Dell Case Study

MANAGEMENT INFORMATION SYSTEM

DELL COMPUTERS CASE STUDY Dell is one of the biggest companies in the PCs industry. It’s 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.

SUBMITTED BY… MAHESH CHANDER APG12010012009 BBA (Sem-v)

Case study of dell computers The purpose of this report was to examine an organisation that has different types of electronic commerce interfaces. I chose DELL Inc. Which was founded by Michael Dell in 1984. 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 admired 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 (Americas, Europe, Asia and Japan), 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 support sites where information about the products and their history conditions are kept and processed. Dell works with various suppliers for components and software’s. The effective use of information systems to collaborate with suppliers gives Dell several important advantages.

Introduction 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 admired 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.

Literature review I will use Michael Porter’s competitive forces model and other studies to analyse the strategic use of information systems 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 ecommerce; (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

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.

Business strategy: 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’. 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.

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).

Information systems strategy: Dell uses information systems strategically and accordingly with its business and organizational strategy to gain competitive advantages and achieve its business goals. Build-to-order approach requires tight cooperation with suppliers through adequately exchanging of data and trusting each other. The use of Internet and information technology is of great significance for this process. When Dell receives an order, its data processing systems will identify specific components and automatically deliver the request to appropriate suppliers. This process is done by 1. Supply Chain Management (SCM) 2. System of Dell Enterprise Resource Planning (ERP) system, 3. Which is integrated with suppliers ERP through electronic data interchange (EDI). This system will collect orders every 20 seconds, analyse needed components, check inventory and then automatically set up components requirements to suppliers. Suppliers systems will update every 2 hours by directly connecting to ERP procurement application. The most important tool which increases the speed and quality of information sharing with suppliers is Dell website www.valuechain.Dell.com. This website keeps Dell’s suppliers updated about products’ supply and demand, inventory data and component quality. The effective use of information systems to collaborate with suppliers gives Dell several important advantages: Dell’s information systems enable their strategy of exchanging inventory for information, which means Dell keeps information about customer orders and demands instead of storing inventory. Information about current trends, forecasted demands and news products initiatives shared with suppliers helps minimize inventory level and cost for both Dell and its suppliers. This consequently creates Dell’s advantages over indirect competitors who depend on their resellers and therefore, lack of understanding about customers’ purchasing trends and needs Regarding components suppliers, Dell helps these partners in making decisions about inventory ordering by sharing its forecasted information through its extranet system monthly. These forecasts are the result from interdependent coordination of different functions: marketing department forecasts future demands; centre of competence checks for components’ availability;

commodity departments identify specific required parts to place orders to suppliers. For service suppliers, Dell uses its extranet, EDI and other electronic communication to dispatch service technicians. The company aims at the integration of its own service and support, its service suppliers and its customers.

MANAGEMENT INFORMATION TOOLS OF DELL: The information processing tools used by dell are: 

Computers

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Internet

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Maps

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Spreadsheets

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Models

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Databases

The tools used at different levels of management of Dell are: OPERATIONAL LEVEL:

The tool used by Dell for information processing at operational level is maps. Maps can determine which country or place would the information be acquired from. It can also analyse the demographics of the relevant area, analyse sales & gather information. Maps can be in the form of charts for critical analysis. Thus the information gathered by the use of maps can help in strategy for operational level.

Since Dell sell its products directly to customers generally via internet thus different forms of payment on internet can be considered as the platforms of Dell transaction processing system (automated transaction support)

TACTICAL LEVEL:

The tool used by Dell for information processing at the tactical level is the databases. The databases can be used to analyse the information from operational level & thus evaluate the strengths & weaknesses of the organization. This helps in planning for economical productivity & improving sales.

STRATEGIC LEVEL:

At the strategic level the tool used by Dell is the internet & the databases. The market trends & strategies of other companies can be known via the internet whereas databases help in analysis of both the internal environment & the external environment. Thus helping the organization to formulate its strategy.

INVENTORY CONTROL SYSTEM: The inventory control system of Dell is a big reason for its success. Dell's strategy is to keep the inventory levels as low as possible, due to the high pace of technological advancements resulting in computer related hardware & software becoming obsolete at a rapid pace. Hence Dell takes orders from customers knowing exactly what the customer wants & then using its supply chain to get the components & assemble them &

thus doesn't need to keep much inventory as the products are made to order rather than ready made. Thus it avoids having inventory that goes obsolete or outdated.

DELL DIRECT MODEL Dell pioneered a new business model that focused on speed of execution and minimum inventory. To this end, the company bypassed the dealer channel, selling products directly to customers over the phone. This eliminated the reseller’s mark-up and the costs and risks of carrying large finished goods inventories. The Dell direct model was characterized by high-velocity, low-cost distribution, direct customer relationships, build-to-order, Just in Time manufacturing, and products and services aimed at specific market segments. The direct model had several key advantages. By eliminating the intermediaries, Dell could dramatically reduce its channel costs.

INFERENCE & SUGGESTIONS: Dell benefits a lot by the use of management information systems. It analyses the sales, the consumer buying trends, the internal environment, the operational environment & the external environment using the information processed by the information systems. Thus Dell makes intelligent well informed decisions based on its information systems technology. Dell can further explore the opportunities in the M-commerce & E-commerce zones since it has to have direct contact with customers. Since it delivers goods

to customers directly the model-driven decision support system (DSS) of Dell should be of highest quality.

Conclusion Dell’s phenomenal success has been largely due to its strategic use of IS 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 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.