Dell leadership style


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Dell leadership style

  1. 1. DELL Computers Corporation Jose Villarreal Wei Zhong Xiao Dong LinWe will look at:-History of the DELL-Will look at the direction they should be going in-What they need to do to get there and-Whether their present leader is the man for the job. 1
  2. 2. OVERVIEW We make computing easy. Like it should be. Strategic Management Jose Villarreal/Wei Zhong/Xiao Dong 2 LinDell is the worlds leading computer systems company. They design, build and customizeproducts and services to satisfy a range of customer requirements. From the server, storageand Premier Services needs of the largest global corporations, to those of consumers at home.They do business directly with customers, one at a time, and believe They do it better thananyone on the planet.Over the last 18 years, Dell has emerged as one of the most successful technology franchisesin the United States. Founded in 1984 and public since 1988, Dell has be-come one of thelargest suppliers of personal computers in the world, growing revenue from less than $1 billionin fiscal 1992 to over $31 billion in fiscal 2002. To-day, Dell commands 15% of theworldwide PC market and has over 35,000 employees with manufacturing facilities in Texas,Tennessee, Brazil, Ireland, China and Malaysia. While Dell operates a highly collaborativeresearch and development model, leveraging technology partners Microsoft and Intel, amongothers, Dell has 730 patents and 535 pending patents that include everything frommanufacturing process patents to computer design patents.We attribute Dell’s success within the computer industry to its unique, low-cost busi-nessmodel, direct sales approach and collaborative research and development. By focusing onleveraging its core competency in supply-chain management and low-cost manufacturingwithin mature technology segments, such as PCs, Dell has a proven strategy to disrupttraditional technology business models that rely on proprietary technology or multistage salesand distribution. A key part of Dell’s success stems from leveraging widely available industrytechnology within a low-cost manufacturing framework as a way of displacing thecompetition. This is already evident by market-share gains in PCs, and it is becoming moreevident by recent success in servers, storage and low-end networking.Today, about 46% of Dell’s total revenue is tied to PC hardware while the remaining 54% ofrevenue is tied to enterprise systems (storage, servers, networking, etc.), third-party productsand services (both PC and non-PC related). Interestingly, while PC hardware accounts for 46%of total revenue, non-PC hardware accounts for more than 50% of total gross profit. Goingforward, we believe profit growth, as it is today, will be driven primarily by non-PC hardwarerevenue. 2
  3. 3. History • 1984 Michael Dell founds Dell Computer Corporation • 1985 Company introduces the first computer system • 1987 Dell is first computer systems company to offer next-day, on- site product service • 1991 Company introduces its first notebook computer • 1996Dell opens original Asia-Pacific manufacturing • 1997Dell ships its 10-millionth computer system • 1999 Dell opens second major U.S. location in Nashville • 2000 Company sales via Internet reach $50 million per day • 2001For the first time, Dell ranks No. 1 Strategic Management Jose Villarreal/Wei Zhong/Xiao Dong 3 Linn1984Michael Dell founds Dell Computer Corporationn1985Company introduces the first computer system of its own design; the Turbo, featuring Intel 8088 processorrunning at eight megahertzn1987Dell is first computer systems company to offer next-day, on-site product service. International expansion beginswith opening of subsidiary in United Kingdomn1988 Dell conducts initial public offering of company stock,3.5 million shares at $8.50 eachn1990 Manufacturing center in Limerick, Ireland, opened to serve European, Middle Eastern and African marketsn1991 Company introduces its first notebook computern1992 Dell included for first time among Fortune 500 roster of worlds largest companies1993Dell joins ranks of thetop-five computer system makers worldwide. Subsidiaries in Australia and Japan are companys first entries into Asia-Pacific regionn1993Dell joins ranks of the top-five computer system makers worldwide. Subsidiaries in Australia and Japan arecompanys first entries into Asia-Pacific regionn1995 $8.50 shares of Dell stock worth $100 on presplit basisn1996Dell opens original Asia-Pacific manufacturing center in Penang, Malaysia. Customers begin buying Dellcomputers via Internet at Dell begins major push into network-server market. Company added toStandard & Poors 500 stock indexn1997 Dell ships its 10-millionth computer system Per-share value of common stock reaches $1,000 on presplit basis.Dell introduces its first workstation systems. Company sales via Internet exceed $4 million per day, from $1 million atthe start of the yearn1998Company expands manufacturing facilities in the Americas and Europe, and opens a production and customercenter in Xiamen, China. Dell introduces its PowerVault storage products1999Dell opens second major U.S. locationin Nashville, Tenn. Dell opens manufacturing facility in Eldorado do Sul, Brazil, to serve Latin America. Dellintroduces "E-Support Direct from Dell" online technical supportn2000 Company sales via Internet reach $50 million per day For the first time, Dell is No. 1 in worldwide workstationshipments. Dell introduces Power App appliance servers Dell ships its one millionth Power Edge servern2001 For the first time, Dell ranks No. 1 in global market share Dell is No. 1 in the United States for standard Intelarchitecture server shipments. Dell introduces Power Connect net work switchesn2002Dell names its Austin Manufacturing Campus the Topfer Manufacturing Center in recognition of thecontributions Mort Topfer made to Dell and the community during his tenure, 1994 to 2002.Dell enters the projectormarket with the introduction of the 3100MP micro-projector. 3
  4. 4. VISION • Learn • Give • Connect Strategic Management Jose Villarreal/Wei Zhong/Xiao Dong 4 LinInformation technology has changed the world in which we live by enabling businesses andindividuals to simplify tasks and accomplish more each day. But technology has also played animportant role in giving us greater power to make a positive difference. All around the globe,people are turning on their computer systems, going on the Internet, and discovering new waysto learn about the world, connect with other people, and give time and resources to theircommunities.Dell encourages everyone to Techsplore - to explore new ways of using technology to do goodthings and leave a positive impression on the world. This is Dells vision of technology, and weare committed to providing the tools for making it easier to Techsplore. From our TechKnowprogram thats putting computer systems in the hands of students and teaching them how to usethem, to Know-the-Net, which takes users on a journey through the Web, to E-ssentials, aguide to online privacy and safety, to Tech in the City, panel discussions on women andtechnology, Dells goal is to help people get the most out of technology -- and support theirefforts to make a better world. 4
  5. 5. Mission Dells mission is to be the most successful computer company in the world at delivering the best customer experience in markets we serve. In doing so, Dell will meet customer expectations of: – Highest quality – Leading technology – Competitive pricing – Individual and company accountability – Best-in-class service and support – Flexible customization capability – Superior corporate citizenship – Financial stability Strategic Management Jose Villarreal/Wei Zhong/Xiao Dong 5 LinOnly Slide 5
  6. 6. The Portfolio •Desktop Computers •Portable Computers •Enterprise Systems •Third-Party Products •Services Strategic Management Jose Villarreal/Wei Zhong/Xiao Dong 6 LinDell distributes various computer systems and services via direct customer relationships and the web site. Nosingle customer accounts for more than 10% of revenue.Desktop ComputersHewlett-Packard is the No. 1 supplier with 15.4% market share. Legend, IBM, Toshiba, Gateway and NEC, amongothers, control the remaining 70% of the PC market.During the June quarter of 2002, Dell continued to gain market share, showing 18% year-over-year unit growth versusthe PC industry, which was down 2% due to the prolonged IT spending downturn. Dell’s market -share gains can bepartially attributed to continued penetration within key consumer, government and education verticals.According to IDC, Dell is the No. 1 supplier of desktop computers in the United States and No. 2 worldwide. Dellmanufactures and distributes three desktop product lines under the OptiPlex, Dimension and SmartStep brands.OptiPlex is optimized for the commercial PC market. Dimension is optimized for power users within the commercialPC market. SmartStep is a low-cost desktop computer optimized for the consumer PC market.Portable ComputersLast quarter(starting July 2002), Dell’s portable computer unit shipments increased 17% year over year, compared to4% industry growth excluding Dell.According to IDC, Dell is the No. 1 supplier of portable computers worldwide. Dell manufactures and distributes twolines of portable computers under the Latitude and Inspirion brands. The Latitude line is optimized to address thecomputing needs of large enterprise and government verticals, among others. The Inspirion line is opti-mized toaddress the computing needs and multimedia requirements of consumers and small businesses. Last quarter, portablecomputer unit shipments increased 17% year over year, compared t o 4% industry growth excluding Dell.ServicesBased on pursuing a single-source strategy, Dell is also expanding the number of ser-vices that it provides, includingprofessional consulting services, custom integration, leasing, installation and onsite service and support. Servicerevenue from consulting, warranty contracts, custom integration and leasing accounts for about 10% of reve-nue and27% of gross profit. In the last three years, service revenue has more than tripled, increasing to more than 10% of therevenue mix today from 5% in F1999.Enterprise SystemsDell’s 8% server market -share is compared to Hewlett-Packard and IMB, which each have 28% market share.Industrial watcher predict that Dell’s server business will growat twice the projected industry growth rate of 4.5%.Over the last five years, Dell has expanded its product line beyond PC products and services into additional enterprisesystems that consist of workstations, servers, stor-age and, most recently, networking products. The enterprise systemssegment is the fastest-growing area for Dell, which has grown from less than $1 billion to nearly $5 billion in the lastfour years. Unlike the low-margin PC business, where gross margins rarely exceed 15%, we estimate the enterprisesystems business can command a gross margin in the 20% to 30% range. We estimate that enterprise systems accountfor about 15% of the revenue mix for Dell and about 23% of gross profits. 6
  7. 7. Financials-2001 Third Quarter Financials-2001 Third Quarter Year to Date (in millions, except share * data) FY03 FY02 Change FY03 FY02 Change Revenue $9,144 $7,468 22% $25,669 $23,107 11% Operating Income $758 $544 39% $2,025 $1,677 21% Net Income $561 $429 31% $1,519 $1,324 15% Earnings Per Share $0.21 $0.16 31% $0.57 $0.48 19% *FY02 income and earnings data exclude a $742 million pretax charge, related to job reductions, Operating Results — in millions, except per-share data Fiscal Year Ended Feb. 1, Feb. 2, Change Net revenue $31,168 $31,888 -2.30% Gross margin $5,507 $6,443 -14.50% Operating income $2,271 $2,768 -18.00% Net income $1,780 $2,310 -22.90% Income per common share - Basic $0.68 $0.89 (23.6%) - Diluted $0.65 $0.84 (22.6%) Weighted average shares - Basic 2,602 2,582 - Diluted 2,726 2,746 Working capital $358 $2,948 Total assets $13,535 $13,670 Long-term debt $520 $509 Total stockholders equity $4,694 $5,622 Strategic Management Jose Villarreal/Wei Zhong/Xiao Dong 7 LinCustomers selected Dells standards-based computer products and services in increasingnumbers in fiscal third-quarter 2003, pushing the company to record shipments and revenueand a higher rate of profitability.In the process, customers again made Dell the worlds leading supplier of computer systems.The company regained its position as the favourite computer company among U.S. consumers,and ranked No. 1 in all U.S. customer segments for the first time.Dells 28-percent year-over-year rise in overall product shipments compared with a 2-percentincrease for the rest of the industry. Company server volumes were 24 percent higher, nearlyfive times the rate for the rest of the industry. Revenue from Dell enterprise products--servers,storage systems, network switches and workstations--was up a combined 27 percent.For the third quarter ended Nov. 1, total revenue was $9.1 billion, up 22 percent from last yearin an industry where sales have otherwise been flat to down. Dells earnings per share reached21 cents, 31 percent higher. Company revenue and per-share earnings were consistent withincreased guidance Dell provided Oct. 1. Dell has met or exceeded initial guidance to investorsfor seven consecutive quarters."The direction of customers toward standards-based computing is obvious," said Michael Dell,the companys chairman of the board and chief executive officer. "The reason is simple:customers get more flexibility, performance and reliability for their money with standards thanfrom proprietary technology.""Dells obligation to customers is to innovate products and services that deliver great value,and our people are doing that with exceptional skill and efficiency."Mr. Dell said fourth-quarter company shipments could increase 10 percent from the thirdquarter, or 23 percent from the year-ago period. Q4 revenue is expected to be up about 20percent year-over-year, to nearly $9.7 billion. With anticipated further improvement inoperating margins, the company expects fourth-quarter earnings per share of 23 cents, or 35percent higher than last year.In the third quarter, Dell again demonstrated solid balance between its long-time priorities ofliquidity, profitability and growth. Operating expenses were 9.9 percent of revenue, equallinga company best. Cost reductions, an improved mix of products and services, and lower 7
  8. 8. Financials-Geographics Markets Strategic Management Jose Villarreal/Wei Zhong/Xiao Dong 8 LinThats important, because we believe the pent-up demand for more expansive computer applications and faster, morepowerful systems is significant. Many corporate and institutional customers describe major long-term plans forincreased investment in networks of servers and storage products. Analysts estimate that 150 million notebook anddesktop computers are more than three years old, and that 300 million computers cannot run Microsofts Windows XPoperating system.In fiscal 2002, we had tremendous success in three areas of strategic emphasis: enhancing operating efficiencies todeliver greater customer value, winning in high-growth products and services, and expanding our business in keygeographic markets.Dells full-year operating expenses as a percent of revenue were a company-record low, and less than one-half those ofour nearest competitor. By the end of the year, our inventory as a percent of revenue was our best ever, and representeda lean four days of supply. Our attention to controlling operating expenses remains relentless, and we intend to fulfillthe tremendous opportunity for additional efficiency.Customer demand for our PowerEdge servers jumped 27 percent last year. Without Dell, industry server volumes fell 3percent. We became the leading server supplier in the United States. In countries where our presence is less developed,many new customers are choosing Dell first for servers and storage products, then for personal computers andworkstations. And customers last year selected Dell Precision workstations, already the best-selling such productsworldwide, in still-larger numbers.Dell sold nearly twice as much storage capacity than in fiscal 2001-more than 57,000 terabytes. By year-end, almostone-half of our storage revenue was from external storage systems. During the year we entered a strategic alliance withEMC that increases our presence in this rapidly growing product category. The alliance includes a co-branded line ofenterprise storage systems for storage area networks and high-capacity network-attached storage installations. We alsointroduced PowerConnect network switches in the U.S., with which customers capitalize on the performance,reliability and value of standards-based switch technology, including high-speed gigabit Ethernet.Customer engagements by Dell Technology Consulting, which trades on our extensive knowledge in designing,testing, validating, tuning and implementing information-technology installations, more than doubled in the past year.We are continuing to broaden our professional services in response to customer requirements, both by adding new Dellcapabilities and partnering with additional best-in-class providers. Today, such partnerships give Dell customers asingle point of accountability for 50,000 field technicians in 170 countries, in addition to 6,700 Dell service people.More and more customers are choosing Dell for enterprise products-based on Windows operating systems and Linux-for one-to-one relationships, built-to-order systems, custom services, exceptional value and leading support. Anindependent ranking named Dell best in U.S. customer satisfaction for servers for 16 of the past 17 quarters.A new survey by industry analysts showed that the trend in customer preference for industry-standard server andstorage technology continues uninterrupted. By a 10-to-1 ratio, U.S. customers said disadvantages in using standards-based products for midrange to high-end computing have been overcome, or will be soon. Analysts reported thatorganizations migrating to standards-based products earliest realize benefits of low cost, simplicity and the highestlevels of return on investment-all Dell strengths. 8Our shipment growth far exceeded industry averages in every product category and geographic market. Company
  9. 9. Financials- Financials-2002 EARNINGS (LOSS) PER COMMON SHARE Current Pricing Shares Outstanding as of 11/20/2002 Shares Outstanding Date 8/30/2002 Recent Price $29.21 Avg. Daily Volume Last 10 Days 28,762,400 52-Week High $31.06 52-Week Low $21.90 Shareholdings Price Change - 10 Day -2.8% Net Insider Transactions -1,414,000 Price Change - Last Month 0.7% Shares Held by Institutions 1,516,730,000 Price Change - 26 Week 6.6% Institutions Holding Shares 2,913 Price Change - 52 Week 12.6% % of Shares Outstanding Held by Price Change - YTD 7.5% Institutions 58.6% Three Months Ended Six Months Ended August 2, August 3, August 2, August 3, 2002 2001 2002 2001 (in millions, except per share amounts) Net income (loss) $ 501 $ ( 101 ) $ 958 $ 361 Weighted average shares outstanding: Basic 2,586 2,601 2,591 2,600 Employee stock options and others 63 70 143 Diluted 2,649 2,601 2,661 2,743 Earnings (loss) per common Share: Basic $ 0.19 $ ( 0.04 ) $ 0.37 $ 0.14 Diluted $ 0.19 $ ( 0.04 ) $ 0.36 $ 0.13 Strategic Management Jose Villarreal/Wei Zhong/Xiao Dong 9 LinØBasic earnings (loss) per share is based on the weighted effect of all common shares issued and outstanding and iscalculated by dividing net income (loss) by the weighted average shares outstanding during the period. Dilutedearnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common sharesused in the basic earnings (loss) per share calculation plus the number of common sharesØEmployee stock options and put obligations exercisable for 197 million and 319 million shares during the secondquarter of fiscal 2003 and 2002, respectively, and for 197 million and 260 million shares during the six-month periodsended August 2, 2002 and August 3, 2001, respectively, were not included in the computation of diluted weightedaverage shares outstanding because the effect of such instruments was antidilutive.Øas of The date of the previous trading day. "Recent Price" is the clo sing price taken from this day.Ø52-Week High The highest intra-day price during the preceding 52 weeks.Ø52-Week Low The lowest intra-day price during the preceding 52 weeks.ØPrice Change - 52 Week The % change in the latest closing price of the stock vs. the closing price 52 weeks ago.ØPrice Change - YTD The % change in the latest closing price of the stock vs. the closing price at the beginning ofthe calendar year.ØShares Outstanding Date The date the latest Shares Outstanding are downloaded into Multex Market GuidesDatabase.Ø Avg. Daily Volume Last 10 Days This value is calculated as the Total Revenues for the trailing twelvemonthsdivided by the Average Total Assets. The Average Total Assets is defined as the Total Assets for the 5 most recentquarters divided by 5.ØShort Interest Latest Date The latest short interest date, which is usually 5 trade days before the 15th of the month.This figure is available monthly, and is provided by either the NYSE, the NASDAQ, The Toronto Stock Exchange, theCanadian Stock Exchange, or the American Stock Exchange (depending on where the security trades).ØShort Interest (Mil) The number of shares of the stock that have been sold, but not yet repurchased.ØShort Interest Ratio Shares sold short (as reported by the exchange) divided by average daily volume during theshort interest period. This period is usually the 11th of the month to the 10th of the next month. This represents thenumber of days of average trading needed to cover the shorts. This is also called Days-to-Cover.ØNet Insider Latest Date The date of the latest insider information. There is usually a lag of approximately sixweeks before a report is posted.ØNet Insider Transactions This is the net difference between the number of SHARES of company stock purchasedby officers and directors and the number of shares sold by officers and directors during the preceding six months.ØInstitutional Holdings Latest Date The date of the latest institutional holdings information.ØShares Held by Institutions The actual number of common stock shares held by all reporting institutions.. Thisfigure is the sum of all the shares held by institutions filing 13-Fs and all non-13-F reporting funds. 9
  10. 10. Financials- Financials-2002 SEGMENT INFORMATION Three Months Ended Six Months Ended August 2, August 3, August 2, August 3, 2002 2001 2002 2001 (in millions) Net revenue: $5,046 $4,549 $9,433 $9,023 Americas: Business U.S. Consumer 1,095 853 2,314 1,824 Total Americas 6,141 5,402 11,747 10,847 Europe 1,526 1,483 3,184 3,235 Asia Pacific-Japan 792 726 1,594 1,557 Total net revenue $8,459 $7,611 $16,525 $15,639 Operating income: $486 $406 $893 $789 Americas: Business U.S. Consumer 59 26 131 45 Total Americas 545 432 1,024 834 Europe 78 82 150 209 Asia Pacific-Japan 54 31 93 90 Less: Special charge -482 -482 Total operating income $677 $63 $1,267 $651 Strategic Management Jose Villarreal/Wei Zhong/Xiao Dong 10 LinThe Company conducts operations worldwide and is primarily managed on a geographic basis,with those geographic segments being the Americas, Europe, and Asia Pacific -Japan regions.The Americas region, which is based in Round Rock, Texas, covers the United States, Canada,South America, and Latin America. The Company has two reportable segments within theAmericas: Business and U.S. Consumer. The Americas Business segment includes sales tocommercial, government and education customers. The European region, which is based inBracknell, England, covers the European countries and also some countries in the Middle Eastand Africa. The Asia Pacific -Japan region covers the Pacific Rim, including Japan, Australiaand New Zealand, and is based in Singapore. The accounting polic ies of the Company’sreportable segments are the same as those described in the summary of significant accountingpolicies in the Company’s Annual Report on Form 10-K for the fiscal year ended February 1,2002. The Company allocates resources to and evaluates the performance of its segmentsbased on operating income. Corporate expenses are included in the Company’s measure ofsegment operating income for management reporting purposes. 10
  11. 11. Financials- Financials-2002 Liquidity August 2, February 1, 2002 2001 Cash and investments $ 8,633.00 $ 8,287.00 Working capital $ 238.00 $ 358.00 Days of sales in accounts receivable 32.00 29.00 Days of supply in inventory 4.00 4.00 Days in accounts payable 73.00 69.00 Cash conversion cycle (37.00) (36.00) *Millions Dollars Strategic Management Jose Villarreal/Wei Zhong/Xiao Dong 11 LinThe Company ended the second quarter with $8.6 billion in cash and investments. The Company invests a largeportion of its available cash in highly liquid/ highly rated corporate, bank, and government debt securities of varyingmaturities at the date of acquisition. The Company’s investment policy is to manage its investment portfolio topreserve principal and liquidity while maximizing the return on the investment portfolio through the full investment ofavailable funds. As of August 2, 2002, only $248 million of the Company’s cash and investments were represented byits venture portfolio of private and public equity investments as compared to $454 million a year ago.During the first six months of fiscal 2003, the Company generated $1.4 billion in cash flows from operating activities,which represents the Company’s principal source of cash. Cash flows from operating activities resulted primarily fromnet income and income tax benefits that resulted from the exercise of employee stock options. These benefits representcorporate tax deductions (that are considered taxable income to the employee) that represent the amount by which thefair value of the Company’s stock exceeds the option strike price on the day the employee exercises an option, thatreduce the Company’s taxes payable, and that under generally accepted accounting principles are recorded directly tostockholders’ equity accounts rather than to earnings. Management believes that the Company’s cash provided fromoperations will continue to be strong and more than sufficient t o support its operations and capital requirements, evenif the economic climate should remain weak. The Company currently anticipates that it will continue to utilize itsstrong liquidity and cash flows to repurchase its common stock, make a limited number of strategic equity investments,consider and possibly make acquisitions and invest in systems and processes, as well as invest in the development andgrowth of its enterprise products.The Company ended the second quarter of fiscal 2003 with a Company record cash conversion cycle of negative37 days. Days of sales outstanding include the effect of customer shipments recorded in other current assets in theaccompanying consolidated statement of financial position included in “Item 1 — Financial Statements”. For moreinformation, see “Item 8 — Financial Statements and Supplementary Data — Notes to Consolidated FinancialStatements” included in the Company’s Annual Report on Form 10-K for the year ended February 1, 2002. 11
  12. 12. Analysis Methods • Financial Profile • WOTS-UP • BCG Analysis • Life Cycle • Four Factor Model • SPACE • Porter Analysis • Leadership Analysis Strategic Management Jose Villarreal/Wei Zhong/Xiao Dong 12 LinOnly Slide 12
  13. 13. Financial Profile Profitability * Very low Average Very High Liquidity * Very tight About right Too much slack Leverage * Too much debt Balanced Too much equity Activity * Too slow About right Too fast Strategic Management Jose Villarreal/Wei Zhong/Xiao Dong 13 LinExcellent profitability, high liquidity. DELL applies a aggressive financial policy in financing the company.Very little debt is used.The activity ratios indicate great improvements, especially in inventory turnoverInitiating coverage with Buy recommendation. We believe DELL is attrac-tively priced, with 21% projected growthin earnings, a solid balance sheet with $8.6 billion in net cash, and extensive opportunities for growth in new marketsegments. Our 12-month price target of $30 assumes a P/E of 26x our calendar 2004 earnings estimate of $1.17.Poised for growth despite IT spending downturn. We believe Dell is posi-tioned for sustained growth in the mid tohigh teens despite macroeconomic constraints, given its product expansion into storage, midrange servers, network-ingand printers; international expansion; further market -share gains in PCs; and pent-up demand stemming from a delayedPC upgrade cycle.Shift to modular computing favors Dell. We believe the enterprise data cen-ter is moving toward a modularcomputing architecture, spurred by the limitations of the existing architecture, cost, complexity and underutilizedstorage and compute resources. Modular computing could be the most influential driver of IT spending over the nextthree to five years, and we believe Dell is uniquely po-sitioned as a turnkey enterprise data center supplier of low-costcomputer components that will be required to build modular computing infrastructures.We believe Dell is uniquely positioned as a turnkey enterprise data center supplier of low-cost computer componentsthat will be required to build modular computing infra-structures. Today, Dell is beginning to benefit from modularcomputing trends and has 195 enterprise customers, including Boeing, Volvo, NASA, Merrill Lynch and AT&T, thathave deployed high-performance computing (HPC) clusters using Dell servers and storage in a modular architecture asa replacement for legacy UNIX and main-frame computer systems. Dell estimates that hardware costs on an HPCcluster with 192 peak gigaflops of computing resources with up t o 7.3 terabytes of storage based on Dell list priceswould cost $170,000. This compares to an IBM UNIX computer (P690 ) configured with 166.4 gigaflops of computeresources and up to 4.7 terabytes of storage for approximately $2 million.Dell expects the number of enterprise customers deploying Dell HPC clusters to grow from 195 today to over 500 in2003, demonstrating Dell’s position as a key modular computing supplier. Not only does Dell provide completesolutions for storage fabrics and HPC clusters, but the company also plans to ship blade servers before year-end,further extending its product portfolio to address the modular computing needs of large enterprises.While we expect the computer-systems market to realize single-digit growth over the next five years, we believe Dellis well positioned for revenue growth in the mid teens as it gains share in new market segments including storage,networking, printers and midrange servers, and as it expands beyond the PC and pursues its strategy to be a single-source technology supplier. 13
  14. 14. WOTS-UP Opportunity Threat • International Growth • Regional Competition External • Pricing flexibility • Changes in Technology • Computers moving toward • Prolonged Economic commodity status downturn • Fragmented PC market • Disruptive Technology • Work-through by HP/CPQ • Reliance on Suppliers merger • Rapidly changing technology leading to upgrades Strength Weakness Internal • Strong supplier relationships •Revenue Mix • Lower Unit Costs •Acceptance of Direct • Strong Quicker reaction to Sales Model customer wants and needs •Dependence on • Better reach at lower cost Volume • Strong customer retention and relationships • Brand Equity Strategic Management Jose Villarreal/Wei Zhong/Xiao Dong 14 LinStrengthsStrong supplier relationshipsDell seeks long-term single source relationships in situations where alternative sources are unavailable or therelationship is advantageous with respect to performance, quality, support, delivery or price.Securing long-term relationships with vendors allows Dell to more fully integr ate major vendor into Dell’s supplychain management programs. This helps Dell reduce inventories of components, which translate into lower unit costs.Dell also seeks to lock-up supply at the lowest possible cost. Recently Dell signed a long-term supply agreement withPhilips for the supply of CRT and flat panel monitors. Philips’ monitor business is struggling the signing of the dealwas a win/win situation for both companies as Philip’s will now have a more stable stream of production and Dellperhaps was able to secure supply at a favorable cost.Lower Unit CostsRemoving the third party retailer from the sales equation eliminates additional product mark-ups. The savings can beeither recognized as higher margins or passes along to consumers. In both situations Dell is experiences better pricingflexibility than its competitors.When economic conditions are slow Dell is able to offer product at lower prices and still operate profitably. Dell’ssuccess in the most recent economic downturn serves as clear signal that the company can weather less than favorableeconomic conditions. In 2001, Dell’s domestic market share actually climbed from 19% to 24.2%.Quicker reaction to customer wants and needsAs mentioned above Dell focuses on streamlining their production operations. Finishedproducts are quickly assembled in direct response to a customers order.Low finished good inventories put Dell in a better position to continually offer the newest and most requestedtechnologies. Changes in customer demands hurt the competition more as they struggle with product obsolescence andhigh inventories. Competitors may be forces absorb write-offs associated with inventory obsolescence or markdownproducts below cost to clear inventory.Dell’s superior inventory management strategy can be seen in the following table Inventory Days on Turnover HandDell 75.7 4.8HP 6.1 59.4CPQ 14.8 24.6AAPL 24.1 15.2GTW 187.6 1.9Better reach at lower cost 14
  15. 15. Portfolio Analysis High ? Industry Growth Rate Services Portable Computers Third -Party Products Enterprise Systems Desktop Computers Low Low Market Share High Strategic Management Jose Villarreal/Wei Zhong/Xiao Dong 15 Lin•The third-party products are new emergence for Dell. For example, Dell enter market with new products such asprinter, CD-player, storage, digital camera, which are new for Dell. Therefore, Dell is not sure for their potential road forthe future(put in question mark position).•Services were introduced last year with more power, and now in a growing road to star position.•Networking and P_Portable Computers have been achieving signific ant growth in past years(put in star position).•Desktop Computers and Enterprise Systems are the main products for Dell bringing a huge amount of profits inyears(put in cow position). 15
  16. 16. Life Cycle Development Introduction Growth Maturity Decline (Early (Accelerated Growth) Development) Size of Company Strategic Management Jose Villarreal/Wei Zhong/Xiao Dong 16 Age of Company LinDividends are usually associated with “maturity cycle, whatever that means. What does ``mature mean anyway, andwhat might constitute maturity for a technological CorporationMost companies pass through a struggling start-up phase, a period of rapid growth, and an extended maturitycharacterised by relatively stable sales and earnings. This life cycle usually follows the development of the industry inwhich the company operates: from not being recognised at all, through exponential growth in a market with unknowntotal size, to saturation and growth thereafter at rates limited by the overall growth of the market (usually constrainedby demographic or economic factors) and the companys share of that market, won or lost at the expense of itscompetitors. Earnings performance also evolves through these phases: during start-up the company loses money, itslosses funded by the original investors. If it succeeds and begins to grow rapidly, it becomes profitable but reinvestsall of its earnings in the business to fund its rapid growth and not forfeit portions of the market to competitors who arealso growing rapidly. In the third phase the company cannot grow measurably faster by reinvesting its earnings, so itoften chooses to pay dividends to its shareholders.Dell Corporation can be expected to follow this pattern of development, but the presence of technological leverageresults in a very different earnings profile as it moves from stage to stage. After surviving the start-up phase, aTechnological Corporation begins to generate earnings at a very high rate of return. Because little capital investment isneeded during its period of rapid growth, there is little need to reinvest earnings and they are simply retained. After thecompanys product reaches market saturation, earnings may actually decline as the percentage of sales the companydevotes to sales and marketing increases to maintain and expand its market share.COMPANY:•DELL is in the mature stage•DELL needs to competitive positions. They need to focus on Marketing activities.•DELL has a Multi-tiered structure which is consistent with a Mature company•DELL appears to be a stable with many products lines at various stages of development•The Company is undergoing some Marketing and segments changes•DELL market strength is stable – profit in market share.•A mature company really needs to Focus, increase efficiencies of production and get costs under control and becomethe cost leader. 16
  17. 17. Four Factor Model Opportunity Threat • International Growth External • Regional Competition • Pricing flexibility • Changes in Technology • Computers moving toward commodity status Environment • Prolonged Economic downturn • Fragmented PC market • Disruptive Technology • Work-through by HP/CPQ merger • Reliance on Suppliers • Rapidly changing technology leading to upgrades Strategic Planning Resource Resource Strategic Organizational Organizational Allocation Requirements Management Structure Culture Strategic Control Strength Weakness • Strong supplier relationships • Revenue Mix • Lower Unit Costs • Acceptance of Direct Sales Model • Strong Quicker reaction to customer wants • Dependence on Volume and needs Internal • Better reach at lower cost • Strong customer retention and relationships Environment • Brand EquityStrategic Management Jose Villarreal/Wei Zhong/Xiao Dong 17 Lin 17
  18. 18. Match of Style with Org. Life Cycle Phase 1 Phase 2 Phase 3a Phase 3b Phase 4 Initiation Formulation Expansion C o-ordination Participation Entrepreneurial Structure Bureaucratic Structure Divisional Structure Matrix Structure Large Informal Management Analytical/Directive Analytical/ Product Group Structure Conceptual/ Behavioral Conceptual SBU Management Decentralized Participative Management Management Size of company Need to Adapt and Lack of Cope Autonomy Lack of Control Need for Small direction Young Age of Company Mature Strategic Management Jose Villarreal/Wei Zhong/Xiao Dong 18 LinOrganizational Life CyclePhase 3b Co-ordination & Phase 4 ParticipationDecentralized analytical decision makingEmphasis in portfolio managementDivisional or strategic business unitSpecific strategy Horizontal & Vertical expansionGeneric strategy CostStructure divisional / multidivisionalDecrease in cultureMarket structure high margin / balance in share/strength / growthTech focus processInventive emphasize advertising / finance / manufacturing / processIncentives features Formula based / multilevel / risk averse / longtermStrategic info Market share / Costs / adjacent marketsStrategic focus internal & externalPriorities Production / market shareCareer path to top Marketing / finance / planning / accounting 18
  19. 19. SPACE-Competitive Advantage Factors determining competitive Factors determining competitive 0 0 1 1 2 2 3 3 4 4 5 5 6 6 advantage advantage Market Share Market Share Small Small 3 3 Large Large Product Quality Product Quality Inferior Inferior 5 5 Superior Superior Product life Cycle Product life Cycle Late Late 1 1 Early Early Product replacement cycle Product replacement cycle Variable Variable 3 3 Fixed Fixed Costumer Loyalty Costumer Loyalty Low Low 0 0 High High Competitions capacity utilization Competitions capacity utilization Low Low 3 3 High High Technological know-how Technological know-how Low Low 5 5 High High Vertical integration Vertical integration Low Low 3 3 High High Innovation Innovation Slow Slow 4 4 Fast Fast 27 27 0 0 1 1 0 12 4 10 0 0 12 4 10 0 Average -- 6 Average 6 -3.00 -3.00 0 0 1 1 2 2 3 3 4 4 5 5 6 6 Factors determining financial strength Factors determining financial strength Return on investment Return on investment Low Low 3 3 High High Leverage Leverage Imbalanced Imbalanced 5 5 Balance Balance Liquidly Liquidly Imbalanced Imbalanced 5 5 Solid Solid Capital required versus capital available Capital required versus capital available High High 2 2 Low Low Cash flow Cash flow Low Low 3 3 High High Ease of exit from market Ease of exit from market Difficult Difficult 1 1 Easy Easy Risk involve in business Risk involve in business Much Much 3 3 Little Little Inventory turnover Inventory turnover Slow Slow 55 Fast Fast Economic of scale and experience Economic of scale and experience Low Low 6 High 6 High 33 33 0 0 1 1 2 2 6 6 3 3 15 6 15 6 Average Average 3.67 3.67 Strategic Management Jose Villarreal/Wei Zhong/Xiao Dong 19 LinDell is benefiting its high market and superior product price and quality.Dell enjoys to have strong competitive strategy on marketing and distribution proceduresattacking the teenager market. They have a very differentiation price for economics of scale.Excellent financials, but with some risk for the kind of competitiveness market Dell isimmerse.Financial position very strong 19
  20. 20. SPACE-Environmental Stability Factors determining environmental Factors determining environmental 0 0 1 1 2 2 3 3 4 4 5 5 6 6 stability stability Technological changes Technological changes Many Many 2 2 Few Few Rate of inflation Rate of inflation High High 5 5 Low Low Demand variability Demand variability Large Large 1 1 Small Small Price range of competing products Price range of competing products Wide Wide 1 1 Narrow Narrow Barriers to entry into market Barriers to entry into market Few Few 5 5 Many Many Competitive pressure // rivalry Competitive pressure rivalry High High 0 0 Low Low Price elasticity of demand Price elasticity of demand Elastic Elastic 0 0 Inelastic Inelastic Pressure for substitute products Pressure for substitute products High High 3 3 Low Low 17 17 0 0 2 2 2 2 3 3 0 10 0 10 0 0 Average - 6 Average - 6 -3.88 -3.88 0 0 1 1 2 2 3 3 4 4 5 5 6 6 Factors determining industry strength Factors determining industry strength Growth potential Growth potential Low Low 4 4 High High Profit potential Profit potential Low Low 4 4 High High Financial stability Financial stability Low Low 5 5 High High Technological know-how Technological know-how Simple Simple 5 5 Complex Complex Resource utilization Resource utilization Inefficient Inefficient 6 6 Efficient Efficient capital intensity capital intensity Low Low 3 3 High High Ease of entry into market Ease of entry into market Easy Easy 66 Difficult Difficult Productivity, capacity, utilization Productivity, capacity, utilization Low Low 66 High High Manufacturers bargaining power Manufacturers bargaining power Low Low 66 High High 45 45 0 0 0 0 0 0 3 3 8 10 24 8 10 24 Average Average 5.00 5.00 Strategic Management Jose Villarreal/Wei Zhong/Xiao Dong 20 LinFairly stable environment. Dell confront very strong competitionIs very important to observe the competitors very close.Is necessary observe new entrants carefullyGood growth and potential profit . Dell has very good capacity and productivity.It’s a very attractive industry but require to be very carefully with the suppliers. 20
  21. 21. SPACE -Analysis High High FS FS 6 6 5 5 CONSERVATIVE CONSERVATIVE 4 4 AGGRESSIVE AGGRESSIVE 3 3 2 2 11 Low Low High High -6 -6 -5 -5 --4 4 -3 -3 -2 -2 --1 1 1 1 2 2 3 3 4 4 5 5 6 6 CA CA -2 -2 IS IS -3 -3 DEFENSIVE DEFENSIVE -4 -4 COMPETITIVE COMPETITIVE -5 -5 ES ES -6 -6 Low Low Strategic Management Jose Villarreal/Wei Zhong/Xiao Dong 21 LinUsing the four input variables and graphing them we have arrived at a competitive strategic posture that DELL is taking, with that king of strategyDELL is going to ensure product focus on price an quality.This posture is typical in an attractive industry. DELL enjoys a competitive advantage in a relatively unstable environment.The critical factor is the financial strength.Companies in this situation require financial resources to increase marketing thrust, add to the sales force, extend or improve the product line; onDell case they have the sufficient money, they are very efficient and productive.The directional vector located in the lower-right or competitive quadrant of the SPACE Matrix, indicating competitive strategies.Competitive strategies include backward, forward, and horizontal integration; market penetration; market development; product development; andjoint venture.Sources report new pricing structures are expected to emerge as new solutions are bundled together in Q4 of this year. The bundling of products andprofessional services is one area that DELL plans to develop 21
  22. 22. Porter Analysis Threat of Substitutes Supplier Buyer Power Market Power Barriers to Entry Strategic Management Jose Villarreal/Wei Zhong/Xiao Dong 22 LinThreat of SubstitutesSwitching costsBuyer inclination to substitutePrice-performance trade-off of substitutesIn Porters model, substitute products refer to products in other industries. To the economist, a threat of substitutes exists when a products demand is affected by the price change of a substitute product. A products price elasticity is affected by substitute products - as more substitutes become available, the demand becomes more elastic since customers have more alternatives. A close substitute product constrains the ability of firms in an industry to raise prices.The competition engendered by a Threat of Substitute comes from products outside the industry. The price of aluminium beverage cans is constrained by the price of glass bottles, steel cans, and plastic containers. These containers are substitutes, yet they are not rivals in the aluminium can industry. To the manufacturer of automobile tires, tire retreads are a substitute. Today, new tires are not so expensive that car owners give much consideration to rethreading old tires. But in the trucking industry new tires are expensive and tires must be replaced often. In the truck tire market, rethreading remains a viable substitute industry. In the disposable diaper industry, cloth diapers are a substitute and their prices constrain the price of disposables.While the treat of substitutes typically impacts an industry through price competition, there can be other concerns in assessing the threat of substitutes. Consider the substitutability of different types of TV transmission: local station transmission to home TV antennas via the airways versus transmission via cable, satellite, and telephone lines. The new technologies available and the changing structure of the entertainment media are contributing to competition among these substitute means of connecting the home to entertainment. Except in remote areas it is unlikely that cable TV could compete with free TV from an aerial without the greater diversity of entertainment that it affords the customer.Buyer PowerBargaining leverageBuyer volumeBuyer informationBrand identityPrice sensitivityThreat of backward integrationProduct differentiation 22Buyer concentration vs. industry
  23. 23. Risk Factors •Possibility of Component Shortages •Difficult Economic and Industry Conditions •Supply-Chain and Single-Source Supplier Risks •Competition •Dependency on Third-Party R&D Efforts •Significant Exposure to PC Market Strategic Management Jose Villarreal/Wei Zhong/Xiao Dong 23 LinPossibility of Component ShortagesThe longshoremen’s lockout currently under way on the West Coast heightens the risk of component shortages. Delltypically has access to one to two weeks of computer parts, which are stocked by partners at inventory hubs locatednear manufacturing plants in Texas. If the lockout lasts longer than two weeks, Dell could realize higher componentcosts from the switch to air freight and/or product shipment delays.Difficult Economic and Industry ConditionsGeneral economic and industry conditions carry the most uncertainty for Dell, given a prolonged IT spendingdownturn. Recent comments from technology leaders, includ-ing Sun Microsystems, Oracle and EDS, suggest that aseasonal rebound in the fourth quarter could be tempered due to economic uncertainties. Additionally, enterprises andconsumers could choose to further postpone upgrading aging PCs; upgrading would be required for the PC industry togrow units 8% next year.Supply-Chain and Single-Source Supplier RisksDell’s financial results are highly dependent on tight supply-chain controls that sup-port rapid inventory turns andextremely low inventory levels, compared with its computer-system peer group. Any supply-chain disruptions, fromcomponent short-ages to transportation delays, could have negative implications on its financial results. Additionally,Dell has several single-source supplier relationships that heighten the risks of manufacturing delays if alternativesources of supply are not readily available.CompetitionDell faces stiff competitive challenges ranging from low-cost PC manufacturers over-seas to technology leaders suchas Cisco, Hewlett-Packard, Sun Microsystems, Lexmark, IBM, NEC and Fujitsu- Siemens. As Dell enters into newmarket segments like networking and printers, execution concerns are heightened further. The recent cancellation ofdistribution agreements with Hewlett-Packard, Cisco and 3Com could have an adverse effect on future financialresults.Dependency on Third-Party R&D EffortsPart of the reason Dell is the low-cost manufacturer of computer systems is that it leverages a collaborative R&Dmodel, where Dell relies on technology attained from third-party companies such as Microsoft and Intel. Part of Dell’ssuccess will depend on the success of R&D efforts by its partners.Significant Exposure to PC MarketDell’s financial results are highly dependent on the PC industry. Excluding PC-related service revenue, we estimatethat PC hardware accounts for about 62% of Dell’s reve-nue and 49% of gross profits. 23
  24. 24. Leadership Style Logical Inspirational Analyzes new Directions Envisions New opportunities Broad Solves Complex Problems Introduces Radical Ideas Goals Formulates plans Empowers Others Goal Orientation Persuades by Reasoning Persuades by Creating Trust Prefers Incremental Change Relies on Radical Change Directive Supportive Focuses on Control Tries for Consensus Achieves Results Facilitates Work Specific Goals Take Charge Encourage Openness Persuades by Directing Persuades by Involving Expects Rapid Change Reacts to Change Performance Transformation Emphasis of Change Strategic Management Jose Villarreal/Wei Zhong/Xiao Dong 24 LinDELLL is a mature company, at this stage the company need to be efficient and have a cleardirection. They are also a competitive company, therefore need to keep an eye on the future inspecial to product renovation.Evaluation of Michael Dell leadership style and evaluate how consistent is.Looking at the quadrants vertically Serge has more points on the directive and performanceside. Examining the quadrant horizontally his style indicates that he would be best at lookingat different goals.Persuasive leader and strong image. 24