In many ways, the Dell story is a textbook example of American entrepreneurship. Michael Dell began by selling computers from the trunk of his car and quickly rose to being CEO of a highly respected computer manufacturer. Dell’s business model was simple: make computers to order and deliver directly to the customer. As the company grew, it encountered growth problem.
A maturing industry caused Dell to rethink it’s business model and this case study asks the question, “Should Dell continue with its current strategy of following the consumer market down in price and adjusting its costs, or should it change its focus to more profitable business services? ” When you think of computer manufacturers, companies like Dell, IBM, and HP all come to mind. After a little research, I realized that these companies do more that just make computers. In fact IBM is no longer in the computer business.
IBM sold there computer division to Lenovo in 2005. Technology is still a big part of their mission, but aside from being the world’s largest information technology (IT) company, they are also the world’s largest consulting organization, with talented people in more than 160 countries. There global capabilities include: services, software, hardware, research and financing. Similar to IBM, HP is also taking a different approach. In 2011, HP announced they would be selling there computer division and begin to focus on enterprise services.
So why are these companies changing business models that have work so well over the years? I think it’s simple, there isn’t enough profit in it. The cost to manufacture a PC has increased over the years and has eaten away at profit margins for American companies. In addition, manufactures in countries like China and Malaysia have a huge advantage because they can produce these products cheaper. This leaves American companies to rethink their business strategies.
IBM has demonstrated that you don’t need a dedicated PC business to make enterprise services (and installing other people’s PCs) very profitable. So should Dell follow IBM’s lead or continue their strategy of following the consumer market down in price and adjusting its cost? I think they should do both. Dell already has manufacturing plants in other countries. In fact, the majority of their products are manufactured over seas. This gives them an advantage over companies who don’t have the ability to lower manufacturing costs.
Secondly, I wouldn’t leave the PC business totally because the competition is beginning to thin out. There are two American companies standing in the PC market: Dell and Apple. Apple looks comfortable in the PC business. In addition, Apple is rounding up a lot of the value to from consumers in three key markets – personal computers, smartphones and tablets. We already know that it is the most profitable mobile phone maker, and the same is true for tablets. PCs? Not so much. So maybe this is an opportunity for Dell to build on.