Executive Summary

Dell Inc. is a leading name in the computer hardware and software industry. During its first years of inception, Dell maintained a strong and competitive position in the industry due to its low-cost manufacturing strategy. However, due to the commoditization of the PC market, Dell lost some of its sustainable competitive advantages, an aspect that forced the company to expand its operations in Enterprise solutions and services. Although Dell’s management has made it possible for the firm to evolve into the new business area, market analysis shows that future trends in the PC market, such as market saturation and change in consumer purchasing behavior, may significantly affect the company’s operations. As such, it is recommended that Dell should adopt joint ventures as a strategy to penetrate less saturated markets and invest heavily in product differentiation to enhance the competitiveness of its product portfolio in the America and Europe’s market.

 Introduction

Profile of Dell

Dell Inc. is a multinational company that operates in the computer hardware and software industry. The corporation, which was founded by Michael Dell, designs, develops, manufacture, market, sell and support a portfolio of products and services, such as Personal Computers (PCs), Enterprise solutions and services (“Dell Technologies Inc.” 5). Since its inception, Dell mainly focused on the manufacturing of PCs. However, with technological and industrial changes occurring in the sector, Dell began expanding its operations in Enterprise solutions and services, an area that contributes significantly to the company’s sales and revenue.

Several changes have occurred in the computer hardware and software industry since Dell’s inception, among them commoditization of the PC market. As observed by Lynch, competition in the PC market in the late 2000s was based mainly on the price of the commodity (19). During this period, industrial competitors sought ways to reduce manufacturing costs to enhance their competitiveness in the sector. Many of the firms chose to outsource their services to low-wage countries to reduce their manufacturing costs, a practice that is prevalent to date.

Additionally, the computer hardware and software industry has slowly shifted to the integration of other functions such as Enterprise solutions and services. Notably, firms that initially majored in the manufacture of PCs have gradually expanded their activities in areas of computer storage, systems management, and cloud computing. Expansion in these has allowed corporations to generate significant revenue and profits from public sector businesses and large companies who are the primary consumers of Enterprise solutions and services.

The highlighted changes in the industry over the last few years have significantly exposed Dell to a myriad of issues. Among the most significant is the loss of the company’s sustainable competitive advantage, and lack of a strong market position in Enterprise solutions and services. For years, Dell enjoyed the competitive advantage of lower manufacturing and distribution costs than its close competitors in the PCs market (Lynch 19). However, this advantage has slowly weakened as market participants have found new ways of manufacturing PCs for lower costs. Also, a significant fraction of Dell’s competitors had long being involved in computer services, an aspect that limits Dell’s competitiveness in the sector. Against the highlighted issues facing Dell, this report aims to analyze changes in the company’s sustainable competitive advantages over the years, advantages and disadvantages associated with its acquisition’s strategies, strategic options available to the senior management with regard to the position of the products and services in the BCG matrix and potential strategies that the Dell should adopt from 2018 to remain competitive in the industry.

Sustainable Competitive Advantages of Dell between Inception and 2005

Dell’s sustainable competitive advantages can be evaluated through the VRIO model. The VRIO signifies the value, rarity, imitability, and organization of a firm’s resources, which provide sustained competitive advantage (Andjelkovic et al. 575; Sehnem et al. 2768). In Dell’s context, financial resources, in-house manufacturing processes, and distribution networks were highly valuable during the period between its inception and before 2005. In particular, financial resources were valuable in terms of exploiting opportunities from the environment (Andjelkovice et al. 575). For instance, through its financial resources, Dell acquired six companies in Enterprise solutions and services, an area that generates significant revenue for the corporation. The in-house manufacturing process also helped the company retain part of the manufacturing profits and maintain cost-leadership in the industry (Lynch 19). Additionally, the distribution network, mail order, and worldwide web provided sustained competitiveness for Dell, as the company could sell its PCs worldwide at lower costs.

The rarity of the company’s distribution network and inventory management also proved to be a source of competitive advantage. It is worth noting that Dell was among the first few corporations in the computer hardware and software industry to sell its PCs through mail order. Therefore, its distribution channel, which was adopted by a few firms and associated with cost-savings, was a source of its competitive advantage. Also, Dell’s manufacturing system was structured in such a way that parts came into the factory to fulfill actual customer orders (Lynch 19). Thus, unlike its competitors, who made PCs for stock, Dell did not incur the costs of holding stock. Besides, the inventory management system adopted by Dell made it easier for the company to introduce new and advanced components such as chips to enhance its products.

Imitability was also a source of Dell’s sustainable competitive advantage during its inception. As observed by Lynch (19), Dell had a unique assembly model, which facilitated the production of efficient and quality products. For instance, rather than using screws, Dell’s workers utilized clips, which were faster to fix. Also, customers’ orders were turned into a white bar code label, which made it easier for workers to determine where and how to fit the PCs parts (Lynch 19). The long-term benefit of the un-imitable process was the production of high-quality PCs.

Furthermore, the organization of Dell’s financial resources was also a significant source of its competitive advantage. Notably, the firm’s funds were used strategically to invest in acquisitions, which was seemingly an ideal method of expanding the firm’s activities. Besides, an analysis of the company’s profile reveals that the majority of the purchases enabled the firm to strengthen its Enterprise solutions and services.

Changes Since 2005

Over the past few years, Dell’s competitive advantages have changed drastically. For instance, lower manufacturing and distribution costs are no longer valuable resources as industrial competitors have found new ways of lowering production costs, such as outsourcing parts from low-wage countries. The practice has gradually led to the commoditization of the PC market. Besides, Dell’s unique assembly process has become imitable, lowering the company’s sustainable competitive advantage.

Implication of Changes on Enterprise Solutions and Services

Changes in the sustainable competitive advantages have a significant implication on Dell’s new strategy of moving further into Enterprise Solutions and services. As observed by Lynch (19), the new subsidiaries acquired by Dell, which mainly focus on Enterprise Solutions and services, are different from the company’s initial low-cost manufacturing competencies. Therefore, Dell’s low-cost manufacturing processes may not support the new operations in Enterprise Solutions and Services. Nonetheless, the company’s financial resources may greatly aid the latest activities, as Dell can easily invest some of it to train employees on critical competencies required to deliver Enterprise solutions and services. Besides, the financial resources may also be utilized to recruit more employees in the new area, so that the company can flexibly run its new subsidiaries.

Acquisitions

Acquisition has been Dell’s key growth strategy. Notably, the company has been purchasing part or whole of other organizations in the Computer hardware and software industry (Malik et al. 521; Piesse et al. 541). While Dell began acquiring other firms in early 2006, the most outstanding purchases were experienced in early 2012 when the company expanded its activities to Enterprise solutions and services. Some of the major acquisitions that the venture has made so far include; purchase of- six companies in Enterprise solutions and services, SecureWorks, Compellent, SonicWall, and Software (Lynch 19). Based on remarks made by the president of the software group in Dell, it is evident that the company’s acquisition strategy aims at enhancing the capability of delivering competitive Enterprise solutions and services to the market.

Challenges Associated with Acquisitions

Acquisitions are an ideal growth and expansion strategy. However, Dell may face several problems for adopting the approach in the area of Enterprise solutions and services, among them cultural challenges (Almazur et al. 213; Chmielecki and Sutkowski 51). As observed by Teerikangas and Irrmann, post-acquisition cultural change bears nuances and complexities in an organization (197). Notably, Dell may experience difficulties in trying to create a synergy between the culture of its subsidiaries and the existing culture in the parent organization. If a strategic approach is not adopted, a cultural clash between Dell and its subsidiaries may lead to failure of the organization in the long-run.

Ideal Integration

Considering that Dell’s primary operations are in hardware, software, and Enterprise solutions and services, the firm should adopt horizontal integration. As defined by scholars, horizontal integration is the full integration of firms in the same industry, motivated by cost reductions, and complementary research and development (York et al. 129). In this context, Dell should adopt horizontal integration to combine its resources with the acquired firms to deliver quality and competitive Enterprise solutions and services. Some of the benefits that Dell would derive from the proposed integration include enhancement of its Enterprise solutions and services, as a few of the acquisitions involve ventures that have a history in the development of computer storage, systems management, cloud computing, and software, such as Quest Software. Therefore, the integration would not only help Dell expand its internal and external operations but also facilitate the enhancement of its internal capabilities in the area of Enterprise solutions and services.

Dell’s Strategies Undertaken by Michael Dell and his Colleagues since 2005

Since 2005, Dell’s strategies have mainly been focused on mitigating threats posed to its competitive advantage of low manufacturing costs and adapting to the significant changes in the industry. Notably, when Dell’s management realized that the PCs market was highly commoditized, the firm slowly moved into a new business of Enterprise solutions and services through acquisitions. Arguably, the new strategy undertaken by Michael Dell and his colleague was ideal as it enabled the firm to participate in a more profitable area. Also, acquisitions provided the firm with an opportunity to enhance its competitive advantage in the new area by utilizing the core capabilities of its acquired firms.

Nonetheless, there were also potential drawbacks in the adopted strategies, especially concerning innovation. As is evident from the case study, innovation is an essential factor in the Computer hardware and software industry as individuals and businesses are always on the lookout for new and innovative products. For instance, by 2011, Dell’s competitors, such as Apple, were highly involved in the low-cost manufacture of innovative rival products like media-tablets (Lynch 19). Due to such innovations, Dell experienced a massive reduction in the sale of its low-cost computers. Given that Dell could not afford to abandon the PC market, Michael Dell should have sought further innovations to differentiate the company’s PCs and make them attractive to the technologically-driven consumer market, while retaining its low-cost manufacturing model.

BCG Matrix of Dell

Dell provides robust products and services to consumers, ranging from PCs, software and peripherals, and Enterprise solutions and services. Each product can be evaluated using the BCG matrix to help the senior management make informed decisions on the strategic options that best fit each category of items. In particular, the assessment of the core products under the BCG matrix is based on market share and revenue generated by each item.

Cash Cows

Dell’s Notebook PCs are the company’s cash cow. In particular, the company’s Notebook PCs have a large market share, require little investment, and generate significant revenue (Mohajan 3). As is evident from the case study, 31% of Dell’s revenue in 2011 was generated through the sale of Notebook PCs. As such, the most suitable strategic option for the Notebooks PCs would be an investment. By investing in the cash cow, Dell would generate higher revenue and profits, which can further be used to promote operations of other product categories.

Star

Dell’s Enterprise solutions and services are the firm’s Stars. Notably, the company’s Enterprise solutions and services have high market growth, which is mainly driven by industry dynamics such as threats to organization’s data, which triggers the need for data security solutions (Khairat and Alromeedy 5). The Stars also generate significant revenue for the organization. For instance, 28% of revenue generated in Dell in 2011 was derived from the sale of Enterprise solutions and services. Given the growth potential that the product portfolio holds in the industry, the best strategic solution would be an investment in resources to help maintain and boost the status quo of the product’s market share.

Question Mark

Dell’s Desktop PCs qualify as Question Marks. As observed by scholars, this category of products holds a low market share in fast-growing markets (Afriyie et al. 3). It is worth noting that the company’s Desktops were one’s cash cows. However, this product portfolio continues to experience a decline in market share, creating uncertainties about its future progress. For this reason, Dell’s Desktop PCs may soon be prime candidates for divestment due to their declining revenue and market share in the industry.

Dogs

Software and peripherals fall into the category of Dogs. The products hold a low market share compared to commodities by other industrial competitors (Afriyie et al. 3). As is evident from the case study, the product category generated the least revenue for Dell in 2011. Due to the high investment and low returns associated with software and peripherals, the senior should consider divesting the product portfolio and investing the amount in other fast-growing items such as Enterprise solutions and services.

 BCG Matrix

Recommendations

Looking ahead from 2018, several changes are expected to happen, many of which will significantly affect Dell’s operations. Among the most considerable are changes in consumer PC buying behavior. As noted in a research and markets report by PR Newswire, demand in the enterprise segment is slowly shifting to affordable portable PCs, especially hybrids, 2-in-1s, and ultra-slim/convertibles (“Global PC Market Insights”). Furthermore, the case study also shows that individuals, larger and public sector organizations are seeking to use media tablets, smartphones, and other related products (Lynch 19). The drastic change in consumer preference and buying behavior, from traditional cumbersome desktops to portable devices, is likely to cause a decline in sale and revenue generated from Dell’s Desktop PCs.

Market saturation is also among changes that are likely to affect Dell’s operations in the next few years. Research shows that over the next 4 to 5 years, market saturation in developed countries will be a significant barrier to growth (“Global PC Market Insight”). Undeniably, Dell has in the past experienced similar challenges due to its heavy reliance on America and Europe’s PC market. Unfortunately, Dell’s Enterprise solutions and services are also subject to similar difficulties, as the majority of its competitors have had a long history in computer services. Due to market saturation, Dell may not have a significant market share in the area of Enterprise solutions and services.

To mitigate the adversities of the changes expected to occur in the PC market, Dell should invest further in joint ventures as an external expansion strategy. As is evident from its annual report, Dell has mainly been utilizing acquisitions as its growth strategy, an approach that is costly in terms of investment. Instead, the entity should form joint ventures with firms operating in less saturated markets, to enhance the market share of its Enterprise solutions and services. Besides, joint ventures would be less risky compared to acquisitions, as Dell would easily share economic risks with its partnering company.

Dell’s management should also invest heavily in research and development to create distinctive competitive advantages in the PC market. As is evident from the analysis of the market trends, consumers’ preference is highly inclined to products that are innovative and portable. As such, Dell should indulge in further research to identify PC components that are not only innovative but also unique from those of its competitors. Also, the firm should develop ways of retaining low-manufacturing costs to enhance the competitiveness of its products in the highly commoditized market. By so doing, Dell would strengthen its competitiveness in the hardware and software market and boost the market share of its PC, which has been experiencing a steady decline in the past few years.

Conclusion

Several changes have occurred in the Computer hardware and software industry in which Dell operates. The majority of these changes have had a significant adverse impact on Dell’s sustainable competitive advantages. For instance, due to the commoditization of the PC market, Dell’s key competitive advantage of low-cost manufacturing was significantly weakened. In response to the market changes and threats, Dell has been expanding its operations in Enterprise solutions and services through acquisitions. While the strategy has been fruitful in enhancing Dell’s revenue, through the high-profit margins associated with the product portfolio, analysis of the market reveals that the company may face further challenges soon. Notably, market saturation and changes in consumer preference in the PC market is likely to threaten the company’s profitability in the next few years. Therefore, it is recommended that Dell should indulge in product differentiation to develop unique competitive advantages in the market. Dell should also adopt joint ventures as an alternative strategy of external expansion to enhance its chances of penetrating less saturated PC markets.

Works Cited

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