Dell Company: Business Model
Dell is a technology company that deals with the manufacture and supply of computer supplies and electronics. The company was established in 1984 and has its headquarters at Round Rock Texas. Dell Company operates on a business model that focuses on integrity and ensuring that the legality and ethics of work is upheld as the company focuses on achieving its goals that will ensure achievement of business success. Dell’s business model also focuses on upholding the credibility and culture so as to achieve trust across the different cultures across the world.
The business model focuses on the compliance to the laws of the different geographical location. Being a number one supplier of personal computer in the US and the 2nd supplier of the same worldwide, the company focuses on ensuring that its businesses that are in geographical location are by the local laws of the regions a. The employees are also informed of the internal rules of the company that ensure the efficient running of the company business (Dell, 2011).
The business model also focuses on enhancing the credibility of the company such that the company is seen to be conducting business in an ethical and legal manner as it strives to achieve its business goals. In term of business and the introduction of new technologies the company focuses on the business model that holds the belief that all technologies follow a systematic pattern. When the commodity is introduced to the market it is priced expensively but gradually as it becomes familiar to the public, the prices reduce.
So as to minimize losses when the prices go down after expensively manufacturing the products, Dell ventures into the production of the product and service after it has become standardized and has gained popularity with the target market. Dell can therefore manufacture cheaper products and services at a less costly cost as compared to the competitors (Maney, 2003).
Dell’s business model focuses on various key elements. One is the account selection where the company focuses on customers whose purchasing powers are predictable and will engage the company in low costs in an attempt to satisfy their needs. The element of demand management is also applied in the business model of Dell, it focuses on the ideology of “sell what you have” which focuses on the sale of products according to a predetermined supply. The element of product life cycle management is also upheld in Dell’s business model.
This element assists the company in determining the product life cycle of a product therefore dictating to the company the quantity of products to be manufactured and sold a t a particular time. With this element it is also possible for the company to manufacture products as per the desires of the target market. This element saves the company from over production of a product which may in turn result to losses if the market is no longer interested with the product (Dell, 2011).
The element of supplier management focuses on establishing links with various suppliers so as to have a wide array of products parts. The company therefore has a upper edge in terms of competition as the products are of not only high quality but also flexible. Elements of forecasting in terms of demand of products and liquidity management in terms of proper utilization of the finances that is in circulation during business.
The Recent economic downturn was expected to have a negative impact on the growth of the company instead the company survived and instead of experiencing losses the company has increased its revenue twice fold since 1999 financial year. In 2003 for instance the company recorded approximately $35 billion revenue returns. While the competitors such as HP and IBM experienced the effects of the economic crunch, Dell took up the opportunity to overtake major markets in the sale of PC and servers.
This is a clear indication that the business model that the company has been using to ensure that it achieves its growth and subsequent profits is efficient as it is evident that it sustained them during one of the worst economic crunches after the great depression. An increase in the market presence of Dell Company only means that the competitors will have no choice but to lower the prices of their products in an attempt to entice the customers to remain loyal to their products and not shift to Dell products. Much as this move will affect the profit margin of the competitors it is also expected that dell will also be affected as it will also have no choice but to also reduce it prices (Williams, 2010).
Dells’ business model also focuses on having a direct contact with the customers. It is able to accomplish this through manufacture and sale of its products directly to the customers through the use of direct sales executives. The company through the sale representatives is able to have personal contact with the customers, thereby determining whether there needs have been satisfied as soon as possible. In areas where the consumers are dissatisfied with a service or a product the company is notified at the shortest time possible and the company is able to establish remedies for the problem (Dell, 2011).
Recently, Dell Company expounded on its business model to include focus on the production of more profitable products such as software and storage devices. This shift was aimed at improving the profit margin of the company thereby ensuring its growth. However the change may have happened a little too late as Dell competitors such as HP have already flooded the market with such similar products. With such stiff competition the company might not be in a position to effectively work towards achieving its financial year targets such as achieve a cost reduction of almost $4billion.
Dell Company may also lack sufficient funding to roll out the production and the sale of the novel products it intends to introduce in the market. The company is also at risk of running into loses as a result of competition from the competitors that might force Dell to reduce the transaction price of the products which might go beyond the targeted financial performance that had been set (Brynes, 2003).
As evident from the discussion, though facing a few hurdles, Dell business model is effective and it ahs ensured that the company has been making profits through increased sales. The increased gains and growth of Dell ahs forced competitors such as Hewlett-Packard and Compaq computers to merger in an attempt to be strong competitors against Dell. Dell has a vision to increase its production and sale and subsequently increase its revenue over the next five financial years. Dell which was previously viewed as a weak competitor is now a posing a threat to other incumbent technologies such as Cisco (Williams, 2010).
Increase in sales and profits have resulted to an improved stock share sale, for instance in 2000 Dell’s stock stood at above $50. To ensure that there is sustainability in the business, the company has maintained a business model that focuses on improving the skills and experience of the employee. The technology world is ever changing and the business involved in it have to always be abreast with the ever changing technologies and the introduction of novice products and services that are aimed at serving the needs of the target market (Wyman, 2010).
Dells business strategy of not holding the inventory means that the company manufactures the computers at a faster and less costly than that its competitors. The market will then prefer dells products as it is easier to get spare parts for the computer sin case of a malfunction. This is unlike the competitors where the product requires that one only purchases parts manufactured by the company, which are costly. Dell spends little on research on development of products.
For instance it uses approximately $440million as compared to $4 billion that is used by rival Hewlett-Packard Company. This means that incase of low sale of products Dell is cushioned and does not run the risk of running into losses. The prices of the products and the services will also be less than the competitors as it does not have much to recover.
In terms of financial performance Dell Company reported a significant drop in the company revenues in comparison to 2009. For the year ended January 2010, the company had revenues that totaled around $52 million. This is viewed as a drop of approximately 13% if compared to 2009 revenue income that stood at $61 million. This significant drop can be linked to a drop in the companies operating profits which plummeted to $2 million.
This decline in profits can be attributed to the companies attempt at manipulating its business model to include the production of other products other than PC such as software. This field had already been saturated by the competitors such as therefore explaining why the company has not really penetrated in that field yet. The reduced demand for PC among the target market is see as another reason why the company has experienced reduced profits (NASDAQ, 2011).
Dell also experienced a drop in the market share. For instance in 2006 it was reported that Dell’s share price stood at 13.9% as compared to HP’s 17.4%. This drop is associated with the reduced shipment units that dell experienced in comparison with competitor HP (Williams, 2010).
It is therefore evident that though business model though effective in ensuring the sustainability for the company, it does not help in ensuring profitability. Also in contrast with the competitors Dell is not vibrant in product innovation. The competitors are constantly innovating new products to entice the customers whereas Dell focuses on servicing the needs of the target market when the need arises. These factors have contributed significantly to the declining revenues of Dell and probably it is about time that the company focuses on revising their business model further to encourage innovation which will in term boost the company’s success (Brynes, 2003).
Reference
Brynes, J. (2003). Dell Manages profitability not inventory. Retrieved from http://hbswk.hbs.edu/archive/3497.html on 18th may 2011
Dell, (2011). Business Model: ethic and compliance. Retrieved from http://content.dell.com/us/en/corp/d/corp-comm/cr-ca-business-model.aspx on 18th May 2011
Maney, K. (2003). Dell business model turns to muscle as rivals struggle. Retrieved from http://www.usatoday.com/money/industries/technology/2003-01-19-dell-cover_x.htm on 18th May 2011
NASDAQ,(2011). http://retailindustry.about.com/od/topusretailcompanies/p/dellincprofile.htm
Form 10-K”. Dell Inc., United States Securities and Exchange Commission.
Williams, R. (2010) Dell Analyst meeting. Dell
Wyman, O. (2010). The discipline of business Model innovation. Retrieved from http://www.oliverwyman.com/ow/pdf_files/CMT-Discipline_Bus_Model_Innovation.pdf
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