Dell inc. Business model

Submitted by Mobiot yves-andrePRN:12030141116Course name PPN

Summary

• what is a business model?• what are the various component of a business

model?• Brief history about dell• what is the dell business model?• how dell is competing with his competitor (exp

HP)?• SWOT analysis of dell

what is a business model?

• A business model describes the rationale of how an organization creates, delivers, and captures value (economic, social, or other forms of value). The process of business model construction is part of business strategy.

• A business model includes nine basic building blocks

Basic building blocks

what are the various component of a business model?

A business model represents how a company makes or intends to make money by turning its innovation into profit. Since 2000, theorists have created dozens of lists of business model components, all differing slightly from one another. Three Swiss business professors, Alexander Ostenwalder, Yves Pigneur, and Christopher L. Tucci, analyzed various models and found that the components fell into nine major categories. A 10th component, outside the nine categories, is the producer.

Producer• Each model includes the entity that offers a product or service. In most

models, the company itself fills this position and is the producer of the product. Sometimes, for example, the company delivers, rather than makes, the product. That company, then, is the producer of the delivery system.

Offer or Value Proposition• The value proposition is the perceived value your products provide as the

solution to the consumer's problem or need. Typically this is a physical product, but services, digital products, intellectual property and ideas are all value propositions. Often, companies will offer a product and a related service together, such as a car and its maintenance.

Target Market Segment• The targeted market is the group of consumers your plan to offer the

value of your product to. Since different markets use the same or similar products, adding multiple segments can increase the potential gain for your company.

Distribution or Movement Channel• Getting your product to its target market, from advertising to retail outlet,

is the distribution, or movement, channel. This establishes the means by which your business relates to your customers.

Consumer Relationship• How you establish relationships with your various customer segments is

your consumer relationship. It defines how you gain their trust and deliver your product. Brand recognition falls under this area, as does customer service.

Value and Resource Configuration• How you utilize the activities, personnel, and resources necessary to

produce your product are your value and resource configuration or value chain. This configuration is the basis for your cost and revenue structures.

Core Competency• The basic knowledge, skill set, abilities, and expertise required to produce your

product is your core competency. Initially, it rests in the owner-innovator and the team she surrounds herself with to bring the product to market. (See References 5)

Network or Affiliation Partners• The partner network represents agreements between your business and other

companies necessary to produce and market your product. They include materials and parts suppliers, retail outlets, shippers, advertising agencies, and media outlets. Commercializing the value of your product relies on your partnerships. (See References 5)

Cost Structures• The expense required to manufacture a product or provide a service is the cost

structure. This includes fixed costs such as leases or mortgage payments, and variable costs, such as research and development, marketing, shipping, and payroll. The ratio of fixed costs to variable costs represents the cost structure. (See References 5)

Revenue Streams• The ways a company makes income are its revenue streams. Most often this is

income due to sales. However, it can refer to bartered goods and value-added returns from consumers, partners or third parties such as unsolicited viral or social marketing. (See References 1, 2 and 5)

Brief history about dell

• Founded by Michael Dell in 1984 and was initially named as PCs Ltd.

• Initially sold IBM PC-compatible computers built from stock components.

• In 1985, the company produced the first computer of its own design, the "Turbo PC“

• Changed its name to "Dell Computer Corporation" in 1988 and began expanding globally.

• Listed in Fortune 500 largest companies in 1992.

1983-- Michael Dell starts business of pre-formatting IBM PC HD’s on weekends

1985-- $6 million sales, upgrading IBM compatibles for local businesses1986-- $70 million sales; focus on assembling own line of PC’s

1990-- $500 million sales; with an extensive line of products

1996-- Dell goes online; $1 million per day in online sales; $5.3B in annual sales1997-- Dell online sales at $3 million per day; 50% growth rate for 3rd consecutive year, $7.8B in total annual sales.

2005-- $49.2B in sales

what is the dell business model?

• Demand Forecasting: Accurate sales forecasts are key to keeping costs down and minimizing inventories, given the complexity and diversity of the company’s product line.

• Research and Development: To sort out all the new technology coming into the marketplace and help steer customers to options and solutions most relevant to their needs.

• Advertising: Dell firmly believes in the power of advertising and frequently espouses its importance in the company’s strategy. Dell’s competitive zeal resulted in the company’s being the first to use comparative ads, throwing barbs at Compaq’s higher prices.

• Increased Emphasis on Servers and Storage Devices: Extending the Dell brand beyond strong desktop and notebook franchises is driven by the fact that the use of servers by corporate customers has been growing rapidly. The margins on servers are large. Moreover, purchase price is not as significant a factor in selecting which brand of server to buy because servers required far more in the way of service, support, and software.

• Dell’s Introduction of a WebPC: In December 1999, Dell unveiled a new line of PCs stripped of fancy features and equipped for easy, quick Internet access by novices. Dell believed the new line would help broaden the market for its products and give it a growing presence in the consumer and small-business segments.

how dell is competing with his competitor (exp HP)?

Above Data shows DELL is a perfect example of a Lean Machine

Enterprise System: servers, workstations, storage, network products Client Systems: notebooks, PC, printing, imaging systems, software and peripherals Dell Financial Services (DFS) – joint venture with Citi group

• Internet coupled with Direct Business Model - sell directly to end customers instead of intermediate distributors, resellers.

• Virtual Integration - using sophisticated CRM, SCM systems at respective ends as well their integration - already integrated with 38 procurement and ERP systems across all its clients - vendors – Ariba, SAP, PeopleSoft, J.D. Edwards – Dell integrated with their ERP (Source: Rob Rosenthal, Dell’s B2B web site strategy, October 2003, IDC #30202)

• Selling Points - Internet, B2B (Premier Pages), Phone-calls, Mass catalog mailings

• Do not Just sell Products – sell Values - client asked to put tags on their computers - proactive in solving clients pain points – preloaded software

• Dell was much less mature compare to IBM and HP at time when Internet took off – required much less effort to adapt its systems to Internet technologies.

• IBM and HP’s core competency was product innovation and development, Dell’s expertise was in assembling and catering to business needs.

• Web Penetration rate- What percentage of users contacted Dell based on information on given pages

• Web failure rate- What percentage of users contacted Dell because users failed to find their information on web pages

• Outstanding Question: what will matter most to customers moving forward ?

In IDC opinion:Introduce solution packages that focus on overall business goals instead of individual productsIntroduce configurators for high-end server and storage products

Source: Rob Rosenthal, Dell’s B2B web site strategy, October 2003, IDC #30202

Source: Rob Rosenthal, Dell’s B2B web site strategy, October 2003, IDC #30202

SWOT analysis of dell

• Dell is one of the worlds best and most known brands. So is it all a rosy picture for dell. This swot analysis of Dell points out chinks in Armour of dell’s fortress.

Strengths.• Dell is the World's largest PC maker. Profits for the 3 months to July 2005

were in excess of $1 billion US, representing a growth of around 28%. For the last couple of years it has held its position as market leader (it took it from rivals Hewlett-Packard). The Dell brand is one of the best known and renowned computer brands in the World.

• Dell cuts out the retailer and supplies directly to the customers. It uses information technology, and Customer Relationship Management (CRM) approaches to capture data on its loyal consumers. So a customer selects a generic PC model, and then adds items and upgrades until the PC is kitted out to the customer's own specification. Components are made by suppliers, never by Dell. PC's are assembled using relatively cheap labour. You can even keep track of your delivery by contacting customer services, based in India. The finished goods are then dropped off with the customer by courier. Dell has total command of the supply chain.

Weaknesses.• The company has such a huge range of products and components from

many suppliers from a plethora of countries, that there is the occasional product recall that can cause Dell some embarrassment. In 2004 Dell had to recall 4.4 million laptop adapters because of a fear that they could overheat, causing electric shocks or fires.

• Dell is a computer maker, not a compute manufacturer. It buys from a group of concentrated hi-tech component manufacturers. Whilst this is a tremendous advantage in terms of business operations, allowing Dell to focus on marketing and logistics, the company is reliant on a few large suppliers, and to an extent is locked in for periods of time (i.e. unable to switch supply dues to the lack of large suppliers in the World).

Opportunities.• Kevin Rollins replaced Michael Dell in 2004 as Dell's Chief Executive

Officer. Dell remained the company's Chairman. Despite founder Dell's massive success, new blood and a change in management thinking could lead the company into a new, even more profitable period. Dell was born in 1965, and founded Dell in 1984 with $1000 whilst studying at the University of Texas. He became the youngest Fortune 500 CEO in 1992, and will be a tough act to follow.

• Dell is pursuing a diversification strategy by introducing many new products to its range. This initially has meant good such as peripherals including printers and toners, but now also included LCD televisions and other non-computing goods. So Dell compete against iPod and other consumer electronics brands.

• Dell is making and selling low-cost, low-price computers to PC retailers in the United States. The PC's are unbranded and should not be recognised as being Dell when the consumer makes a purchase. Rebranding and rebadging for retailers, although a departure for Dell, gives the company new market segments to attack with the associated marketing costs.

Threats.• The single biggest problem for Dell is the competitive rivalry that exists in

the PC market globally. As with all profitable brands, retaliation from competitors and new entrants to the market pose potential threats. Dell sources from Far Eastern nations where labour costs remain low, but there is nothing stopping competitors doing the same - even sourcing the same or similar components from the same or similar suppliers. Remember, Dell is a PC maker, not a PC manufacturer.

• Dell, being global in its marketing and operations, is exposed to fluctuations in the World currency markets. Although it is a very lean organization, orders do have to be placed some time ahead due to their size or value. Changes in exchange rates could leave the company exposed to potential loses in parts of its supply chain.