Case Study Of Dell Computers Ecommerce 582r5y

CASE STUDY ON DELL COMPUTERS E – COMMERCE

SUBMITTED BY

SUBMITTED TO

Karan Gupta

DR. VINAY SHARMA

13810039 DoMS IIT Roorkee

Introduction The purpose of this study was to examine an organisation that has different types of electronic commerce interfaces. I chose DELL Inc. In the beginning it was based on direct sales approach, and then it became quickly one of the leading companies in PCs markets. It is one of world’s most ired business. It has 3 categories of customers Large, Public Sectors and Home and small sized businesses. Dell uses its website www.dell.com as one of the main channels to sell products directly to customers and provide products based on customer’s customized orders. Dell’s organizational structure is divided into four main regions, each of which includes their own functional departments. Dell utilises the Internet and other advanced technology in all aspects of its relations with customers, from ordering, sales, delivering and services to customers’ research and forecast Dell’s information system also allows customers to use their ERP procurement application to order products Dell provides customers with personal sites where information about the products and their history conditions are kept and processed. Dell works with various suppliers for components and softwares. Company History Dell was founded by Michael Dell in 1984 and started as a small computer selling company. Right at the beginning, its business based on a direct sales approach. Dell quickly grew into one of the leading companies in PCs market and one of the most ired businesses all over the world. Its significant success has been mainly due to its distinctive strategic model in general and its information systems strategy in particular. Two core elements of its business strategy include its direct sales and build-to-order approach. Dell uses online sales and services as their main way of doing business. However, other methods like ordering and technical services through phone and recently, its introduction of retail stores also contribute to its business process. This paper will limit the analysis of Dell’s strategic use of IS in response to two main competitive forces: the bargaining power of buyers and the bargaining power of suppliers. E-Commerce Electronic commerce is trading in products or services using computer networks, such as the Internet. Electronic commerce draws on technologies such as mobile commerce, electronic funds transfer, supply chain management, Internet marketing, online transaction processing, electronic data interchange (EDI), inventory management systems, and automated data collection systems. Modern electronic commerce typically uses the World Wide Web for at least one part of the transaction's life cycle, although it may also use other technologies such as e-mail. E-commerce businesses usually employ some or all of the following practices: 

Provide E-tail or virtual storefront on websites with online catalogues, sometimes gathered into a "virtual mall"

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Buy or sell on websites or online marketplaces.

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Gather and use demographic data through web s and social media. Use electronic data interchange, the business-to-business exchange of data. Reach prospective and established customers by e-mail or fax (for example, with newsletters). Use business-to-business buying and selling. Provide secure business transactions

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Impacts on Market and Retailers Economists have theorized that e-commerce ought to lead to intensified price competition, as it increases consumers' ability to gather information about products and prices. Research by four economists at the University of Chicago has found that the growth of online shopping has also affected industry structure in two areas that have seen significant growth in ecommerce, bookshops and travel agencies. Generally, larger firms are able to use economies of scale and offer lower prices. The lone exception to this pattern has been the very smallest category of bookseller, shops with between one and four employees, which appear to have withstood the trend. Individual or business involved in e-commerce whether buyers or sellers rely on Internetbased technology in order to accomplish their transactions. E-commerce is recognized for its ability to allow business to communicate and to form transaction anytime and anyplace. Whether an individual is in the US or overseas, business can be conducted through the internet. The power of e-commerce allows geophysical barriers to disappear, making all consumers and businesses on earth potential customers and suppliers. eBay is a good example of e-commerce business individuals and businesses are able to post their items and sell them around the Globe. Distribution Channels E-commerce has grown in importance as companies have adopted pure-click and brick-andclick channel systems. We can distinguish pure-click and brick-and-click channel system adopted by companies.   

Pure-click or pure-play companies are those that have launched a website without any previous existence as a firm. Bricks-and-clicks companies are those existing companies that have added an online site for e-commerce. Click-to-brick online retailers that later open physical locations to supplement their online efforts.

Literature review We will use Michael Porter’s competitive forces model and other studies to analyse the strategic use of information systems to design distribution channels in the case of Dell Inc. This report will use Michael Porter’s model to analyse how Dell Inc. has used information systems (IS) strategically and accordingly with its business and organizational strategies to gain competitive advantages. In doing so, a brief literature review is necessary Michael Porter’s five competitive forces model The rapidly development of information technology in general and the internet in particular has largely changed business process. However, the effectiveness of IT application for the success of a business depends largely on its capacity of systems planning. This process is very important but also very difficult and thus, good frameworks or planning techniques are of great value. Michael Porter’s five competitive forces model is one among widely used methodology for planning of strategic usage of IT. In this model, there are five important forces that companies have to deal with, including: (1) Threat of new entrants as a result of emergence of new businesses like e-commerce; (2) The bargaining power of buyers who demand for better prices and quality; (3) The bargaining power of suppliers such as those who monopolise in an area, or can cause high switching cost when changing suppliers; (4) Substitute products or services which are enabled by the introduction of the internet, for instance, travel online is a substitute for travel agents; (5) The intensity of rivalry among competitors (Porter, 2009). Information Systems (IS) Quality Triangle IS Quality Triangle represents the interdependency and integration of three levels of strategies – business strategy, organizational strategy and IS strategy, of which IS strategy must complement the other two strategies. The aim of a business is to use IS strategically in accordance with business and organizational strategies rather than simply using IS. IS strategy aligned with business and organizational strategies, should be implemented strategically to alter company’s competitive forces to achieve its business goals. Reasons for choosing Dell as the case study Dell is one of the biggest companies in the PCs industry. Its phenomenal success depends largely on its strategic choices, of which IS strategy is a significant factor. Dell is the leading company in effectively applying IT into its business. An in-depth analysis of how Dell has strategically used IS to achieve its business goals will offer practical and useful knowledge for other businesses in improving their usage of IS and for further research into organizations’ IS.

The bargaining power of buyers

Identify Dell’s buyers Dell’s customers consist of 3 major categories: (1) Large enterprise; (2) Public sector (state and local government, federal government and educational institutions); (3) Home and small business. Michael Dell stated that Dell core customers are large ones who do not need various services from resellers and are always able to pay their bills. “Dell does not have any customers that represents more than 1% to 2% its revenue, 90% of Dell sale go to institutionsbusiness or government- and 70% to very large customers that buy at least $1 million in PCs per year”. The power of buyers is represented by its demand for lower prices, better quality and services, which lead to increase in cost and competition for companies. In the PCs industry, Dell’s customers are powerful for several reasons: Dell has to compete with several strong rival companies in of attracting customers, such as Compaq, IBM and Hewlett- Packard. Dell also has to compete with local sellers for market share, for example Sony and Toshiba in Japan, Samsung and Asus in Asia. Another reason is that PC products in the market are in many cases, not very differentiated and thus, there is possibility of customers play one seller against others. One more reason is that in a high fixed cost market, Dell’s core customers are large-volume customers, who, according to Porter (2008), have power of demanding for discount from selling competitors. Dell’s core customers – corporate buyers – are those who have good experience in of prices and technology, and thus, Dell has to find its own way to offer these important and demanding customers with better prices and quality while remaining profitable. Business strategy: As mentioned above, the bargaining power of Dell’s customers, especially its corporate ones is relatively high. Therefore, it is of Dell’s core interest to build up a distinct business strategy that helps maintain its sustainability, customers’ satisfaction and loyalty while alter the competitive force from its powerful customers. In order to succeed in a competitive market, a company’s business strategy must illustrate the company’s values which differentiate with competitors’ (Porter, 2001, pp63-78). In the PCs market, where a lot of giant corporations like IBM and Compaq coexist, Dell chose for itself a distinctive way to serve customers: business based on a direct sales and build-to-order model. Unlike other PC makers who include retailers, resellers and other bodies in their marketing and sales, Dell uses its website www.dell.com as one of the main channel to sell products directly to customers and provide products based on customer’s customized orders. Direct Sales Method: Dell’s direct sales system relies on two factors: direct relationships with buyers, and products and services aimed at distinct customer groups. Retailers Resellers

Integrators

Suppliers

PC Maker

Distributors

Final Customer

Indirect Distribution Channel of the PC Industry Final Customer

DELL

Suppliers

Dell’s direct distribution Channel

Fig: Distribution Channel of Dell VS a traditional company This direct strategy helps strengthen customer relationship as it helps Dell to understand all processes of their business and their customers’ activities and needs from order, purchase, delivering, maintenance to upgrade or replacement. This information is critical for Dell to offer add-on products and suitable services to satisfy its buyers. Also, it helps Dell to forecast customers’ future demand. According to Michael Dell, sufficient anticipation is essential for the company to keep its cost down and therefore, satisfy its price-knowledgeable and demanding customers. In addition, this direct approach makes it easier and more convenient for customers to purchase from Dell. Dell does not manufacture all components of its products but relies on its suppliers in of components, softwares and services. This business strategy offers important advantages such as (1) know what customers’ needs and thus, satisfy their demands because customers have chances to choose what they want; (2) allow the effective use of lean manufacturing and

just-in-time operations which leads to reduced inventory, lower cost, quick adaptation to technology and demand changes and fast arrival of new products. Organizational strategy: Traditionally, Dell organized its business on a globally centralised and functional basis, with all functions like sales, manufacturing and service reporting directly to the head-quarter. Its organization was then changed to a decentralized basis in accordance with its business model. Dell’s organizational structure is divided into four main regions (Americas, Europe, Asia and Japan), each of which includes their own functional departments. It is also further subdivided according to business markets (large business, government/international, small business). The Front End

Launched as a static page in 1994, Dell.com took the plunge into e-commerce shortly thereafter, and by 1997 was the first company to record a million dollars in online sales, according to Dell spokesperson Deborah McNair. After six strong years of online sales -- widely regarded by analysts as stumble free -- Dell has racked up some impressive statistics. In the last quarter of 2002, Dell.com logged a billion page views, a company first. According to Dell spokesperson Bob Kaufman, about half of the company's revenue comes from the site, which means approximately $16 billion flowed through Dell.com in the last year. A key part of Dell's success, says Aberdeen's Allen, is that the site offers consumers "choice and control." Buyers can click through Dell and assemble a computer system piece by piece, choosing components like hard drive size and processor speed based on their budgets and needs. "Their ability to allow people to custom design has traditionally been something that they're ahead of the game with, and a lot of people are slowly starting to catch up now," Allen says. "But they continue to be viewed as the leader." This direct with consumers gives Dell a competitive advantage, explains Dell's McNair. "Because we know exactly what our customers are ordering, it's a 1-to-1 proposition. We get on how our site is working so we're constantly making tweaks to it to make the experience for our customers easier." Certainly Dell's competitors see the advantage of the company's direct model, and to a varying degree use similar tactics. But, says Gartner analyst Mark Margevicius, "The other vendors have legacy ties to supply chains -- supply chains with distributors and resellers. Those elements provide value and revenue to the IBMs and HPs of the world. So they can't automatically switch on a dime. But those non-direct channels are also less efficient. So Dell had the ability to cut margin without cutting profit." Profit Source: B2B While Dell's consumer sales are highly visible, thanks in part to a high profile TV campaign, its business sales are a much bigger revenue source. "About 15 percent of our total revenue is consumer business and the rest is B2B," Dell's Kaufman says. "Our major focus in the IT

marketplace is selling servers, storage products, network switches and services to corporate customers. A lot of the e-commerce engine revolves around that." Or, as Aberdeen's Allen notes, "B2C keeps them in newspapers a lot, B2B keeps them in the black." To facilitate B2B sales, the Dell site offers each corporate customer an individualized interface. Using what Dell calls a Premier page, purchasing managers log on and order using an interface customized for their company's needs. "They place the order, it gets routed up to whoever in their company needs to approve it, then [the order] is sent directly to us," McNair says. The efficiency of the B2B system works in synergy with the consumer sales, Kaufman says. ", corporate customers are also consumers, so if they have a good experience, they'll come over and buy a system for their home, or vice versa." The Back End Now that many e-tailers have built a customer-friendly front end, their back end supply chain is a greater focus, says Aberdeen's Allen. "That's a lot of what you saw this past Christmas: progress on making sure [e-tailers] weren't just capturing the order but were fulfilling the order. That's where Dell is continuing to succeed." Or, as Gartner's Mark Margevicius says, "You can give me the best e-commerce experience but unless they've got the supply chain nailed, there's no way Dell is as successful as they are today." Dell's Kaufman says the PC maker uses the Internet to provide a "constant and seamless flow of information among all different aspects of the company to drive the process." The company's back end is calibrated to respond so closely to orders from the front end that inventory is kept to a razor-thin, four-day supply. "We build systems only after a customer has ordered them," Dell's McNair says, noting that this applies to desktop systems as well as complex server orders. Dell has no central warehouse facility but instead ships to customers directly from its manufacturing plants. Based on customer location, a shipment may originate from a Dell plant in Ireland, China, Brazil, Malaysia, Texas or Tennessee. Online sale This sales channel helps reduce retailing and distributing related costs which then result in lower prices and higher quality for customers. This sales model is also suitable with its main targeted customers - large-volume buyers – who expect good price and quality, convenience, fast service and tailored ordering.

Dell customers are segmented into different groups (small and medium business, large enterprise and public sector – these segments are then subdivided) with different mix of products and services. The segmentation of customers is, according to Michael Dell, crucial for the company to have a deeper understanding of its customers and thus, better serve their needs and expectations. Online service Service and technical in a PC company requires high cost and a lot of employees. However, in a competitive market, where products are, in many cases, standardized or undifferentiated, service and quality is fundamental for companies to make a difference. Customers’ history and profile are of great importance for Dell to understand its customers’ needs and to provide better and more effective service and . Therefore, Dell provides customers with personal sites where information about the products and their history conditions are kept and processed. This strategy is regarded by Dell as “virtual integration” of which both customers and technicians have access to the same information and tools. Dell provides online for its customers at www..dell.com. Dell is customized to better serve different segments of customers (home s, small businesses and enterprise IT). Customers are offered with various tools in of the products, order, warranty, resolution assistant, file library (drivers, software and other updates), details (including online chatting with technicians) and customer forum to exchange information and express demands (Dell website, 2010). Unlike individual customers, large customers including big corporate or public sector buyers often have their own Management Information System (MIS) departments, help desks and IT technicians to s. Dell provides these relationship customers with the Dell Premier . As these MIS bodies and help desks have to deal with multiple systems and various networking problems, they are offered with not only all online tools similar with those for home s and small businesses, but they are also provided with customized applications suitable for their multiple systems and platforms. Dell’s IS also enables Michael Dell’s vision to become not only a seller but also a partner, an IT department for its corporate customers and as a result, deliver better service, strengthen its tight relationships with customers, which in turn make customers more depend on Dell and find it difficult and money consuming to switch to other vendors. In addition to online service, Dell also encourages its customers to choose other venues for s that are most suitable and comfortable for them such as phone service or various service centres. Bargaining power of suppliers: Identify suppliers: Dell works with various suppliers for components and software such as hard drivers from Quantum, Seagate and Maxtor; microprocessors from Intel and AMD; software from

Microsoft; monitor from Acer, Samsung, Philips or DRAM from Samsung and Toshiba. Dell also has service suppliers such as Banc Tec for home s and small businesses and IBM, Unisys and Wang for corporate customers. The power of Dell’s suppliers represents in several aspects: First, Dell faces the power of some suppliers’ monopoly such as Microsoft in area of software and operating systems. Another thing is that, as a company who does not directly produce all components, it has to rely on its suppliers that, according to Porter (2008) could lead to the inducement of these suppliers into the market. For example, in early 1990s, Sony was only Dell’s monitor supplier but Sony later entered the PCs market and grew as a big competitor. Also, company will face switching cost if they change suppliers. Use E-Commerce to Improve Supply Chain When internet technology arrived, Dell was quick to set up the ecommerce processes that would enable it to also sell directly online to customers. Selling online allows the whole process to be automated and more efficient. Since 1996 when Dell opened its website www.dell.com for ecommerce, the company has had huge sales success. By 1997 the company recorded $1 million in online sales. By 2000 the company’s internet sales had reached $50 million a day! If we go back to our example above, the customer, Liam, would go to Dell’s Irish website www.dell.ie to buy his notebook computer. The full product range is online with detailed information to help him make his decision. He simply follows the easy, automatic instructions that come up on screen. These allow him to customise the computer he wants with the features he needs. He can increase, say, his hard disk space and see the difference that increase makes to the overall price. Then he is given a variety of options on how to pay, either directly online or, via a customer service operator. There is even an automated leasing option available through a financing arrangement that Dell has here with Permanent TSB. Liam’s order is then ed automatically through to the production department at Dell's factory in Limerick where it will be manufactured to his specification, tested and shipped out to him. All of the systems relating to the sale are done through ecommerce: order placement, order tracking, payment processing, inspection, testing and delivery. Similarly, internally at Dell, the whole purchase and procurement of materials is automated between Dell and its suppliers. At www.valuechain.dell.com , Dell shares information with its suppliers on a range of topics, including product quality and inventory. The crucial benefit is the total automation of the whole process, which not only makes it faster and more efficient, but also much more cost effective, especially given the volume of business involved. Dell’s global website receives more than 1 billion page requests per quarter at 80 country sites in 28 languages and 26 currencies. Dell’s approach to e-commerce simulates the benefits of face-to-face between the buyer and the seller. This ensures that staff can be focused on delivering a quality product and providing excellent customer service and . Focus Improves Customer Service Dell has created many features and services online to help the customer see the whole purchasing process clearly. The premise of Dell’s business is selling directly to customers –

customers tell Dell exactly what they want and Dell provides them with the goods directly. As well as being able to customise the product, customers can track the progress of the order as it is produced and delivered. This can help the customer see the stages of the process and likely delivery times. Customers can create and view their service records online. This includes product , shipment and delivery dates. Each purchase comes with a service tag code, which can track the model bought and its service requirements. This allows Dell customer service representatives to quickly and efficiently handle requests. This level of 24 hour customer service and fast response time helps Dell build strong customer relations, which of course is crucial for the company in its understanding of customer needs. It is also a very costeffective way of providing sales and – cost savings which can be ed on in the form of better prices to customers. Success depends greatly on the efficient management of the website. The customer must have a convenient experience when shopping online and have faith that Dell will successfully complete the order and safeguard financial details. Customers need to be comfortable using paperless transactions without face-to-face . It is crucial that customers consider purchasing online as an alternative to the traditional method of going into a retailer and buying a product off-the-shelf. Dell is focussed on enhancing its image and relationships, not only with customers, but also with employees and the wider community. To do this, the website is also used as a communication tool for news, press releases and general information to help customers, employees, the media and prospective employees find out more about the company.

Conclusion Dell’s phenomenal success has been largely due to its strategic use of IS to design their distribution and retail network to complement its unique business and organizational strategies. However, it is now facing a lot of challenges from its competitors who are also very successful in applying IT to design distribution and retail network, such as HP, Acer and Apple. Dell’s direct sales and build-to-order model is no longer Dell’s uniqueness as the development of the internet enables other companies to adopt this successful model. Therefore, it is of Dell’s core interest to find strategic initiatives in addition to its traditional strategies.