1. Understanding Dell Corporation:
From a Managerial Economic & Strategic Point of View
Position Paper
Paulina Jaswiec
paulinajaswiec@yahoo.com
MBA 531 –Applied Managerial Economics
1
2. Understanding Dell Corporation:
From a Managerial Economic & Strategic Point of View
COMPANY INTRODUCTION: Michael Dell, CEO of Dell had great vision on how
to model his business to achieve a health portfolio. The Dell Corporation achieved its
success by focusing on: internal company efficiency, low- to none inventories counts
and offers competitive prices in the market. To this very day, Dell still holds the
highest percentage in the computer market share, and most articles mention
customer satisfaction (Thomson Reuters, 2012). Since 1991, Dell has been focusing
on exploring new ideas in IT and continuously collecting customer input to perfect
features (Krivda, 2010). Although over the years Dell has fought vigorously to
develop a new platform or technical advancement, it initially started with the
simple, yet smart vision of, “Reliability- Service- Support,” which to this date can be
found on the companies website.
COST ASSESTMENTS: The Company has achieved economic stability by
allocative efficiency, economic organization and market positioning. When assessing
costs, Dell had an innovative yet realistic goal when balancing costs and
expenditures. Not only did they develop a model which dictates the how they should
sell their product, but also how to structure variable/ fixed costs to make their
target revenue. After analyzing the market research, it was clear to position the
company on the low-end segment. This segment is where the business model was
most likely to make the best profit and reach out to the desired users. They were
able to keep a healthy financial balance sheet by dropping expenditure in R&D, and
invest some the surplus in customer service and more importantly customization
2
3. of their IT products (making them suitability for unique corporate identity’s needs
through specific features). In the end, there were huge benefits in standardizing
their product models.
COMPANY POSITIONING: I would like to start off by first explaining Michael
E. Potter’s (author of Competitive Strategy) Cost Leader Competitive Strategy (CLC):
as a strategy primary focused on vigorously achieving efficiency, whilst keeping a
low-cost running business. Dell strategy is classified as CLC, because: they have little
to none: 1) manufacturing costs (since parts are ordered & assembled), 2) operating
costs (no physical retailer location), & 3) production cost (offering built to order
systems that are ready to order) (Gartner, 2012). The goals of this strategy directly
affect the company’s financial structure and profit margin by spending less on the
following: promotion, sales and R&D. In addition, being the leader in cost reduction
measures, Dell had also focused heavily on establishing a solid relationship with
suppliers all with the aim of establishing optimal prices.
MANAGEMENT PERSPECTIVE: Dell has recognized that there is a direct link
amongst the relationship between the customer & business organization and the
success of a business. This free-flow of communication between the buyer & seller,
or as Dell says, ‘open agreement,’ helps address problem, open the doors to new
possibilities, and offer a complete understanding of customer needs. The ability to
build a customer profile helps define their consumer levels of price discrimination.
Price Discrimination I: Price depends on what others are willing to pay or have the
ability to pay so do not offer lower prices to those who are willing to pay. Price
Discrimination II: Charge different prices depending on the quantity sold. Problem
3
4. with this discrimination is by offering the same price for all doesn’t help isolate the
consumers with money and without. Lower at unit price (example- buy 3 for the
price of 2). Price Discrimination III: Intention is to attract other customers at
different prices levels. Finding a proxy (example- senior/student/kid discounts, first
time home buyer reduction costs, happy hours).
Dell sensory system is able to spot trends and maintain customer records
(orders, automatic updates, & track of accounts). This matrix of information build
various potential customer profiles so then they can be used to target markets with
the use of Price Discrimination III. One example: Rebates on purchases & customer
discounts on bulk orders are currently being offered. (Thomson Reuters, 2012)
PROJECTED COMPANY ADVANCEMNETS: Because the technology business is
one of the fastest growing industries it is difficult to stay on top for a long period of
time. Overall prices for computers are dropping, as the demand stands high. Slowly
others companies are catching up to the price margin and are offering much more
then Dell. While other technology companies, like Apple invest heavily in R&D
developments, Dell defends it position by making primary investing in RD&E to
developing integrated advanced features, and other social technologies for company
beehives (Thomson Reuters, 2012). Overall, if Dell does start investment in developing
& updating their product line, this outcome could be detrimental to the survival of
the company in the market.
“Protected by market positioning it has become sleepy and less responsive to
the competitors moves. While other companies updating products to keep up with
the new market conditions, it has stayed focused on remaining efficiency with the
4
5. goal of achieving higher profit margins annually. As a result no technological
specialization is accomplished and customers are left with buying old-fashioned
products with updated features. The computer demand goings up and prices
plummet can pose to be a serious threat to the company because the accessibility to
more comparable options has educated buyers in comparing product and
conducting cost analysis. In addition, navigating through a poorly engineered and
outdates website poses high risk to buyer who already have no idea what they are
investing in online. With the future pressures of cheaper modern alternatives, it is
evident to forecast residual erosion for Dell when it comes to customer’s satisfaction
and spending (Thomson Reuters, 2012). (Jaswiec, 2012)” Fortunately for now, Dell
is able to stay on top due to maintaining contracts with the US Federal & local
governments, as well as many big corporate enterprises (Thomson Reuters, 2012).
RECOMMENDATIONS: If the company formulated a growth strategy, by
investing in substantial updates on existing products, then they would have a
stronger opportunity to maintain their current position in the market. Although, this
strategy may result in a slight price increase in the beginning, the future benefit of
the additional cost would allow Dell to pick up the pace in technological developed
with the goal of staying in the parameters of customer demand. The growth strategy
is comprised of generating new distribution channels and expanding affiliations
with resellers with the goal of ultimately reach more businesses. It is inevitable that
in order for companies to get ahead in the industry, they must sacrifice by making
invests to strengthen their overall positioning. Standing financially strong while
choosing to not invest in substantial product updates in terms of appearance &
5
6. development, or creating a more effective website- has caused Dell to slowly slip of
the radar. It is true, their brilliant strategy has lead them a long way, but because
they did not gradually invest in substantial updates, the hurdle is high to overcome.
If done successfully there entry in the market will still be at the very end sectors.
Staying on top of tends doesn’t mean companies need to have big moves;
instead what is important is have big concepts. If you examine the trend of
computers you may also notice people are personalizing computer inside and out.
This device is being used as an open book where people freely document the
development of their lives and/or businesses. The PC has been gradually becoming
a symbolic representation of its owner; by having it’s own selected features,
preferences, and programs. Currently users are asking for more personalization
‘look’, in addition to durability, and performance. Dell has an opportunity to take
this concept to the next level by offering a trendy business look.
6
8. References
Gartner (2012b). Vendor rating: Dell. Retrieved April 26, 2013 from:
http://www.gartner.com/technology/reprints.do?id=1-
1C66P7T&ct=120926&st=sb
Gray, Benjamin. How Enterprise Buyers Rate Their PC Suppliers and What It Means
for Future Purchases. Forrester. 2007. Retrieved April 27, 2013 from:
http://www.dell.com/downloads/global/corporate/iar/20071112_Forreste
r_HowEnterpriseBuyersRate.pdf
Harvard Business Review (2008). The Five Competitive Forces That Shape Strategy.
Retrieved April 26, 2013 from: http://hbr.org/2008/01/the-five-
competitive-forces-that-shape-strategy/ar/1
International Data Corporation (2012). Worldwide PC Microprocessor Revenues in
2011 Rise 13.2% Compared to 2012, According to IDC. Retrieved April 27,
2013 from: http://www.idc.com/getdoc.jsp?containerId=prUS23376112
Jaswiec, P (2012). Porter’s Competitive Analysis: HP vs. Dell & Lenovo. Written for
MBA class.
Krivda, C (2010). Ariba Magazine- Technical Journal: The Vision of Michael Dell.
Volume 2, Issue 1, Page 22-28. Retrieved April 26, 2013 from:
http://www.ki-lipton.com/ariba/archive_feats_21/DELL.pdf
Porter, M. E. (1998). Competitive strategy techniques for analyzing industries and
competitors. New York, NY: Simon & Schuster. (Book)
8
9. Tech Crunch (2011). Gartner: Lenovo Replaces Dell As No. 2 PC Maker, HP Still On Top
And Growing. Retrieved April 26, 2013 from:
http://techcrunch.com/2011/10/13/gartner-lenovo-replaces-dell-as-no-2-
pc-maker-hp-still-on-top-and-growing/
Thomson Reuters (2012, March 13). Dell Inc: 10-K Annual Report Pursuant to Section
12 & 15 [Thomson Reuters Accelus]. Retrieved April 27, 2013 from:
http://i.dell.com /sites/content/
corporate/secure/en/Documents/FY12_Form10K.pdf
9
10. Tech Crunch (2011). Gartner: Lenovo Replaces Dell As No. 2 PC Maker, HP Still On Top
And Growing. Retrieved April 26, 2013 from:
http://techcrunch.com/2011/10/13/gartner-lenovo-replaces-dell-as-no-2-
pc-maker-hp-still-on-top-and-growing/
Thomson Reuters (2012, March 13). Dell Inc: 10-K Annual Report Pursuant to Section
12 & 15 [Thomson Reuters Accelus]. Retrieved April 27, 2013 from:
http://i.dell.com /sites/content/
corporate/secure/en/Documents/FY12_Form10K.pdf
9
