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  1. 1. Be Direct: DELL “ It’s amazing to me that our competitors think the customer is the dealer.” Michael Dell “ Sales Leader: Tops in Global Basis.”
  2. 2. Introduction <ul><li>Before Michael Dell, innovation was about well-schooled engineers in R&D labs inventing high-margin products and technologies. </li></ul><ul><li>Dell instead trained his eye on finding the most efficient way to get tech products into the hands of the consumers. </li></ul><ul><li>Perfected the credo— “Cut out the middleman.” </li></ul>
  3. 3. Introduction <ul><li>Perfected the credo— “Cut out the middleman.” </li></ul><ul><li>DELL eliminated the need for inventory or middlemen and gave itself a built-in price advantage, which it in part keeps as profit and in part passes on to customers.” Fortune 11/28/2005 </li></ul>
  4. 4. Introduction <ul><li>Michael Dell: “The only constant thing about business is that every-thing is changing. We have to take advantage of change and not let it take advantage of us.” </li></ul>
  5. 5. Introduction <ul><li>“ Selling tech products by telephone and then the Internet… Michael broke the paradigm about how to run a computer business; they haven’t been so great at finding the next paradigm.” </li></ul><ul><li>BusinessWeek 3/6/06 </li></ul>
  6. 6. Introduction <ul><li>Michael Dell is the chairman of the Board of Directors of Dell, the company he founded in ’84 for $1,000. </li></ul><ul><li>With an unprecedented idea---build relationships directly with consumers (born in February ‘65). </li></ul><ul><li>Dell’s commitment to consumer value, to the team, to being direct, to operating responsibly and, ultimately to winning. Continues to differentiate Dell from other companies. </li></ul>
  7. 7. Introduction <ul><li>Michael Dell and Executive Management ponder: </li></ul><ul><ul><li>1. Whether or not to enter new product markets with laptops and servers? </li></ul></ul><ul><ul><li>2. A global strategy to manage the sales in the international markets. </li></ul></ul><ul><li>3. Decision making in a dynamic environment. </li></ul><ul><ul><li>4. 2006 is the year they need to reinvent themselves. HP has narrowed the gap on productivity and price. </li></ul></ul>
  8. 8. Introduction <ul><li>DELL did not want the “unsophisticated” customer. </li></ul><ul><li>DELL wants to sell to the “educated” customer. </li></ul><ul><li>DELL wants the consumer to buy their third or fourth system from DELL. It’s more profitable and easier. </li></ul>
  9. 9. Introduction <ul><li>Why DELL case: We’ll look at direct marketing and marketing strategies. </li></ul><ul><li>Look at more efficient way of going to market. </li></ul><ul><li>Just-in-time (JIT) manufacturing. </li></ul><ul><li>VAR’s (Value-added resellers), solutions for vertical markets like banking, manufacturing and retailing. </li></ul>
  10. 10. Introduction <ul><li>The Future: The power of laptops </li></ul><ul><li>became compatible with desktops, </li></ul><ul><li>because of design, manufacturing </li></ul><ul><li>and usage. </li></ul><ul><li>Added: Printers, Servers, Projectors, TV’s, Handhelds, Software, Peripherals, Storage, Networking, Workstations and more. </li></ul>
  11. 11. Introduction <ul><li>What does SWOT analysis reveal about Dell’s situation? </li></ul>
  12. 12. SWOT Analysis Business to Consumer Business to Business Strengths Opportunities Strengths Weaknesses Threats Weaknesses Threats Opportunities <ul><li>Competition across markets </li></ul><ul><li>Commodity pricing </li></ul><ul><li>(shrinking margins) </li></ul><ul><li>Complexity of Mgmt. </li></ul><ul><li>Growth exceeding productivity </li></ul><ul><li>Tangibility </li></ul><ul><li>Technology Market </li></ul><ul><li>Commoditization </li></ul><ul><li>Inventory </li></ul><ul><li>Server Market </li></ul><ul><li>International strategy </li></ul><ul><li>Product extensions </li></ul><ul><li>Customization </li></ul><ul><li>Price </li></ul><ul><li>Customer Focused </li></ul><ul><li>Technical Knowledge </li></ul><ul><li>Market Diversification </li></ul><ul><li>Strong Brand/Positioning </li></ul><ul><li>Media Savvy </li></ul><ul><li>Direct Marketing Model </li></ul><ul><li>Non-myopic strategy </li></ul><ul><li>Competition across markets </li></ul><ul><li>Commodity pricing </li></ul><ul><li>(shrinking margins) </li></ul><ul><li>Complexity of Mgmt. </li></ul><ul><li>Growth exceeding productivity </li></ul><ul><li>Technology Market </li></ul><ul><li>Inventory </li></ul><ul><li>Server Market </li></ul><ul><li>International strategy </li></ul><ul><li>Additional markets </li></ul><ul><li>Product extensions </li></ul><ul><li>Strategic partnerships </li></ul><ul><li>Customization </li></ul><ul><li>Price </li></ul><ul><li>Customer Focused </li></ul><ul><li>Technical Knowledge </li></ul><ul><li>Market Diversification </li></ul><ul><li>Strong Brand/Positioning </li></ul><ul><li>Media Savvy </li></ul><ul><li>Direct Marketing Model </li></ul><ul><li>Non-myopic strategy </li></ul>
  13. 13. Case Questions <ul><li>What impresses you about this company? </li></ul><ul><li>What is your assessment of the job Michael Dell has done, as CEO? Senior management? </li></ul><ul><li>How did Dell segment its customers? What types of customers? What were they like? </li></ul><ul><li>Who’s the competition for “transaction” customers? </li></ul><ul><li>Who’s the competition of the other segmented customer? </li></ul><ul><li>What are the advantages of this direct marketing and direct manufacturing model? </li></ul><ul><li>With its past distribution agreements with Staples, CompUSA, and Sam’s Clubs, why did Dell have a problem with the retail entry? </li></ul><ul><li>  </li></ul>
  14. 14. Case Questions <ul><li>8. Why did Dell fail in its first entry in laptops? </li></ul><ul><li>9. What are the implications of a server failure versus a desktop failure? </li></ul><ul><li>10. What are the sales and customer service implications of a server failure versus a desktop failure? </li></ul><ul><li>11. Does Dell’s expansion into other products and services make good strategic sense? </li></ul><ul><li>12. Given that Dell is a global player, how would you characterize its strategies? </li></ul>
  15. 15. Wrap Up: Now and Then <ul><li>Avoiding dealers means less mark-ups, less overhead and delivers lower prices to the customers for DELL. </li></ul><ul><li>DELL: Number One in PC Sales </li></ul><ul><li>DELL is one of the Most Admired Companies Fortune’s Annual issue </li></ul><ul><li>In 2003, generated 80% of profits from sales to businesses. </li></ul><ul><li>With one week of parts on hand, DELL turns over its inventory 52 times a year. Compaq and HP turn over is 13.5 and 9.8. </li></ul>
  16. 16. Wrap Up: Now and Then <ul><li>Dell’s invasion into living rooms with flat-screens and other electronics will be a $100 Billion “free for all.” </li></ul><ul><li>Consumers will benefit. Prices will drop. Competition is Sony, Samsung and Toshiba. </li></ul><ul><li>Morphing into a leading consumer-electronics firm. </li></ul><ul><li>Dell isn’t very innovative. Spends only 1.5% on research, but “ We just do it better. ” </li></ul><ul><li>Looking at partnerships with Microsoft, Intel. What about new ones with google and AMD. </li></ul>
  17. 17. Wrap Up: Now and Then <ul><li>Michael Dell cares about operating margins. </li></ul><ul><li>Dell stock has been valued at a P/E multiple above 40. Loftier than IBM, Microsoft, Wal-Mart and GE. </li></ul><ul><li>“The status quo is never good enough.” </li></ul><ul><li>“Celebrate for a nanosecond.” Then move on.” “Five seconds of celebration and five hours of postmortem on what could have been done better .” </li></ul><ul><li>Problems dealt with: Quickly, Directly, and without Excuses.” </li></ul>
  18. 18. Wrap Up: Now and Then <ul><li>‘ 00, Dell was #6 in computer, with a market share of 6%. </li></ul><ul><li>‘ 03, it was #1 with a 30% share. #3 consumer brand. </li></ul><ul><li>Sales in ’00: $25.2 Billion </li></ul><ul><li>Sales in ’02: $35.2 Billion </li></ul><ul><li>Sales in ’03: $40.8 Billion </li></ul><ul><li>Sales in ’04: $41.4 Billion </li></ul><ul><li>Sales in ’05: $49.2 Billion </li></ul><ul><li>Sales in ’06: $55.9 Billion (est.) </li></ul><ul><li>“ When a market is ready to explode, Dell moves in.” </li></ul>
  19. 19. Summary <ul><li>Just like in your own businesses, windows of opportunities open and close. </li></ul><ul><li>Successful companies see the opportunities sooner. </li></ul>
  20. 20. Wrap Up: Now and Then <ul><li>Michael Dell: </li></ul><ul><li>- Named CEO of the Year 2001 </li></ul><ul><li>- Wealthiest individual under 40, in 2000, 2001, 2003, 2004. </li></ul><ul><li>- If his DELL stock lost all value, </li></ul><ul><li> Michael was still be the wealthiest person under 40, until his birthday in 2/05. </li></ul>
  21. 21. Summary <ul><li>DELL is to the computer industry what Dominos is to the pizza business. </li></ul><ul><li>TIME magazine </li></ul>
  22. 22. Summary <ul><li>Heart of the case: Understanding </li></ul><ul><li>the DELL Direct Marketing Model. </li></ul><ul><li>The question of entering new markets is in reality looking at the Direct Marketing model. Can it be extended into new markets. </li></ul><ul><li>Inventory has the shelf life of lettuce. </li></ul><ul><li>Inventory is the worst thing to have in an industry in which value of materials and technology declines quickly. </li></ul>
  23. 23. Summary <ul><li>Dell believes its low-cost, direct sales approach will allow it to torpedo prices in many markets, with emphasis on printers. </li></ul><ul><li>Dell’s “all in one” printer, that can scan, copy and fax are #2 (private label of Lexmark), behind Lexmark. </li></ul><ul><li>Rival HO gets 70% of profits from printers and ink. </li></ul><ul><li>In the Dell software, it automatically detects when ink is running low and directs user to the Dell website. Free shipping. </li></ul>
  24. 24. Summary <ul><li>Markets evolve over time. Anticipate and research the evolution of customers, products, competitors, channels and technology. </li></ul><ul><li>Pioneered first money-back guarantee ’86. </li></ul>
  25. 25. Summary <ul><li>Three Golden Rules of DELL: </li></ul><ul><ul><li>1. Disdain inventory </li></ul></ul><ul><ul><li>2. Always listen to the customer </li></ul></ul><ul><ul><li>3. Never sell indirect. </li></ul></ul>
  26. 26. Summary <ul><li>It’s not enough to rack up profits or turbo charge growth. Execs must do both. </li></ul><ul><li>Miss a profit goal and you’re not cutting costs fast enough. Overshoot it and you’re leaving sales on the table. </li></ul><ul><li>Pity the execs (server, storage and networking chiefs) who didn’t use all of the bullets in the gun. Despite solid results. Reassigned. </li></ul>
  27. 27. Summary <ul><li>Dell-lizing Printers </li></ul><ul><li>Dell entered printer market in ’03. </li></ul><ul><li>Market share: 19% in early 2005. </li></ul><ul><li>In 2004: 50% of revenue came from desktop PC’s. Will drop to 30-35% in coming years. </li></ul>
  28. 28. Summary <ul><li>Dell is competing against 50 different manufacturers, looking to be category killer in flat-screen, digital market. #10 in US in 2005 with 2.4% share. </li></ul><ul><li>Dell uses same suppliers. </li></ul><ul><li>The convergence of entertainment and computing or birth of “digital home” should only help Dell. </li></ul>
  29. 29. Summary <ul><li>Developing Dell Direct stores, and kiosks in malls. Places to touch, see and browse. </li></ul><ul><li>Offering existing customers deals, but the purchasing decisions/behaviors are different. </li></ul>
  30. 30. Summary <ul><li>HP vs. Dell. HP’s business has long faced the difficult choice…focusing on grabbing market share or improving profitability. </li></ul><ul><li>’ 03 & ’04, HP’s approach. Aggressively battling Dell to claim bragging rights as top PC seller. </li></ul>
  31. 31. Summary <ul><li>HP is backing away from seeking market share at all costs or going all-out to upseat Dell from the top.” </li></ul><ul><li>Investors are applauding.” Saying it’s a positive thing for HP. WSJ 1/19/05 </li></ul>
  32. 32. Summary <ul><li>Fortune cover 2/7/05 </li></ul><ul><li>“ Why Carly’s Big Bet is Failing.” </li></ul><ul><li>“ Buying Compaq hasn’t paid off for HP’s investors. There’s no easy way out.” </li></ul><ul><li>Carly is forced out on 2/9/2005 </li></ul>
  33. 33. Summary <ul><li>Hewlett-Packard plans to cut 14,500 jobs in a restructuring plan meant to save $1.9 billion a year. </li></ul><ul><li>WSJ July 19, 2005 </li></ul>
  34. 34. Summary <ul><li>“ Our model continues to be the best in the business.” </li></ul><ul><li>“ In past ten years our sales are up 15 times and earnings and stock price are up 20 times.” </li></ul><ul><li>Michael Dell: Fortune 11/15/2005 </li></ul>
  35. 35. Summary <ul><li>Dell remains the world’s largest PC maker: </li></ul><ul><li>Not the revolutionary force it was… </li></ul><ul><li>Direct (DTC) will dominate </li></ul><ul><li>Partnerships with Microsoft and Intel: Microsoft losing ground to Linux and Intel to AMD. </li></ul><ul><li>Needs to increase R&D spending; Look for future trends. </li></ul><ul><li>Cutting price. Undercutting rivals. Needs to spend more on customer service and new product development. </li></ul>
  36. 36. Be Direct: DELL “ It’s amazing to me that our competitors think the customer is the dealer.” “ No victory laps…It’s a marathon… Celebration breeds complacency. Michael Dell
  37. 37. Be Direct: DELL “ Every company needs to challenge and reinvent itself.” The big question for DELL in 2006 is HOW?