT PROJECT In 1991, Dell came out with its first line of portable computers . In 1992, with portables accounting for 17 percent of Dell’s sales, rumors circulated about quality problems. Early in 1993, Dell canceled a new line of laptops under development, since these were deemed too slow and expensive. By May 1993, notebook sales had slipped to just 6 percent of Dell sales previously account for 20-25 percent of sales. Bill Gated stated: “Dell is a super-solid company . They’ll get on top of the situation” In October 1993, Dell recalled 17,000 notebooks. Announced plans for launching a new line of notebooks, named the latitude series.
NEW PRODUCT DEVELOPMENT Profile Phase: Product and market definition, resulting in a two to three page “ product features guide”. Planning Phase: Detailed business case for the product. Implemental Phase: Designed, built and tested functional prototypes of the proposed product. Launch Phase: The entire customer buying experience, from opening the packaged finished product to running various software applications, was exhaustively tested. Acceptance Phase:
PORTABLE COMPUTER INDUSTRY Osborne marketed the first portable computer in 1981. By the end of the decade, the quality of the portability itself gave these machines gross margins that were typically 3 to 5 percent above desktops. In 1993 portable were classified as laptops if they weighed between 4.5 & 8 pounds & sub notebooks if they weighed under 4 pounds. Portable computer Market Size (millions of units) World United States 1992 4.3 2.2 1993 6.2 2.9 1994 7.4 3.2 1995 8.9 3.7