PRODUCT DEVELOPMENT AT DELL COMPUTER CORPORATION PRESENTED TO: PROF. SUBIR GUHA PRESENTED BY: MOHD.ARISH
This 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 brand of personal computers and ended with $70 million in sales.
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 stock that could be immediately shipped.
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 Process
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 without committing to either battery technology at the current phase review.
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
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 50% of projected units sold.
If LiOn causes a failure, there could be spillover effects into the desktop business. Dell regulation for qualify could be tarnished.
Option 3: Defer commitment until qualification phase review (dual development or design)
The analysis assumes that Sony will give us enough information at the end of the qualification phase to determine with full certainly if LiOn will work or fail. If it fails Dell can drop it and revert to option 1.
*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.