Management Control System on Dell

Summary :

Dell Company

In 2005, Dell Computer Corporation, which headquartered in Austin, Texas, was the world’s largest direct-selling computer company, with 57.600 employess in more than 80 countries and cutomers in more than 170 countries. Dell’s climb to market leadership was the result of a persistent focus on delivering the best possible. In less than two decades, Dell became the number one retailer of personal computers, outselling IBM and HP.

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The main strategy of Dell Inc is direct selling, which sell the products directly from manufacturer to consumer. The company was based on a simple concept : that Dell could best understand consumer needs and effienciently provide the most effective computing solutions to meet those needs by selling computer system directly to customers. This direct model eliminated retailers, who added unnecessary time and cost at least 20 – 30 % mark up from purchasing price, and also allowed the company to build every system to order, offering customers powerful, richly configured systems at competitive prices.

The traditional value chain in the personal computer industry was characterized as “build-to-stock.” PC manufacturers, such as IBM and HP, designed and built their products with preconfigured options based on market forecasts. PC Manufacturers controlled the upstream part of the value chain, giving the downstream part of middlemen.

Two trends in the early 1980’s allowed Michael Dell reengineer the PC industry value chain, first corporate customers were becoming increasingly sophiscated and therefore did not require intense personal selling by salespeople. Second the different components of a PC became standard
modules, permitting mass customization in PC configuration.

Dell Computer’s direct model departed from the industry historical rules on several fronts : The company outsourced all components but performed assembly. It eliminated retailers and shipped directly from its factories to end customers. It took customized orders for hardware and software over the phone or via the Internet. And it designed an integrated supply chain linking Dell’s suppliers very closely to its assembly factories and order-intake system.

Dell also expanding its market to consumer electronics market. The declining growth of PC business and convergence of digital devices acted as catalysts for many computer manufacturers to enter this market. Before getting into a product category in consumer electronics market, Dell carefully evaluated the marketplace, price categories, and supply partnerships and prioritized products. Based on this analysis, it decided to either introduce the product on its own or through partnership. In this market Dell set up kiosks in malls and planned a series of marketing to augment the direct sale approach. By about November 2004 about 15% of Dell’s revenues came from the Consumer.

In 2005, Dell ranked as America’s most admired company by Fortune because every sixth computer being sold in the world was a Dell Machine. Dell revenue and financial stature growth significantly than its competitor, that’s why Dell was no longer the underdog of the PC Business. Instead of resting its laurels, Dell realized that the PC Business was slowing down and chose to build a diversified IT portofolio. Dell moved into servers and storage, mobility products, services, software peripherals, and also challenged the dominant player in those markets. Management Systems

Turning Michael Dell’s concept into reality meant rallying a large and dynamic organization around a common purpose and measuring its performance by relevant and concrete measurements (or metrics). Michael Dell engaged with Bain & Company, Inc to develop a set of metrics to judge business unit performance. Michael Dell insist it was all about assigning responsibility and accountability in the daily decision making to the all line manager. All decision making process must be based on facts and data, thats the main reason why metric measurement is important. Learn about Dell Marketing Strategy

Dell recognized early the need for speed, or velocity, quickening the pace at every step of business. The company learned that the more workers handled, or touched, the product along assembly process, the longer the process took and the greater the probability of quality concerns. Dell began to track and systematically reduce the number of “touches” along the line, driving it to zero. The company took orders from customers and fulfilled them by buying and assembling the needed components. Customer got exactly the configuration they desired and Dell reduced its need for plants, equipment, and R n D. As a result, Dell turned a product business into a service industry.

The primary financial objective that guided managerial evaluation at Dell was return on invested capital (ROIC). Dell’s scorecard included oth financial measures (ROIC, average sellingprice, component purchasing costs, selling and administration costs, and margins) and non financial measures (component inventory, finished goods inventory, accounts receivable days, account payable days, cash conversioncycle, stocks out, and accuracy of forecast demand). The scorecard was generated on real time basis, and relevant performance measures were broken down by customer segment, product category, and country.

Dell could perhaps match a startup company in its informality and execution speed and energy. Dell used its structure as a competitive advantage and localized decision making. The efficient channels of communication and the accessibility to the management ensured that even junior employee’s ideas, which could benefit the company, got implemented without dampening effect of bureaucracy. Similarly, the senior management also harvested the speed of the flat structure to quickly roll out strategies and to respond to the competitive markets.

Discussion Question

1. What is Dell’s Strategy ? What is the basis on which Dell build its competitive advantage? Market leadership as a result of a persistent focus on delivering the best possible customer experience. Direct selling, from manufacturing to consumer, was key component of its strategy. It’s reputation as one of the world’s most preferred computer systems companies and premier provider of products and services that customers worldwide needed to build their information technology and internet infrastructure. The basis of which Dell builds its competitive advantage is value chain redesigning in PC industry.

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