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Dell has been facing severe pressure in recent years to cut costs and improve performance, due to the prevalent recession and a wide choice of competing PCs and laptops in the market. Once popular for its low cost computers, Dell was losing its edge to companies like HP and Acer, which offered similar or better performing computers at cheaper prices. Once the leading manufacturer of PCs in the world, Dell needed a shift in strategy and a concerted effort to consolidate its position, which had been sliding in recent years.
Formed with a capital of one thousand dollars in 1984 by Michael Dell, Dell adopted a unique business model of supplying PCs directly to the end user in an attempt to better understand the customer’s needs. This concept allowed Dell to eliminate the in-between distribution channels that unnecessarily drove costs up and increased lead times in getting the product out into the market. Dell allowed customers to obtain customized PCs at throwaway prices.
Dell eventually gained a substantial chunk of business generated by corporate companies, as well as small and medium sized companies, with a large majority of revenues obtained from this sector. It expanded its range of services and started focusing on the public sector. All these key ingredients combined to make Dell one of the leading PC and laptop manufacturers in the world. However, with the recession affecting its major corporate sales, enabling HP to overtake it in the computer business, Dell once again needed to reevaluate its strategy to remain a serious contender in the consumer electronics market.
The once common corporate trend of long-term contracts for computer purchases were diminishing in number and took on the form of bids for individual one-time deals. Dell’s strategy of undercutting completion on price and then gradually raising prices was no longer an effective practice. The company was forced to launch a massive initiative to reduce costs on all its popular services and products, and simplify its operations in the last year. No longer could it afford to spend large amounts of money on development, instead it chose to focus its attention on existing services, strategic investments and emerging markets.
The results of Dell’s efforts seem to be paying off with improvements in the latest financial figures released. Nearly seventy percent of Dell’s products and services were over hauled for cost improvements, something that should prove useful in this highly competitive climate. Its shift in attention to other sectors and markets showed the most substantial improvements with large gains from local government, school and health care customers and developing markets like China, Brazil, Russia and India. Storage devices and other business related services were helpful as well. Dell also predicts that external factors like the introduction of Microsoft’s Windows 7 and new technology from Intel will help in improving performance as corporations and the government revamp their current IT infrastructure to accommodate these developments.
Despite the upturn and positive outlook, Dell still has some serious competition to deal with. HP, which accounted for five percent more shipments than Dell in the total computer market, already has a much larger range of business services and is forging ahead rapidly with no signs of slowing down. Dell, although still a top contender for the corporate PC business, needs to explore more lucrative and innovative avenues and rely relatively less on an already squeezed market. With new contenders pushing for entry in a already crowded market and other giants adopting aggressive strategies, Dell will need to stay on its toes and react well ahead of time to regain its leading position.