Dell Computer Corporation

Case 7-5 Dell Computer Corporation

Measuring and Controlling Assets Employed

Dell, an American computer hardware company based in Round Rock, Texas, develops, manufactures, supports, and markets a wide range of personal computers, servers, data storage devices, network switches, personal digital assistants (PDAs), software, computer peripherals, and more. As of 2006 it employs more than 63,700 people worldwide and manufactures more computers than any other organization in the world. According to the Forbes 500 2005 list, Dell ranks as the 28th-largest company in the United States by revenue. In 2005, Fortune magazine ranked Dell as No. 1 on its annual list of the most-admired companies in the United States, displacing Wal-Mart.12

Dell has shown its ability to adapt to the marketplace and diversified its business to appeal to a variety of market segments over the years. Products range from Dell PowerEdge™ servers, Power Vault™, Dell EMC storage systems as well as PowerConnect™ switches for corporate clients. For individuals and professional customers alike, Dell products give the consumer a broad range of choices, such as Dell Precision workstations, OptiPlex desktops, Dimension desktops, Inspiron and Latitude notebooks. Apart from these core products, the company also offers a wide array of ancillary products and services, including printers, projectors, Axim handhelds, and other accessories (Annual Report 2006).1 More recently, to generate recurring revenues, the company has announced intentions to explore printers, LCD television/computer monitors, as well as digital music players. 8

Discussion Questions:

1. What is Dell’s strategy?

2. What is the basis on which Dell builds it competitive advantage?

3. How do Dell’s control systems help execute the firm’s strategy?

Business Strategy

Dell’s business strategy combines direct customer contact with highly efficient manufacturing and effective supply chain management. Dell has emphasized quality production, which it applies to standards-based technologies. Dell puts the customer first and subscribes to what could be viewed as a modern day version of the old adage, “The customer is always right.”10 This strategy enables Dell to provide customers with superior value; high-quality, relevant technology; customized systems; superior service and support; and products and services that are easy to buy and use.

The key tenets of Dell’s business strategy are:

• A direct relationship is the most efficient path to the customer.

A direct customer relationship, also referred to as Dell’s “direct business model,” eliminates wholesale and retail dealers. Dell believes those middlemen add unnecessary time and cost to the process and diminish Dell’s understanding of customer expectations. As a result of its direct business model, Dell is able to offer customers superior value by avoiding expenditures associated with the retail channel, such as higher inventory carrying costs, obsolescence associated with technology products, and retail mark-ups. In addition, direct customer relationships provide a constant flow of information about customers’ plans and requirements and enable Dell to continually refine its product offerings to be highly responsive to the customer’s wants and needs. Through a user-friendly website (www.dell.com), customers can review, configure, and price systems within Dell’s entire product line; order systems online; and track orders from manufacturing through shipping.

• Customers can purchase custom-built products and custom-tailored services.

Dell believes the direct business model is the most effective model for providing solutions that address customer needs. In addition, Dell’s flexible, build-to-order manufacturing process enables Dell to turn over inventory every five days on average, and reduce inventory levels. This allows Dell to rapidly introduce the latest relevant technology more quickly than companies with slow-moving, indirect distribution channels, and to rapidly pass on component cost savings directly to customers.

• Dell is a low-cost