Competitive Forces Paper on Dell

Dell Case Analysis:
Direct Service for the customer

In order to generate a competitive advantage, information technology must remain steadfast during rapid change. Dell stabilizes itself as the leading computer hardware company, by incorporating new fresh ideas into the industry. In an influential book, Trompenaars and Turner (2002) stated “Michael Dell’s method of direct service helped gain an advantage in the computer industry” (p. 241). The direct sales process allowed express selling to the customer by cutting out the middleman. This study examines the computer technology field with Michael Porter’s competitive forces. Additionally the analysis will connect the direct service method that transformed the industry by creating improved productivity.

The corporation’s focal point relies on Michael Porter’s (1980) competitive forces, a sound reliable strategy in the business world today. Porter states that the economic and competitive forces in an industry segment are the result of five basic forces: bargaining power of suppliers, bargaining power of buyers, threat of new entrants into the industry segment, threat of substitute products or services, and positioning of traditional industry rivals (1980). A well-rounded business will facilitate a tactical plan to identify strengths, weaknesses, opportunities and threats present within the company for survival.

Background
Out of the five competitive forces that influence the computer technology world today, “rivalry among current competitors” (Porter, 1980) possesses the biggest threat to Dell. Within the technology industry competition will arise in order to gain increased position or opportunity. Dell challenges the market by providing direct service to customers, price cuts, and staying up to date with modern technology. To make things easier for the customer Dell established user-friendly relationships with the customers.

In 1996, Dell shook the computer world by establishing the direct model. The direct model combined with the use of the Internet formed a successful strategy for the company. For the first time customers were able to buy a Dell computer from the Internet. In 1997, Mr. Dell’s brilliant idea created a net growth of $1 million dollars per day in sales. In addition, Dell shipped its ten-millionth computer, and gained per-share value of common stock that reached $1000 on a pre-split basis (Trompenaars& Turner, 2002). At the end of 1999, Internet sales sky rocketed to $30 million dollar per day, giving the company a forty percent increase in revenue. Dell established a key advantage by creating the direct service model.

The company’s direct model consists five of tenets, “beginning with the customer and ending with the customer” (Dell, 2004). The company’s first principle took the most efficient path to the customer. Dell’s principle’s resulted in customer satisfaction, which allowed the team’s precise understanding specific to the needs of the customer. The company revamped the lines of communication, by speaking directly with customers. Moreover, open lines of communication with the customer created a clear concise understanding of the buyer’s exact needs. Ultimately cutting out the middleman and proving direct support to its clientele. Dell next established a single point of accountability, to grant customers with a direct connection to associates through proper channels.

Perhaps, the most influential competitive force used in Dell’s industry is bargaining power of buyers. Bargaining power of buyers exist when buyers compete with the industry by forcing down prices, bargaining for higher quality or more services, and playing competitors against each other at the expense of industry profitability (Porter, 1980). Dell gains a competitive advantage in the industry by focusing on bargaining power of buyers.

Subsequently, Dell believes in the build-to-order process, which provides the customer with a product to best suit their budget, while allowing the consumer a tailor made a system for their use. The build-to-order concept stands by the notion that its computer systems do not sit around for months aging in a warehouse. Dell dominates the computer industry by being a low-cost leader, a perception pleasing to the customer. In return the customer gains a desirable product at a great value. Since Dell offers direct service and low cost to the consumer, Porter’s generic strategies best fit this company. The three generic strategies developed by Porter are cost leadership, differentiation, and focus. According to Porter (1980), “each generic strategy involves two key choices: (1) the competitive mechanism-a firm can lower its cost or differentiate its products and services; and (2) the competitive scope-a firm can target a broad market or a narrow one” (p. 2). Dell uses cost leadership to make a statement about its price and services compared to other computer companies.

Dell believes in standards-based technology, which represents the suppleness and opportunity to decide in the item of preference. Dell defeats barriers by constantly updating processes and introducing new ideas to remain successful. Dell faces constant threats of substitutes from other computer hardware products; such as, Hewlett-Packard and Apple which are among top competitors. Nevertheless Dell’s perseverance remains untouchable through creative technology such as, direct service, customer service and new gadgets.

Recently Dell introduced the new Dell Pocket DJ and Dell photo printer 540, to gain a competitive advantage over Apple’s iPod mini and Hewlett-Packard photo smart 375. The new innovating idea behind the model is the price comparison. For instance, the purchasing price for the Dell pocket DJ is two hundred dollars, five gigabytes and weighs 4.4 ounces. In comparison to the Apple iPod mini, that starts at two hundred fifty dollars, four gigabytes and weighs 3.6 ounces (USA Today, 2004). Dell climbs to the top of the market with the photo printer 540 another ground-breaking gadget for the company. The Dell photo printer 540 rivals Hewlett-Packard’s photo smart 375 models. The Dell photo printer retail price is $189.00 compared to Hewlett-Packard’s photo smart starting price of $200.00(USA Today, 2004). Again, Dell surpasses in price by offering a quality product at a great price. Dell outshines competitors Apple and Hewlett-Packard, by offering affordable top of the line products.

Certain benefits apply to Dell’s credible reputation as the leading computer hardware company. For instance, Dell upholds a well-trusted name brand commonly found in classrooms, workstations and other places of businesses. Dell’s the first company to offer “computer systems on a next-day, on-site product service” (Dell, 2004) to the consumer. The company also takes pride in being the first company to introduce the notebook computer system. Dell’s computer systems over the past decade turned out to impart an extremely useful tool commonly used today. The notebook computer catered to business professionals with busy lifestyles. An essential tool used by traveling professionals. Likewise, Dell reached number one in the global market share. Together with direct service, excellent customer service and fresh ideas, Dell achieved the number status in the United States for standard Intel architecture server shipment (Dell, 2004).

Overall the company has paved a long road of success for the future. Fighting against competitive rivalry in the computer hardware industry, Dell brings forth new and innovating ideas. The direct selling method created an astounding accomplishment for the company, as described by Trompenars and Turner (2002):
The model of direct selling received a welcome and powerful boost from the Internet,
which was first used to sell a Dell computer in June 1996. Today there are more than 40,000 customized home pages, called Premier Pages, especially for corporate customers. These pages contain not only the details of customized configurations and instructions but also a total record of past and current transactions between Dell and the customer.
(p. 243) With constant advancement and development in the computer industry, Dell realizes the obstacles it has to overcome. Business executives within the company must incorporate the process along with daily enforcement of Porter’s Competitive Strategy. A company that plans for success understands the threats of new entrants, power of suppliers, power of buyers, availability of substitutes and competitive rivalry. By being informed of its competitors and building constant improvements in its products, Dell will gain a competitive advantage in the market. Dell’s a company that is well known for the quality of the product, service, cost and commitment to customers.

Conclusion
During constant development and change Dell gained a competitive advantage by establishing new ideas in the information technology world. Companies in the computer technology sector need to maximize their efforts to succeed in the 21st century. Computer companies will capitalize the market by focusing on the development of new products that are offered and sold to the consumer. Through extensive research and development Dell understands Porter’s Competitive Forces. Focused on capturing the customer’s needs and determined for success, Dell maintains a successful record. When a company does not fully comprehend Porter’s Competitive Forces the company faces a great risk. Companies need to understand the market facing them in order to accomplish the desired goals of success. Careful attention to its competitor’s developments proves to provide a competitive advantage on present and future competition.


References
Dell, Inc. (2004). Dell at a Glance. Retrieved October 8, 2004, from
http://www.us.dell.com/content/topics/global.aspx/corp/background/en/facts?

Kessler, M. (2004, October 10). Dell rides the wave to consumer gadgets. USA Today.
Retrieved October 25, 2004 from
http://www.usatoday.com/money/industries/technology

McFarlin, L. M., & McKenney, J. L (1999). Corporate information systems
management: Textand Cases (5th ed). Boston: McGraw Hill.

Porter, M. E (1980). Competitve strategy: Techniques for analyzing industries and
Competitors. New York: Free Press

Trompenaars, F., & Turner, C (2004). 21 leaders for the 21st Century: How
innovative leaders manage in the digital age. New York: McGraw
Hill.