Dell inc. Business modelSubmitted by Mobiot yves-andrePRN:12030141116Course name PPN
Summary• what is a business model?• what are the various component of a businessmodel?• Brief history about dell• what is the dell business model?• how dell is competing with his competitor (expHP)?• SWOT analysis of dell
what is a business model?• A business model describes the rationale of how anorganization creates, delivers, and captures value(economic, social, or other forms of value). The process ofbusiness model construction is part of business strategy.• A business model includes nine basic building blocks
Basic building blocks
what are the various component of abusiness model?A business model represents how a company makes or intends to makemoney by turning its innovation into profit. Since 2000, theorists have createddozens of lists of business model components, all differing slightly from oneanother. Three Swiss business professors, Alexander Ostenwalder, YvesPigneur, and Christopher L. Tucci, analyzed various models and found that thecomponents fell into nine major categories. A 10th component, outside thenine categories, is the producer.
Producer• Each model includes the entity that offers a product or service. In mostmodels, the company itself fills this position and is the producer of theproduct. Sometimes, for example, the company delivers, rather thanmakes, the product. That company, then, is the producer of the deliverysystem.Offer or Value Proposition• The value proposition is the perceived value your products provide as thesolution to the consumers problem or need. Typically this is a physicalproduct, but services, digital products, intellectual property and ideas areall value propositions. Often, companies will offer a product and a relatedservice together, such as a car and its maintenance.
Target Market Segment• The targeted market is the group of consumers your plan to offer the valueof your product to. Since different markets use the same or similarproducts, adding multiple segments can increase the potential gain foryour company.Distribution or Movement Channel• Getting your product to its target market, from advertising to retailoutlet, is the distribution, or movement, channel. This establishes themeans by which your business relates to your customers.Consumer Relationship• How you establish relationships with your various customer segments isyour consumer relationship. It defines how you gain their trust and deliveryour product. Brand recognition falls under this area, as does customerservice.Value and Resource Configuration• How you utilize the activities, personnel, and resources necessary toproduce your product are your value and resource configuration or valuechain. This configuration is the basis for your cost and revenue structures.
Core Competency• The basic knowledge, skill set, abilities, and expertise required to produceyour product is your core competency. Initially, it rests in the owner-innovator and the team she surrounds herself with to bring the product tomarket. (See References 5)Network or Affiliation Partners• The partner network represents agreements between your business andother companies necessary to produce and market your product. Theyinclude materials and parts suppliers, retail outlets, shippers, advertisingagencies, and media outlets. Commercializing the value of your productrelies on your partnerships. (See References 5)Cost Structures• The expense required to manufacture a product or provide a service is thecost structure. This includes fixed costs such as leases or mortgagepayments, and variable costs, such as research anddevelopment, marketing, shipping, and payroll. The ratio of fixed costs tovariable costs represents the cost structure. (See References 5)Revenue Streams• The ways a company makes income are its revenue streams. Most oftenthis is income due to sales. However, it can refer to bartered goods andvalue-added returns from consumers, partners or third parties such asunsolicited viral or social marketing. (See References 1, 2 and 5)
Brief history about dell• Founded by Michael Dell in 1984 and was initially named asPCs Ltd.• Initially sold IBM PC-compatible computers built from stockcomponents.• In 1985, the company produced the first computer of its owndesign, the "Turbo PC“• Changed its name to "Dell Computer Corporation" in 1988and began expanding globally.• Listed in Fortune 500 largest companies in 1992.
1983-- Michael Dell starts business of pre-formatting IBM PC HD’s onweekends1985-- $6 million sales, upgrading IBM compatibles for local businesses1986-- $70 million sales; focus on assembling own line of PC’s1990-- $500 million sales; with an extensive line of products1996-- Dell goes online; $1 million per day in online sales; $5.3B in annual sales1997-- Dell online sales at $3 million per day; 50% growth rate for 3rdconsecutive year, $7.8B in total annual sales.2005-- $49.2B in sales
what is the dell business model?• Demand Forecasting: Accurate sales forecasts are key to keeping costsdown and minimizing inventories, given the complexity and diversity ofthe company’s product line.• Research and Development: To sort out all the new technology cominginto the marketplace and help steer customers to options and solutionsmost relevant to their needs.• Advertising: Dell firmly believes in the power of advertising and frequentlyespouses its importance in the company’s strategy. Dell’s competitive zealresulted in the company’s being the first to use comparative ads, throwingbarbs at Compaq’s higher prices.
• Increased Emphasis on Servers and Storage Devices: Extending the Dellbrand beyond strong desktop and notebook franchises is driven by the factthat the use of servers by corporate customers has been growing rapidly.The margins on servers are large. Moreover, purchase price is not assignificant a factor in selecting which brand of server to buy becauseservers required far more in the way of service, support, and software.• Dell’s Introduction of a WebPC: In December 1999, Dell unveiled a newline of PCs stripped of fancy features and equipped for easy, quick Internetaccess by novices. Dell believed the new line would help broaden themarket for its products and give it a growing presence in the consumerand small-business segments.
how dell is competing with hiscompetitor (exp HP)?Above Data shows DELL is a perfect example of a LeanMachine Enterprise System: servers, workstations, storage, network products Client Systems: notebooks, PC, printing, imaging systems, software andperipherals Dell Financial Services (DFS) – joint venture with Citi group
• Internet coupled with Direct Business Model- sell directly to end customers instead of intermediate distributors,resellers.• Virtual Integration- using sophisticated CRM, SCM systems at respective ends as well theirintegration- already integrated with 38 procurement and ERP systems across all itsclients- vendors – Ariba, SAP, PeopleSoft, J.D. Edwards – Dell integrated withtheir ERP (Source: Rob Rosenthal, Dell’s B2B web site strategy, October2003, IDC #30202)• Selling Points- Internet, B2B (Premier Pages), Phone-calls, Mass catalog mailings• Do not Just sell Products – sell Values- client asked to put tags on their computers- proactive in solving clients pain points – preloaded software• Dell was much less mature compare to IBM and HP at time whenInternet took off– required much less effort to adapt its systems to Internet technologies.• IBM and HP’s core competency was product innovation anddevelopment, Dell’s expertise was in assembling and catering to businessneeds.
• Web Penetration rate- What percentage of users contacted Dell based on information on givenpages• Web failure rate- What percentage of users contacted Dell because users failed to findtheir information on web pages• Outstanding Question: what will matter most to customers movingforward ?In IDC opinion:Introduce solution packages that focus on overall business goals instead ofindividual productsIntroduce configurators for high-end server and storage productsSource: Rob Rosenthal, Dell’s B2B web site strategy, October 2003, IDC #30202
SWOT analysis of dell• Dell is one of the worlds best and most knownbrands. So is it all a rosy picture for dell. Thisswot analysis of Dell points out chinks inArmour of dell’s fortress.
Strengths.• Dell is the Worlds largest PC maker. Profits for the 3 months to July 2005were in excess of $1 billion US, representing a growth of around 28%. Forthe last couple of years it has held its position as market leader (it took itfrom rivals Hewlett-Packard). The Dell brand is one of the best known andrenowned computer brands in the World.• Dell cuts out the retailer and supplies directly to the customers. It usesinformation technology, and Customer Relationship Management (CRM)approaches to capture data on its loyal consumers. So a customer selectsa generic PC model, and then adds items and upgrades until the PC iskitted out to the customers own specification. Components are made bysuppliers, never by Dell. PCs are assembled using relatively cheap labour.You can even keep track of your delivery by contacting customer services,based in India. The finished goods are then dropped off with the customerby courier. Dell has total command of the supply chain.
Weaknesses.• The company has such a huge range of products and components frommany suppliers from a plethora of countries, that there is the occasionalproduct recall that can cause Dell some embarrassment. In 2004 Dell hadto recall 4.4 million laptop adapters because of a fear that they couldoverheat, causing electric shocks or fires.• Dell is a computer maker, not a compute manufacturer. It buys from agroup of concentrated hi-tech component manufacturers. Whilst this is atremendous advantage in terms of business operations, allowing Dell tofocus on marketing and logistics, the company is reliant on a few largesuppliers, and to an extent is locked in for periods of time (i.e. unable toswitch supply dues to the lack of large suppliers in the World).
Opportunities.• Kevin Rollins replaced Michael Dell in 2004 as Dells Chief ExecutiveOfficer. Dell remained the companys Chairman. Despite founder Dellsmassive success, new blood and a change in management thinking couldlead the company into a new, even more profitable period. Dell was bornin 1965, and founded Dell in 1984 with $1000 whilst studying at theUniversity of Texas. He became the youngest Fortune 500 CEO in1992, and will be a tough act to follow.• Dell is pursuing a diversification strategy by introducing many newproducts to its range. This initially has meant good such as peripheralsincluding printers and toners, but now also included LCD televisions andother non-computing goods. So Dell compete against iPod and otherconsumer electronics brands.• Dell is making and selling low-cost, low-price computers to PC retailers inthe United States. The PCs are unbranded and should not be recognisedas being Dell when the consumer makes a purchase. Rebranding andrebadging for retailers, although a departure for Dell, gives the companynew market segments to attack with the associated marketing costs.
Threats.• The single biggest problem for Dell is the competitive rivalry that exists inthe PC market globally. As with all profitable brands, retaliation fromcompetitors and new entrants to the market pose potential threats. Dellsources from Far Eastern nations where labour costs remain low, but thereis nothing stopping competitors doing the same - even sourcing the sameor similar components from the same or similar suppliers. Remember, Dellis a PC maker, not a PC manufacturer.• Dell, being global in its marketing and operations, is exposed tofluctuations in the World currency markets. Although it is a very leanorganization, orders do have to be placed some time ahead due to theirsize or value. Changes in exchange rates could leave the company exposedto potential loses in parts of its supply chain.