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Dell’s future beyond the pc business
Dell had lost its #1 position in the PC market and was seen primarily as a PC company. To address this, Dell expanded into business services like servers, networking and data storage. Dell acquired companies like Perot Systems to grow its healthcare and business services. It also focused on providing affordable solutions tailored for mid-sized businesses to diversify beyond PCs. These efforts helped Dell transition to being viewed as a broader IT solutions provider rather than just a PC maker.
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Dell’s future beyond the pc business
- 1. Dell’s Future Beyond thePC Business MOT 5223 James Groh ● Stuart Bankey ● Ryan Zapata ● Daniel Montemayor
- 2. Overview of Industry IndustryBackground: • The industry is highly concentrated, with the four largest companies controlling 79.9% of industry revenue. During the five years to 2011, fierce competition has made computer manufacturing an increasingly commoditized business. • Despite declining revenue, domestic demand for computers has increased during the past five years highlighted by the increasing proportion of Americans that own computers.
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- 4. Competitors Position The industryis highly concentrated, with the four largest companies controlling 79.9% of industry revenue. Major players have been extremely aggressive in acquisitions during the past five years, and IBISWorld expects further concentration of industry revenue in the future as these acquisitions continue.
- 5. Overview of Dell Dellhas shifted its strategy toward higher margin products. For instance, Dell is expanding its enterprise solutions and services, which include servers, networking, storage and related services. To achieve growth in this category, Dell expects to leverage its existing customer base, partner with other companies and invest in strategic acquisitions.
- 6. Dell’s Leadership Michael Dell built this company in the personal computer business. The company has changed considerable, especially since Michael Dell returned as chief executive in January 2007. “A lot of people think of Dell as what it was five or 10 years ago, but we’ve moved much more into the core of information technology, into the data center.”
- 7. Problem • What isthe problem? – “Just a PC company.” – How to expand into services for mid-sized businesses?
- 8. Problem • Root Cause – 2005 stock price drop. • $40.29/share to $30.64/share • Continued to drop in 2006 ($26.16/share EOY 2006) – Lost #1 title to HP – Customer service problem
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- 10. Problem • Root Cause(conti.) – Lost #1 title to HP – Customer service problem
- 11. Problem • Turning Point – Mr. Dell’s return as CEO in January 2007. • Controlling Points – Focus of company – Current and future product portfolio
- 12. Problem Summary • Dellwas number 1 but lost it shortly after Rollins took over. • Michael Dell returned and determined the company’s difficulty were are result of the lack of services.
- 13. PC Vendor UnitShipment Estimates 4th Quarter 2011 Company 4Q11 4Q11 4Q10 4Q10 4Q11- Shipments Market Shipments Market 4Q10 Share Share Growth (%) (%) (%) HP 4,137,833 23.1 5,598,619 29.4 -26.1 Dell 4,020,549 22.4 4,210,000 22.1 -4.5 Apple 2,074,800 11.6 1,718,400 9.0 20.7 Toshiba 1,925,100 10.7 1,968,091 10.3 -2.2 Acer Group 1,756,838 9.8 1,982,477 10.4 -11.4 Others 4,014,644 22.4 3,583,418 18.8 12.0 Total 17,929,764 100.0 19,061,005 100.0 -5.9
- 14. iPad eats PCmarket share • Improvements to the iPad turn it into a potential PC replacement for more and more people. • More powerful chips mean more sophisticated aps can reside on the iPad. • The iCloud should make the iPad's limited storage capacity less relevant. • Built in LTE makes the tablet an attractive alternative for travelers who don’t want to hunt for a Wi-Fi hotspot.
- 15. Reaction to Problem •Since 2007 Dell has grown by both increasing its customer base and through acquisitions. • Dell has expanded into new markets. Most notably business services. • As of February 27, 2012, 47,000 out of Dell’s 110,000 employees work in business services • $7.7 billion a year business and about 12% of total revenue.
- 16. Dell’s Server Division •One notable acquisition was of Perot Systems, in 2009, which had a large health consulting and services business. • Dell is now the #1 provider of health technology services • The company stores more than 4 billion medical images in its data centers, so hospitals do not have to grapple with that chore on their own.
- 17. Dell’s Server Division(cont.) • In addition to acquiring companies. Dell has innovated. • Server customers have many diverse choices and often cannot afford comprehensive upgrades. • Therefore, Dell’s products must work with all kinds of new and older networking and data storage equipment.
- 18. Dell’s Server Division(cont.) • Dell servers run at 5 watts (about as much as a night light). • They manage internal temperature, since a machine’s cooling fans use more power than anything else.
- 19. Midsized Businesses Services •Michael Dell believes the big potential market is offering services to midsize businesses, typically companies with from a few hundred to a few thousand employees • According to him, Rivals I.B.M. and Hewlett-Packard, have a more costly business models aimed at large corporations.
- 20. Midsized Businesses Services(Cont.) • On February 10, 2010 Dell acquired KACE Networks, a leader in Systems Management Appliances. • Dell stated it was buying KACE to expand its systems management offerings to better address IT administrators in mid- size organizations.
- 21. Midsized Businesses Services (Cont.) • Support Services • Configuration and Deployment • Cloud and IT Management • Business Continuity and Protection • Training Services
- 22. Our Evaluation ofDell’s case • Do we agree with the Dell’s decision to evolve into more of a services company? – YES!!! – Helps diversify its business – IT industry is evolving; get with the program… – Maintain their “affordable and efficient” tradition – Affordable & Efficient Hardware + Service = $$$ + =
- 23. Our Evaluation ofDell’s case • What would we do to remedy the problem at hand? – What problem? – Dell already in most midsized datacenters – Service via cloud or data center management – Develop a sound market strategy – Continue to appeal to medical information record management organizations
- 24. Our Evaluation ofDell’s case • Breakdown on their decision – Dell is trying to be recognized as more than a hardware – Already has a foot in the datacenter door with their hardware – Continue to appeal to midsized datacenters – Companies may look to Dell for both hardware and service needs
- 25. Our Evaluation ofDell’s case • Competition? – HP, IBM and other IT service support organizations. • IBM – “Building a Smarter Planet” • HP – Has HP Services division in government market • Harris IT Services (My Company) – Division of Harris • Has numerous IT services support contracts – Medical & Dental – Commercial and Government Sectors
- 26. Our Evaluation ofDell’s case • What if we were against the services initiative? – Dell may have lost out on millions if not billions – Could have filed for bankruptcy
- 27. Our Evaluation ofDell’s case • Remember, “If there is a will there is a way” – Don’t overlook these IT giants evolving their business into service oriented businesses – One multi million dollar service contract can make a difference
- 28. Our final thoughts… •Dell will need to market themselves as a reputable service leader • Focus on IT service for midsized businesses • Continue going after medical IT market • Perhaps price leverage their hardware and service into an affordable bundle plan • Spend a little now to continue making billions…
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Editor's Notes
- #3 Revenue for the Computer Manufacturing industry is estimated to decline at an average annual rate of 2.5% over the period. In 2011, industry revenue is expected to decline by 4.8% to $40.7 billion as import penetration into this industry ramps up and domestic manufacturers benefit little from unfavorable exchange rates.Indeed, PC penetration (the share of US households with at least one personal computer, or PC) has increased from 67.3% in 2006 to 75.4% in 2011. As Americans become more computer-literate, the market for computer-related goods and services grows.
- #4 This chart shows where the industry lies within the three key life cycle stages, growth, maturity or decline, by plotting the relationship between the industry’s change in contribution to the economy and the percentage change in the number of industry establishments. To show the industry’s relative position in the economy, the life cycle stages of its key supply, demand and competing industries are also shown. Each life cycle stage represents unique characteristics that may be used to make strategic decisions and to determine the level of competition and opportunities that may exist. Most industries move counter clockwise around the chart segments: from growth to maturity and then to decline.
- #8 When Michael Dell resigned as CEO in 2005, Kevin Rollins took over as CEO. After a couple of years of difficulty, Rollins stepped down as CEO and Michael Dell came back. Dell attributed the company’s loses to only focusing on one market.
- #9 the stock drop of 25% in 2005 and another drop of 15% in 2006. http://finance.yahoo.com (http://finance.yahoo.com/echarts?s=DELL+Interactive#symbol=dell;range=20060508,20120409;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;)losing its number 1 spot in the PC market to HP (HP shipped 9,831,000 PCs to 9,803,000 shipped by Dell) http://www.crn.com/news/components-peripherals/193400459/hp-passes-dell-as-top-pc-maker-worldwide.htm;jsessionid=7RiagoDX2Bg-4p045rJFYA**.ecappj03numerous complaints about customer service (http://www.pcworld.com/article/132492/lawsuit_highlights_complaints_of_angry_dell_customers.html and http://en.wikipedia.org/wiki/Dell)-couldn’t keep up with customer growth-was outsourced to foreign countries
- #10 the stock drop of 25% in 2005 and another drop of 15% in 2006. http://finance.yahoo.com (http://finance.yahoo.com/echarts?s=DELL+Interactive#symbol=dell;range=20060508,20120409;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;)losing its number 1 spot in the PC market to HP (HP shipped 9,831,000 PCs to 9,803,000 shipped by Dell) http://www.crn.com/news/components-peripherals/193400459/hp-passes-dell-as-top-pc-maker-worldwide.htm;jsessionid=7RiagoDX2Bg-4p045rJFYA**.ecappj03numerous complaints about customer service (http://www.pcworld.com/article/132492/lawsuit_highlights_complaints_of_angry_dell_customers.html and http://en.wikipedia.org/wiki/Dell)-couldn’t keep up with customer growth-was outsourced to foreign countries
- #11 losing its number 1 spot in the PC market to HP (HP shipped 9,831,000 PCs to 9,803,000 shipped by Dell) http://www.crn.com/news/components-peripherals/193400459/hp-passes-dell-as-top-pc-maker-worldwide.htm;jsessionid=7RiagoDX2Bg-4p045rJFYA**.ecappj03numerous complaints about customer service (http://www.pcworld.com/article/132492/lawsuit_highlights_complaints_of_angry_dell_customers.html and http://en.wikipedia.org/wiki/Dell)-couldn’t keep up with customer growth-was outsourced to foreign countries
- #14 Source: Gartner (January 2012)Data includes desk-based PCs, mobile PCs, including mini-notebooks but not media tablets such as the iPad, which have also been eroding PC sales.
- #17 #1 According to Gartner, a respected research firm that tracks the PC business
- #21 All KACE products are sold as "black box" appliances. These systems are delivered as 19" rack servers and, except for initial IP network settings via a console login, all communication with the product is done using the web-based GUI.
- #22 Dell is more than just a server company, and offers a diverse array of services to midsize companies.Support Services:Provide end users and IT professionals with remote and on-site technical support forDell and non-Dell hardware and software.Configuration and Deployment: Dell promises to lower costs, avoid downtime and reduce installation times with preconfigured systems that are ready for use, straight out of the box, and the aid of certified technicians during deployment.Cloud and IT Management: Dell Boomi® allows companies to connect and integrate any combination of cloud, Software as a Service (SaaS) or on-premise applications with no appliances, software or coding.Business Continuity and Protection: Asset Protection, for example repair or replace a damaged laptop no matter where you are in the world. Data Protection, protect valuable and sensitive data in the event of loss, theft or failed hard drive and help recover, delete or destroy your important data.Training Services: Dell trainsIT professionals and end users.
- #23 Do you agree with the company’s decisions taken?Yes but as long as they remember their roots. Yes we agree on the Dell’s decision to branch out into services because we see it as a way for the company to diversify itself. With more and more IT companies buying smaller companies and software companies merging with hardware companies, the future for IT businesses is all about evolution and change. Change from within the company’s traditional business model. Goods producing companies that have reached their market share potential are evolving into service oriented companies that are willing to provide automated services to organizations that have a major need for business automation. If Dell maintains its tradition of being affordable and efficient in their services as it did in the past with PC hardware, then we do feel that Dell is on the right track as far as their business mindset on services is concerned.
- #24 What would your group have done to remedy the problem at hand?We don’t actually see a problem with their new business strategy of focusing on services. We feel Dell understands that they can design and build state of the art servers that can be used for many critical business data centers, but they also want to show that they can support the data center. We see it that Dell will design and manage a company’s data either through services from a cloud perspective for a company or by managing the datacenter that hosts a hospital’s images. The best thing Dell can do is to develop a good PR strategy that strengthens their vision of being not only a sound hardware provider but also an effective and efficient datacenter service provider. As more and more hospitals continue to migrate from paper to electronic data/medical records, the need to have a sound and proved IT service organization to manage their information will become more and more in demand.
- #25 I want a detailed breakdown of all issues involved: their impact,Dell is trying to be recognized more for the services rather than just their hardware. They have already worked with many IT service support organizations as it pertains to their hardware and data center needs. Perhaps by being able to offer a discount on hardware with the purchase of their services, many companies and organizations may look to Dell for their complete data center needs.
- #26 how the competition and your company dealt with such issues, It is hard for many companies to evolve their business strategy. This is especially the case if they are recognized world wide for hardware instead of services. IBM has been pouring money into commercial advertising for “Building a smarter planet”. This has been their marketing strategy for saying they are more than just a IT hardware manufacturer. HP has a “Service” division that contracts out IT professionals to manage IT services for business, local and federal organizations and any other organization that they feel they can make a financial business impact with. My parent company, Harris, was primarily known for building radios and telecommunications parts for government agencies and DoD organizations. Now we have branched out into numerous smaller yet largely profitable business divisions, to include my business division, Harris IT services (HITS). Coincidentally, I personally know of several DoD Medical Health Care IT services support contracts that Dell Government services division and my company, Harris IT services (HITS) have competed on. HITS is known for providing world-class, customer service oriented, information technology services to numerous government agencies, DoD organizations and both private and commercial medical and dental organizations across the US.
- #27 how any decisions your group made could have yielded different results, If we felt, that Dell should have never tried to evolve into a services oriented business and Dell followed this mindset, perhaps Dell would have lost out on millions of dollars for various IT support contracts, cloud services contracts and any other support services that they are currently making millions of dollars on.
- #28 any things overlooked by your company, If there is a will, there is a way… Not to overlook Dell or any of the other brand name companies such as Dell, HP or IBM. All it takes is one successful multi-billion dollar contract under their belt and then everyone will be flocking to them.
- #29 the impacts of financial issues, etcDell will need to market themselves as being a leader in providing quality IT services. According to the article, Dell’s primary goal is to focus on going after the IT service needs of midsized business. They may have more pricing leverage as it pertains to being able to bundle both their hardware and services into an affordable package that will appeal to the midsized businesses. This could potentially cost them at first but could have greater rewards once they can be successful within the market.